The second wave of the Covid-19 pandemic has unstitched demand recovery in India's ready-made garments (RMG) sector, and CRISIL sees it growing at 15-20% now this fiscal, or almost half the 28-33% expected earlier.
According to the rating agency, domestic demand, which accounts for almost three quarters of overall demand, has been severely affected by fresh curbs imposed in states to contain the pandemic.
Consequently, demand recovery to pre-pandemic levels is expected to be pushed back by at least a fiscal. But higher revenues this fiscal, supported by buoyant export demand, higher profitability and improving working capital management will benefit credit profiles, an analysis of over 140 CRISIL-rated RMG makers with aggregate revenue of ~Rs 20,000 crore, shows.
Significantly, this revenue growth would come on a low base - after an expected tumble of 23-25% last fiscal. Says Hetal Gandhi, Director CRISIL Research, "The first quarter of this fiscal will be a near-washout, with most domestic brick-and-mortar stores shut, and sales through e-commerce channels curbed. The second wave has also hit hinterland, affecting sales of 'value' or affordable garments, which is the fastest-growing segment. Thankfully, with vaccinations accelerating and case-loads decelerating, a gradual recovery is likely from the second quarter. Consequently, we see domestic sales growing 14-18% this fiscal compared with a 24% contraction last fiscal."
Says Kiran Kavala, Associate Director, CRISIL Ratings, "The credit ratio (ratio of rating upgrades to downgrades), which was 0.16 last fiscal, should improve this fiscal as the credit outlook of RMG makers turns 'stable' from 'negative'. Key debt protection metrics are also seen improving due to better business performance and working capital management. For instance, interest coverage ratio1 is expected to improve to around 2 this fiscal from 1.5 times last fiscal."