Indian hosiery sector stitches up revenue growth of Rs. 36,000 crore (US$ 4.32 billion), 18-20% higher on-year
- IBEF
- August 22, 2023
Due to a rebound in rural demand, the Indian hosiery industry is expected to generate sales of Rs. 36,000 crore (US$ 4.32 billion) this fiscal year, an increase of 18-20% year-over-year.
When input prices decline and capacity utilisation increases, the operating margin is expected to increase by 300-400 basis points (bps), according to a CRISIL Rating analysis of 28 hosiery manufacturers, which make up about a third of the industry's revenue.
Lower farmer income and rising inflation during the previous fiscal year had an impact on rural demand, which generates nearly half of all domestic revenue.
According to Mr. Rahul Guha, Director, CRISIL Ratings, “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.” He added that the potential export opportunities, especially to the Gulf countries could also help in increasing the volume further.
Notably, the government's signing of the Comprehensive Economic Partnership Agreement with the UAE may increase exports of textiles, particularly hosiery. Tailwinds from the agreement could add 2-3% to hosiery exports from the historical level of 10%.
Additionally, hosiery producers will reduce their expenditures on marketing and advertising due to the strong pull of demand. Profitability will also benefit from increased operating leverage brought on by better capacity utilisation. Operating margin will therefore return to the 12-14% range seen prior to the pandemic.
Last fiscal year, capacity utilisation dropped to 60%; this year, it will rise to over 90%.
In comparison to pre-pandemic levels, the ratios of total outside liabilities to tangible net value and interest coverage will improve to 1.0 and 6.5 times, respectively. Due to decreased revenue and profitability, this will lessen the pressure on the credit risk profiles observed in the previous fiscal year.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
Partners
