India’s apparel exports continue to remain volatile and unencouraging with the global apparel trade not showing any signs of uptick amid subdued demand trends in the key importing countries. The latest trends point towards a third consecutive year of decline in global apparel trade, says an ICRABSE -0.76 % report.
Says Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA, “Although we have witnessed brief phases of growth in the past 18 months, the trend has been unsustainable and has failed to instil confidence. In such a scenario, sustained growth in India’s apparel exports remains challenging. The challenges have been further augmented by the appreciation of Indian Rupee in recent months which has reduced competitiveness of Indian exporters vis-a-vis global counterparts.”
The apparel and fabric industry has been facing further headwinds as a result of temporary disruptions caused by demonetisation drive and transition to GST regime. The impact of these developments has been more pronounced for the highly fragmented fabric segment, with Indian fabric production declining by 1% in Q1 FY2018 following a flat production in FY2016 and 2% de-growth in FY2017.
Despite the significantly higher raw material prices, the revenues of fabric manufacturers in ICRA’s sample grew by a modest 4% in Q1 FY2018 pointing towards a steeper de-growth in sales volumes vis-a-vis production volumes.
Besides the demand pressures, high raw material prices and currency movements also continue to weigh on the industry’s performance, which has been visible in the profitability of apparel and fabric manufacturers over the past three quarters.
In this context, ICRA notes that although the profitability of export-oriented players has been protected to an extent by prudent hedging practices, sustained strength of Indian Rupee against US dollar may exert pressure on their pricing ability and hence demand and profitability. Notwithstanding the likely pressures on profitability, debt levels however are expected to decline with the industry focusing on sweating the existing assets more and undertaking limited debt funded capacity additions. As a result, ICRA expects the financial risk profiles of Indian exporters as well as domestic-focused apparel/ fabric manufacturers to remain steady in the near term.
Source: economictimes.indiatimes.com