ICRA projects that Indian apparel exporters will experience a revenue growth of 9-11% in FY2025, driven by the gradual liquidation of retail inventory in key markets and a shift in global sourcing to India as part of customers’ derisking strategies. This growth comes after a challenging FY2024, during which exports were hindered by high retail inventory levels, sluggish demand, supply chain disruptions, and increased competition from neighbouring countries.
The long-term outlook for Indian apparel exports remains positive, bolstered by improved product acceptance in international markets, shifting consumer trends, and government support through initiatives like the Production-Linked Incentive (PLI) scheme and proposed free trade agreements with the UK and EU. ICRA anticipates that capital expenditure (capex) will rise, estimating it will account for 5-8% of turnover in FY2025 and FY2026.
In CY2023, the US and EU regions comprised over two-thirds of India’s apparel exports, valued at $9.3 billion, and continue to be preferred markets. Despite geopolitical tensions and a macroeconomic slowdown affecting certain regions, there has been a gradual recovery in Indian apparel exports, with H1 FY2025 witnessing a 9% year-on-year increase, reaching $7.5 billion. This uptick is attributed to inventory liquidation, increased global sourcing to India, and higher order bookings for the upcoming spring/summer season.
Srikumar Krishnamurthy, Senior Vice President & Co-Group Head of corporate Ratings at ICRA, stated, “After a marginal decline (down 2%) in FY2024, Indian apparel exporters are estimated to report a 9-11% revenue growth in FY2025, benefitting from the de-risking strategy adopted by various customers and replenishment of retail inventory in key end markets, especially the US and the EU regions.” However, he noted that demand uncertainty remains a challenge due to the subdued macroeconomic environment and geopolitical issues.
Operating margins are expected to contract by 30-50 basis points in FY2025 as rising labour, freight, and other operating costs offset the benefits of revenue growth and softer raw material prices. ICRA’s analysis indicates that interest coverage ratios for its sample set of companies may decrease to 5.0-5.5 times in FY2025 and FY2026, down from 5.8 times in FY2023, reflecting the anticipated impact of inorganic expansions and significant debt-funded capex. The Total Debt/OPBDITA ratio is projected to be in the range of 2.0-2.4 times during FY2025 and FY2026.
Furthermore, geopolitical tensions in Bangladesh may drive capacity additions outside the country, including India. Nevertheless, Bangladesh’s competitive labour costs and preferential duty access, due to its least developed country status for the next two years concerning exports to the US and EU, are expected to maintain its competitive edge.
Krishnamurthy added, “Apart from the benefits to be derived from the fresh capacity additions under the PLI scheme, the PM Mega Integrated Textile Region and Apparel scheme is expected to strengthen India’s presence in the global apparel trade by providing scale benefits and enhancing the country’s position in the man-made fibre value chain.” ICRA anticipates that the successful implementation of these schemes will enable Indian apparel exporters to capture a larger share of the global market.
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
