Although the demand environment was muted in H1 FY2024, end demand is anticipated to pick up in H2 FY2024, increasing revenues. It is anticipated that the US and EU retail garment brands, which together account for over 55% of the global apparel trade, will liquidate the significant inventory build-up of FY2023 and place their orders for the Spring/Summer 2024 season in H2 FY2024.

A research note on the Indian garment export business was just released by ICRA. The rating agency anticipates that its sample companies would post FY2024 revenue growth of only 2% to 3% YoY, or Rs. 27,255 crore. ICRA continues to have a stable view for the clothing market.

ICRA anticipates that the sample set will report revenue increase of between 2 and 3 percent for FY2024, driven by an anticipated improvement in demand conditions in the overseas markets during H2 FY2024. Considering a somewhat tougher operating environment in H1 FY2024, higher raw material prices, and increased staff expenses, the operating margins may slightly reduce to 9.0-9.5 percent in FY2024 (10.9 percent in FY2023). In FY2023, Indian cotton yarn prices were on average 19% higher than they had been over the previous five years. While still high, the average price of cotton yarn fell by almost 24% between April and July 2023 compared to the same period in FY2023. However, the stability of export incentives and the advantages of greater scale should assist the businesses mitigate the effect on profitability.

Large capex expenditures had been delayed for the majority of players due to the challenging operating climate, with the exception of one player’s brownfield expansion. ICRA anticipates a rise in capex spending in FY2025, based on the expectation of a demand recovery from H2 FY2024 and industry players’ efforts to benefit from the China Plus One movement and the PLI incentives (particularly in the man-made fibre or MMF value chain).

Despite the anticipated rise in debt, the sample set’s coverage ratios are anticipated to hold steady as earnings climb. In FY2024 and FY2025, respectively, ICRA’s sample set of apparel-exporting enterprises is predicted to report an interesting cover of 5.7–6 times and total debt/OPBDITA of 1.8–1.85 times (compared to 5.6 times and 1.9 times, respectively, in FY2023).