Indian hosiery makers' revenue to rise 10-12% this fiscal: CRISIL

Driven by a revival in rural demand, robust export performance, and solid sales in modern trade channels, Indian hosiery manufacturers are poised to experience a 10-12 per cent Year-on-Year (YoY) revenue growth this fiscal, a latest report said.

The growth in volume is expected to offset a slight 1-2 per cent YoY decline in average sales realisation, as manufacturers reduce prices to clear year-end inventory after a slack in demand from channel partners. Industry’s operating margin is projected to improve by 150-200 basis points (bps). This is attributed to softer input prices, increased capacity utilisation, and higher volume growth, leading to a stronger financial outlook, according to a CRISIL Ratings analysis of 30 hosiery makers, accounting for a third of the industry’s revenue.

The hosiery sector sees a surge in volume towards year-end as channel partners stock up to meet summer demand. However, last fiscal’s year-end sales were affected by lower stocking, anticipating a decline in product prices due to consistently falling yarn prices. This fiscal, stability in yarn prices and a slight reduction in selling prices have sparked a resurgence in demand, the CRISIL report said.

As manufacturers benefit from the increased demand, they are expected to reduce spending on advertising and marketing, while benefiting from improved operating leverage due to higher capacity utilisation. CRISIL Ratings forecasts operating margins for the sector to expand 150-200 bps to 11.5-12 per cent, boosting cash accruals.

With higher cash flows and reduced inventory holding periods, the working capital requirement is expected to decline, strengthening the liquidity position of players in the industry. Capacity utilisation in the country hosiery manufacturing sector remains moderate, with no major expansion anticipated, limiting long-term borrowing and finance costs, the report added.

However, challenges such as inflationary pressures and the sustainability of farm incomes in rural areas could affect growth, while the dynamics of exports and modern trade will be crucial in determining whether the sector can surpass its expected volume and margin growth.

“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,” says Argha Chanda, director, CRISIL Ratings.

“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,” highlighted Vishnu Sinha, team leader, CRISIL Ratings.

ALCHEMPro News Desk (HU)