By
Fibre2Fashion
Published
Aug 22, 2023
Backed by a revival in rural demand, the hosiery industry in India is expected to see 18-20% revenue growth this fiscal, reaching a figure of Rs36,000 crore, according to a report by CRISIL Ratings.
The sector’s overall volume declined by 30% year on year in the last fiscal as rural demand, accounting for almost half the domestic revenue, was hit amid rising inflation and lower farmer income, the report 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% in volume. Potential export opportunities, especially to Gulf countries, could bump up volume further,” Indian media reports said quoting CRISIL Ratings director Rahul Guha.
India’s Comprehensive Economic Partnership Agreement with the United Arab Emirates could also boost textile exports in the sector, especially of hosiery.
Tailwinds from the agreement could add 2-3% to hosiery exports from the historical level of 10%, the report noted.
With the price of cotton yarn, the key raw material, nearly doubling in the last two fiscals, hosiery makers had to absorb a sizable share of that price rise amid muted demand and spend more on marketing and advertising to push sales, it said.
The operating margin shrank by 250 bps in the last fiscal as a result, it said.
Despite yarn prices crashing since the second half of the last fiscal, its benefit has not been fully passed on to consumers, the report noted.
Amid strong demand pull, Indian hosiery manufacturers will reduce spending on advertising and marketing.
A rise in operating leverage from higher capacity utilisation will aid profitability as well, hence, operating margin will improve to the pre-pandemic level of 12-14%, it said.
“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,” Sharma added.
