Domestic demand, softer cotton prices to sustain RMG growth Steady operating performance to keep credit outlook of readymade garment makers stable 

Domestic demand, softer cotton prices to sustain RMG growth Steady operating performance to keep credit outlook of readymade garment makers stable

Revenue of readymade garment (RMG) manufacturers is set to grow 8-10% this fiscal (chart 1 in annexure) on  healthy domestic demand, revival in exports driven by lower cotton prices, and easing supply-chain disruptions.  

Volume growth will be higher at 6-8% this fiscal, compared with 3-5% last fiscal. Despite this, revenue will grow slower  than last fiscal’s ~14% as realisations moderate due to easing raw material prices. 

Prices of cotton and manmade fibre are expected to fall 15-17% and 8-10% on-year this fiscal, respectively.  Consequently, growth in realisations will be a meagre 1-3% this fiscal, compared with 10% last fiscal.  

The credit outlook for RMG manufacturers remains stable, driven by steady operating performance and healthier  balance sheets amid low capital expenditure (capex) intensity and stable working capital requirement. 

An analysis of 146 CRISIL-rated RMG makers, with aggregate revenue of ~Rs 42,000 crore, indicates as much. 

Says Gautam Shahi, Director, CRISIL Ratings, “RMG makers will rely on domestic consumption (~75% of  overall RMG demand), which is expected to grow 6-8% in volume terms this fiscal. Lower inflation levels and  stable economic growth are key to healthy discretionary spending by consumers domestically. On the other  hand, volume of exports (~25% of RMG demand) will grow 4-6% this fiscal on-year on a low base, led by re stocking by global retailers, softer prices of cotton (the key raw material for RMG) and a slow but gradual  pick-up in consumption in overseas markets.” 

Volume of exports fell 7% on-year last fiscal (chart 2 in annexure) following a sharp rise in domestic cotton prices and  moderation in demand from the United States and the European Union, which account for ~60% of it. 

This fiscal, higher domestic and export volume and lower cotton prices will help expand operating margin1 by 50 basis  points (bps) on-year to 9.5%.  

In contrast, operating margin had shrunk 150 bps last fiscal due to elevated cotton prices, delayed price hikes in the  domestic market, and lower offtake by global retailers amid inventory pile-up. 

Says Sehul Bhatt, Associate Director, CRISIL MI&A Research, “Driven by improvement in both revenue and  profitability, net cash accrual of RMG makers will grow by 20-22% (on-year) this fiscal. Moreover, capital  expenditure (capex) and working capital requirements are expected to remain moderate, in line with the past  few fiscals, thus supporting the balance sheets and overall credit profile of the sector.”  

Gearing2, which has improved over the past three fiscals due to healthy cash accrual and low capex, is likely to  improve further to 0.45 time this fiscal from 0.56 time as on March 31, 2023. Interest coverage will exceed 4 times this  fiscal, compared with 3.5 times last fiscal.  

That said, any change in consumer discretionary spending domestically due to below normal monsoon or a slowdown  in exports due to any global headwinds will bear watching. 

1 Earnings before interest, taxes, depreciation and amortisation 

2 Total debt by networth


1. RMG makers’ to clock revenue growth of 8-10% this fiscal  






14.0%8-10% 10-12% 

30% 20% 10% 0% 

3,000  2,000  1,000  – 

5%6% -2%-24% 




FY18 FY19 FY20 FY21 FY22 FY23E FY24P FY25P Domestic RMG (Rs billion — LHS) Export RMG (Rs billion — LHS) Growth rate (%) (RHS) 

2. Volume growth to accelerate; uptick in realisations to decelerate 


10% 7% 6-8%5-7% 

4% 4% 1% 3%9% 11%3-5% 6% 5-7% 



4-6% 4-6% 

FY18 FY19 FY20 FY21 FY22 FY23E FY24P FY25P 







Domestic RMG prices (Estimates) (%) y-o-y Domestic demand volumes (%) y-o-y Exports demand volumes (%) y-o-y

Source: Industry, CRISIL MI&A Research 

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