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The Indian readymade garment (RMG) makers are likely to witness revenue growth of 10 per cent in this calendar year, mainly driven by healthy domestic demand and 10 per cent growth in exports, the report said.
Crisil Ratings expect revenue growth of RMG makers to accelerate 300 basis points (bps) to 10 per cent in calendar 2019 (CY), compared with 7 per cent in CY2018, riding on robust domestic demand and a spurt in exports.
Higher revenue growth will provide the benefit of operating leverage and will help improve profitability, it said adding that profitability of exporters is also aided by favourable exchange rate and restoration of incentives, resulting in better cash generation, which will improve the credit profiles of RMG firms this fiscal.
Credit profiles had moderated in the previous two fiscals owing to depreciation in the rupee against the dollar and a reduction in export incentives, it said.
Domestic sales logged an annual growth rate of 9.6 per cent in the five years through CY2018 to Rs 4.83 lakh crore, which was 80 per cent of the sector's revenue.
That pace is set to increase to 10-10.5 percent this year for two reasons, increasing penetration of both organised retail and brands in tier II and III cities, and rising growth of value apparel retail segment.
Complementing healthy domestic growth will be a rebound in exports growth to 7-8 per cent this year after two years of de-growth. In the first 6 months of this year, RMG exports are already up over 10 per cent compared to last year.
Exports growth will benefit from a likely depreciation in the rupee against the dollar, a partial restoration of export incentives recently and a pick-up in growth in the United Arab Emirates, the third-largest exports destination after the US and the European Union, the report said.
"Operating profitability of domestic-focussed RMG firms is expected to remain stable at 10-11 per cent, whereas that of exporters should improve another 50-100 bps this fiscal, on top of the 100-120 bps increase seen last fiscal. Exporters will benefit from the higher export incentives," Crisil Ratings senior director Anuj Sethi said.
Going forward, currency volatility and the government policy on export incentives will be key things to watch out, he added.