Indian hosiery sector stitches up revenue growth of Rs 36,000 cr, 18-20% higher on-year
Indian hosiery industry will stitch up revenue of Rs 36,000 crore this fiscal, 18-20% higher on-year, riding on a revival in rural demand. Operating margin will expand 300-400 basis points (bps) on softer input prices and improved capacity utilisations. A CRISIL Ratings analysis of 28 hosiery makers, accounting for a third of the industry by revenue, indicates as much.
Rural demand, which accounts for almost half the domestic revenue, was impacted last fiscal amid rising inflation and lower farmer income. As a result, the overall volume plunged 30% on-year. Says Rahul Guha, Director, CRISIL Ratings, “This fiscal, urban demand is expected to remain stable, while a well-distributed monsoon and probable inflation moderation should boost rural demand, leading to a recovery of 35-40% in volume.
Potential export opportunities, especially to Gulf countries, could bump up volume further.” Notably, the Comprehensive Economic Partnership Agreement signed by the government with UAE could boost textile segment exports, especially of hosiery. Tailwinds from the agreement could add 2-3% to hosiery exports from the historical level of 10%. That said, revenue growth would be higher than the 18-20% expected, were it not for a 15-17% fall in realisations that saw a significant uptrend in the past two fiscals.
On the input side, the price of cotton yarn, the key raw material, nearly doubled in the last two fiscals. Hosiery makers had to absorb a sizeable portion of the price rise amid muted demand as well as spend more on marketing and advertising to push sales. As a result, operating margin shrank 250 bps last fiscal.
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