Driven by the gradual liquidation of retail inventories in key markets and a shift in global sourcing to India, revenues of Indian apparel exporters are expected to grow in the range of09 -11 per cent in FY25, as per a report by ratings agency ICRA.
This follows a subdued performance in FY24, when exports were hindered by high retail inventories, weak demand in major markets, supply chain disruptions, including the Red Sea crisis, and heightened competition from neighboring countries.
The long-term outlook for Indian apparel exports remains positive, supported by growing product acceptance in international markets, evolving consumer preferences, and government initiatives like the production-linked incentive (PLI) scheme and export incentives. The proposed free trade agreements with the UK and the EU are also expected to provide a significant boost, ICRA noted.
As demand recovers, ICRA expects capital expenditure (capex) in the apparel sector to increase in FY25 and FY26, with spending projected to stay between 05-08 per cent of turnover. Srikumar Krishnamurthy, Senior Vice President and Co-Group Head-Corporate Ratings, ICRA, explains, after a 2 per cent decline in FY24, Indian apparel exporters are likely to experience a 9-11 per cent revenue expansion in FY25. This growth will be fueled by replenishing retail inventories in key markets such as the US and the EU, along with a de-risking strategy adopted by many customers.
However, challenges remain, including demand uncertainty in several key markets amid a subdued global economic environment and ongoing geopolitical issues. Despite the anticipated revenue growth, operating margins are expected to contract by 30-50 basis points in FY25 due to rising labor, freight, and other operating costs.
Geopolitical tensions in Bangladesh may also lead to capacity expansions outside the country, potentially benefiting India. However, Bangladesh continues to hold a competitive edge due to its low labor costs and preferential duty access to the US and EU, which will remain for two more years under its least-developed country status.
ICRA highlights, India’s PLI scheme and the PM Mega Integrated Textile Region and Apparel scheme will strengthen the country's global presence by providing scale benefits and enhancing its position in the man-made fiber value chain. These initiatives are expected to help Indian apparel exporters capture a larger share of the global apparel trade.
