Hosiery manufacturers in India are likely to witness 10-12 per cent on-year revenue growth this financial year following a revival in rural demand and volume support from the export market, a report said. The industry’s operating margin is expected to improve 150-200 basis points (bps) this fiscal, owing to softer input prices and improved capacity utilisation, aided by higher volume growth, Crisil Ratings said in a statement.
“The revenue growth of 10-12 per cent will ride on higher contribution of rural sales, which account for almost half the domestic revenue. Increase in agricultural yield following an above-normal monsoon, hike in the minimum support price and higher government spending on rural infrastructure will support rural spending. “Increase in exports to the Middle East and North Africa along with expected growth in urban demand led by growing modern trade will also improve volume growth,” Crisil Ratings Director Argha Chanda said.
The report further said the hosiery industry typically sees a spike in volume by year-end as channel partners start stocking to meet high demand during the summer season. Meanwhile, the stability in yarn prices this fiscal and 1-2 per cent dip in selling prices have led to a resurgence in demand from channel partners. Moreover, operating leverage will increase amid higher capacity utilisation, it added. It said, the operating margin of hosiery manufacturers should widen 150-200 bps to 11.5-12 per cent this fiscal, driving up cash accruals.
Higher cash accruals and reduced inventory holding periods are expected to lower the working capital requirement and strengthen the liquidity of hosiery players. Also, capacity utilisation continues to be moderate and no major expansion is expected, which should limit long-term borrowings and finance costs, the Crisil Ratings report said.
“Inventory holding is expected to fall to a historical low of 90-100 days this fiscal from 150 days in fiscal 2024. Accordingly, moderation in working capital requirement and no major debt-funded capital expenditure should keep debt levels in check. The ratio of total outside liabilities to tangible net worth is forecast to remain below 1 time, consistent with last fiscal.
“The improved operating performance of hosiery makers will improve interest coverage to 6.5 times this fiscal from 4.5 times last fiscal,” Crisil Ratings Team Leader Vishnu Sinha said.
However, the impact of inflation and sustenance of farm incomes are key aspects of the rural economy that will bear watching, the report said, adding that export growth and dynamics within the modern trade segment will also need to be monitored as they play a crucial part in achieving higher-than-expected volume and margin growth.
