RMG sector projects growth of 4-6% in FY ’25

The Indian readymade garments (RMG) industry is expected to see its revenue growth moderate to 4-6% in fiscal 2024-25, down from 6% in the previous year, as per a CRISIL Ratings report. While domestic demand is expected to cool, export growth—projected at 5-7% this fiscal—may counterbalance the slowdown.

The Indian readymade garments (RMG) industry is set to experience a revenue growth slowdown to 4-6% in fiscal 2024-25, compared to 6% in the previous fiscal, according to a CRISIL Ratings report. This moderation is attributed to sluggish domestic demand, driven by changing consumer spending patterns and inventory overstocking by retailers in the last fiscal year.

In fiscal 2023, the sector achieved a robust 18% growth, fueled by a 10% rise in domestic sales. However, a 7% dip in export revenues tempered overall performance. While domestic demand is expected to cool, export growth—projected at 5-7% this fiscal—may counterbalance the slowdown. Exporters are benefiting as retailers in the U.S. and the EU restock inventories after subdued purchases, with exports currently contributing approximately 25% of the industry’s total revenue.

Pranav Shandil, Associate Director at CRISIL Ratings, highlighted the industry’s financial stability: “Moderate revenue growth and stable margins will help sustain operating performance of RMG manufacturers.” Margins are expected to remain steady at 11.0-11.5%, supported by consistent raw material prices. The interest coverage ratio is anticipated to improve from 5.2x last fiscal to 5.6x this year, while the total outside liabilities-to-tangible net worth ratio is projected to remain healthy at 0.7x.

The RMG industry’s labour-intensive nature and minimal capital expenditure requirements bolster its stability. Strong balance sheets and steady working capital cycles should mitigate the need for additional debt, ensuring a robust credit profile. An analysis of 140 CRISIL-rated RMG makers, collectively generating ₹43,000 crore in revenue, supports these findings.

Meanwhile, political instability in Bangladesh may offer short-term opportunities for Indian exporters, but challenges persist. Bangladesh’s duty-free access to the European Union contrasts with India’s 9.6% import duty, limiting significant gains.

Domestically, RMG revenue is expected to grow modestly at 4-6%, with the festive season and wedding demand providing a potential boost in the latter half of the fiscal. Consumer spending trends, particularly on travel and electronics, continue to influence the market.

Despite these challenges, the RMG industry’s resilience is evident. Stable margins, low raw material costs, and prudent financial management underscore its ability to navigate complexities. While growth may moderate, the sector is poised to maintain its creditworthiness and adapt to evolving market dynamics.