Having remained subdued for the last couple of years, apparel exports from India are expected to make a recovery in the current fiscal year, even as the pace of recovery is likely to remain muted considering the challenging environment.
Stating this in its recent report, rating agency ICRA believes that declining trend witnessed in the last two years, is likely to reverse as the trend witnessed has bottomed out and from here the exports of apparel from the country will see improvement. According to ICRA, India’s apparel exports are estimated to have degrown by 4-5% in FY2019, following a similar degrowth of 4% in FY2018 and a modest growth rate of 1% in FY2016 and 3% in FY2017. In FY2018, exports stood at US$ 16.7 billion, down by around 4% against US$ 17.4 in FY2017.
Echoing a similar sentiment, Rahul Mehta, president, Clothing Manufacturers’ Association of India says: “The worst seems to be over for the country’s garment exports. For the last few months since October 2018, we are seeing a positive trend emerging and we are hopeful of ending the current fiscal on a positive note.”
Mehta has attributed this trend reversal to some of the key changes that are taking place in the global market. China has been consciously moving out of labour intensive businesses including garmenting for some time now. The void created by China was well exploited by countries like Bangladesh, Vietnam and other low cost economies. But these countries are now failing to sustain their momentum despite the kind of tariff advantage they enjoy. Bangladesh has off late seen rise in cost due to increase in labour cost. Besides, Vietnam which has seen an impressive growth, is also gradually reaching a plateau.
“Both Bangladesh and Vietnam that have grown in excess of 25% in the last few years in apparel exports, are now seeing some sort of slowdown. Apart from price differential, the buyers are now also looking at various other factors including compliance, diversity and stability. Considering all these factors, we see India gradually gaining some edge over them and hence we are optimistic,” adds Mehta.
CARE Rating in its recent report has also said that the exports of apparel from India would see a marginal growth in FY2020, even as it has estimated a 4-5% decline for FY2019 attributing it to headwinds in the form of intense competitive pressures from nations having a cost advantage over India, which, it believes, seems to be constraining the overall momentum of the apparel export sector in India.
However, Care Ratings expects that the domestic apparel market will continue its growth trajectory which experts believe is a redeeming factor for the overall growth of the industry. Having grown at a CAGR of 13.8% from Rs 1,92,400 crore in FY2010 to Rs 5,40,800 crore in FY2018, the domestic market is likely to grow at a CAGR of around 12% in the coming years,driven by the growth in the economy leading to the rise in disposable income as also other favorable macro-economic factors. “Though we have seen some kind of slowdown in the domestic market in recent months as well but considering the robustness in the macro- economic indicators, these are temporary setbacks and we are going to see reversal soon,” believes Mehta.
Despite headwinds, ICRA Research notes that a sample of large, listed, domestic as well as export-focused garment-manufacturing companies has continued to perform well, reporting a 13% YoY growth in Q3 FY2019, following the similar average growth rate during the previous four quarters.
ICRA believes that presence in the niche and value-added product segments, together with access to an established client base has helped export-based companies to maintain revenue growth, in contrast to the broad industry trend.
This, together with a revival in domestic demand, particularly in metros and tier-I markets where the larger listed players are predominantly present, translated into a healthy growth for ICRA’s sample during FY2019.
Besides, favorable currency movement and healthy growth in revenues facilitated an improvement in margins in recent quarters, given the operating leverage inherent in the operations.