TN readymade garment exporters' profit may rise by 8-10% in FY25: CRISIL

Readymade garment exporters from Tamil Nadu are likely to see 8-10 per cent growth in revenue to Rs 43,000 crore in this financial year on healthy order flow amid rising demand conditions, a report said on Friday.

The industry has seen signs of recovery in Tamil Nadu after two years of subdued demand and muted realisations and is expected to fare better than the national level where revenue growth is expected to be 3-5 per cent this fiscal.

Operating profitability will improve 25-30 basis points (bps) on better operating leverage, marginal increase in realisations and stable yarn prices, Crisil Ratings said in a report.

"Tamil Nadu readymade garment industry, which accounts for over 30 per cent of readymade garment exports from India, will see volume grow 6-7 per cent in the current fiscal. Growth will be driven by the Tirupur region, the knitwear hub of India, supported by improving demand from the US and Europe.

"The government's plan to review the Production-Linked Incentive (PLI) scheme for textiles to expand its scope to the readymade garment sector will support exporters over the medium term," Crisil Ratings Director Jayashree Nandakumar said.

The government's impetus through various schemes and the recent political developments and ongoing gas crisis in Bangladesh would also benefit the industry in India, the report said.

It further added that the sector will witness a growth after a prolonged period of sluggish demand in key export markets, particularly the US and Europe, which account for bulk of the demand.

Moreover, extension of the export incentive scheme (providing rebate of state and central taxes and levies) for apparel, garments and made-ups till March 31, 2026, will ensure cost competitiveness and help companies secure orders, driving volume.

Crisil Ratings report said realisations are expected to rise by 1-3 per cent with rising demand as retailers in the US and Europe may restock inventory ahead of the festive season and in anticipation of spring-summer demand.

With surging demand, a marginal increase in cotton prices can easily be passed on to customers, curbing any downward movement in profitability, it added.

Better realisations coupled with higher efficiencies would push the operating margins up 25-30 b Fashion Day 2024 ps to 10.5 per cent this fiscal.

"With adequate capacities already in place, players are unlikely to add any significant capacities over the medium term. Players are expected to increase capacities by 5 per cent and also undertake maintenance capital expenditure with an outlay of Rs 400-450 crore in the current fiscal.

"This would be mainly for meeting incremental orders for upcoming fiscals, with the industry expected to see a moderate rise in working capital requirement considering the additional order flow," Crisil Ratings Associate Director Sajesh K V said.

However, going forward, geopolitical uncertainties, any change in discretionary spending patterns and volatility in raw material prices will need to be watched, the report said.