Mumbai, Aug 21: The Indian hosiery industry is likely to witness 18-20 per cent revenue growth to Rs 36,000 crore this financial year, supported by the revival in rural demand, a report said on Monday.
Rural demand, which accounts for almost half the domestic revenue, was impacted last fiscal amid rising inflation and lower farmer income and as a result, the overall volume declined by 30 per cent year-on-year, a report by Crisil Ratings said.
“This fiscal, urban demand is expected to remain stable, while a well distributed monsoon and probable inflation moderation should boost rural demand, leading to a recovery of 35-40 per cent in volume. Potential export opportunities, especially to Gulf countries, could bump up volume further,” Crisil Ratings Director Rahul Guha said.
The Comprehensive Economic Partnership Agreement (CEPA) signed by the government with the UAE could boost textile segment exports, especially of hosiery.
Tailwinds from the agreement could add 2-3 per cent to hosiery exports from the historical level of 10 per cent, the report noted.
On the input side, the report said, the price of cotton yarn, the key raw material, nearly doubled in the last two financial years and the hosiery makers had to absorb a sizable portion of the price rise amid muted demand as well as spend more on marketing and advertising to push sales.
As a result, operating margin shrank 250 bps last fiscal, it added.
While yarn prices have crashed since the second half of fiscal 2023, the entire benefit has not been passed on to consumers, the report said, adding this can be seen in the widening spread between realisation and cost.
Further, the Crisil Ratings report said, amid strong demand pull, hosiery manufacturers will curtail their spends on advertising and marketing expenses.
Increased operating leverage from higher capacity utilisations, too, will aid profitability, hence, operating margin will improve to the pre-pandemic level of 12-14 per cent it added.
“Capacity utilisation, which had fallen to 60 per cent last fiscal, will rebound to 90 per cent this fiscal,” Crisil Ratings Director Himank Sharma said.
Sharma further noted that “we don’t see companies taking up significant capacity expansion this fiscal, so addition of long-term debt will be minimal. Strong cash flows from higher revenue and profitability will be sufficient to meet incremental working capital requirements and keep overall debt in check.”
However, the report noted that erratic rainfall or inflation could dampen rural sentiment and remain key downside risks while higher exports may support the growth and margins further. (PTI)
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