Trade

Apparel exports to grow by 8-9% in FY2025 ?

Apparel exports to register 40% expansion this fiscal: AEPC

After experiencing subdued demand in FY2024, it is anticipated that there will be a modest recovery of 8-9% in the revenues of sample companies, reaching approximately Rs. 28,150 crore in FY2025, up from Rs. 26,000 crore in FY2024.

This growth is expected to be supported by a replenishment of stock in key markets such as the US and the EU, capitalizing on the low base effect.

The retail apparel brands in these regions, which collectively represent about 55% of global apparel trade, are anticipated to clear their excess inventory and place orders for the Summer 2024 season during the first half of FY2025. Consequently, ICRA maintains a stable outlook for the apparel industry.

Despite the rationalization of raw material costs observed in FY2024, any resulting benefits are likely to be passed on to consumers due to the prevailing weak operating environment.

However, the long-term outlook for the industry remains promising, bolstered by various government initiatives in India, including Production Linked Incentive (PLI) schemes, Prime Minister Mitra parks, proposed Free Trade Agreements (FTAs) with the UK and the EU, and the enduring advantage of diversifying apparel sourcing away from China.

Regarding the PLI 1.0 scheme, out of the 64 applicants approved in April 2022, 56 have met the necessary criteria for establishing new companies, with approval letters already issued.

Currently, twelve more applications are undergoing evaluation for investor selection under the scheme. As of September 2023, approximately Rs. 2,119 crore has been invested by 30 selected applicants.

Despite a 22% decline in US apparel imports in CY2023, retail clothing store sales remained resilient, posting a 4% year-on-year growth, as retailers worked to reduce excess inventory levels.

However, the operating margins of apparel exporters are expected to moderate to 9.8-10% in FY2024, down from 11.3% in FY2023, primarily due to weaker operating performance in the first nine months of FY2024 and a decrease in volumes leading to reduced operational efficiencies.

Although Indian cotton yarn prices averaged approximately 23% lower in 9M FY2024 compared to FY2023, and 1% lower than the past five-year average, the weak demand environment has led to these price reductions being passed on to customers.

Nonetheless, the stability of export incentives, coupled with the advantages of operating at a larger scale, are expected to help companies mitigate the impact on profitability in FY2025.

 

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