Indian apparel exporters’ revenue may grow 9-11% in FY25, says Icra

New Delhi: Indian apparel exporters will witness a revenue growth of 9-11% in FY25, driven by a gradual liquidation of retail inventory in key markets and a shift towards sourcing from India as part of global derisking strategies, as per a report by Icra on Monday.

This positive outlook comes after a challenging FY24, during which exports faced significant hurdles due to high retail inventory levels, sluggish demand, supply chain disruptions—partially caused by the Red Sea crisis—and intensified competition from neighbouring countries.

The projections are based on Icra’s analysis of a sample set of 15 apparel exporting companies, which collectively represent about 15% of total Indian apparel exports.

Despite the tepid performance last fiscal year, the long-term prospects for Indian apparel exports remain favourable, the credit rating agency said in a report.

Enhanced product acceptance in global markets, evolving consumer trends, and government support through initiatives like the production-linked incentive (PLI) scheme and export incentives are expected to contribute to this growth trajectory, the report added.

Furthermore, the proposed free trade agreements (FTAs) with the UK and the EU are anticipated to bolster the sector.

In CY2023, the US and EU accounted for over two-thirds of India’s apparel exports, valued at $9.3 billion.

In the first half of FY25, apparel exports increased by about 9% year-on-year, amounting to $7.5 billion. This recovery is attributed to the gradual liquidation of inventory and a higher number of orders booked for the upcoming spring/summer season.

“After a marginal decline of 2% in FY2024, Indian apparel exporters are expected to report a revenue growth of 9-11% in FY2025,” said Srikumar Krishnamurthy, senior vice president at Icra.

“This growth will be supported by derisking strategies adopted by various customers and the replenishment of retail inventory in key markets, particularly in the US and the EU,” he said.

However, he cautioned that challenges around demand uncertainty persist due to a subdued macroeconomic environment and geopolitical issues. 

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Icra also forecasts a slight contraction in operating margins of 30-50 basis points in FY25, as rising labour and freight costs, alongside other operational expenses, exert pressure on profitability.

Despite these headwinds, the revival in demand is expected to drive capital expenditure spending, which is projected to range between 5% and 8% of turnover in FY25 and FY26.

While geopolitical tensions in Bangladesh could spur capacity additions outside the country, India can benefit from its competitive labour costs and preferential duty access, given the neighbouring country’s least developed country status for another two years on exports to the US and EU.

Icra’s analysis indicates a potential moderation in interest coverage ratios, which may decline to 5.0-5.5 times in FY25 and FY26 from 5.8 times in FY23 due to anticipated inorganic expansions and substantial debt-funded capital expenditures.

Moreover, the total debt/OPBDITA (operating profit before depreciation, interest, tax, and amortisation) ratio is expected to be in the range of 2.0-2.4 times during the same period. 

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Going forward, the PLI scheme and the PM Mega Integrated Textile Region and Apparel (PM-MITRA) scheme are expected to enhance India’s presence in the global apparel market, it stated.

“These initiatives will not only provide scale benefits but also strengthen India’s position in the man-made fibre value chain,” Srikumar added.

With these strategic advantages, Indian apparel exporters are poised to increase their share in the global market, paving the way for sustained growth in the coming years.