Steady operating performance to keep credit outlook of readymade garment makers stable
Revenue of readymade garment (RMG) manufacturers is set to grow 8-10% this fiscal (chart 1 in annexure) on healthy domestic demand, revival in exports driven by lower cotton prices, and easing supply-chain disruptions.
Volume growth will be higher at 6-8% this fiscal, compared with 3-5% last fiscal. Despite this, revenue will grow slower than last fiscal's ~14% as realisations moderate due to easing raw material prices.
Prices of cotton and manmade fibre are expected to fall 15-17% and 8-10% on-year this fiscal, respectively. Consequently, growth in realisations will be a meagre 1-3% this fiscal, compared with 10% last fiscal.
The credit outlook for RMG manufacturers remains stable, driven by steady operating performance and healthier balance sheets amid low capital expenditure (capex) intensity and stable working capital requirement.
An analysis of 146 CRISIL-rated RMG makers, with aggregate revenue of ~Rs 42,000 crore, indicates as much.
Says Gautam Shahi, Director, CRISIL Ratings, "RMG makers will rely on domestic consumption (~75% of overall RMG demand), which is expected to grow 6-8% in volume terms this fiscal. Lower inflation levels and stable economic growth are key to healthy discretionary spending by consumers domestically. On the other hand, volume of exports (~25% of RMG demand) will grow 4-6% this fiscal on-year on a low base, led by re-stocking by global retailers, softer prices of cotton (the key raw material for RMG) and a slow but gradual pick-up in consumption in overseas markets."