With the second wave of the COVID-19 pandemic derailing demand recovery in India's ready-made garments industry, the sector is expected to grow by 15-20 per cent this financial year, according to a report.
"We see India's ready-made garments (RMG) sector growing at 15-20 per cent in this fiscal, almost half the 28-33 per cent expected earlier," Crisil Research said in a report.
Domestic demand, which accounts for almost three quarters of overall demand, has been severely affected by fresh curbs imposed in states to contain the pandemic, it stated.
Consequently, demand recovery to pre-pandemic levels is expected to be pushed back by at least a fiscal year, it noted.
But higher revenues this fiscal, supported by buoyant export demand, higher profitability and improving working capital management is likely to benefit credit profiles of the companies, it said.
The report noted that this revenue growth would come on a low base - after an expected tumble of 23-25 per cent last fiscal.
Further, the report said that the domestic demand, which accounts for 74 per cent of overall demand, had started recovering in the second half of last fiscal after lockdowns and other restrictions, which crimped first-half revenue.
However, since the fierce second wave landed in the first quarter of this fiscal, curbs have been re-imposed, slowing the demand recovery, it added.
"The first quarter of this fiscal will be a near-washout, with most domestic brick-and-mortar stores shut, and sales through e-commerce channels curbed. The second wave has also hit the hinterland, affecting sales of 'value' or affordable garments, which is the fastest-growing segment," Crisil Research Director Hetal Gandhi said.
Thankfully, with vaccinations accelerating and case-loads decelerating, a gradual recovery is likely from the second quarter, she said.
"Consequently, we see domestic sales growing 14-18 per cent this fiscal compared with a 24 per cent contraction last fiscal," she added.
On the other hand, export demand, which accounts for 26 per cent of the revenue pie, has remained healthy, and should log 18-22 per cent growth compared with a 16 per cent contraction last fiscal, because of improving discretionary spending in the US and Europe, which account for 60 per cent of India's RMG exports, said the report.
Therefore, revenue growth for the industry is seen at 15-20 per cent this fiscal, which will support operating leverage.
The working capital position of RMG makers is also expected to rebound close to pre-pandemic levels this fiscal, helped by prudent inventory management and normalisation of the debtor cycle, it added.
(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)