India's RMG industry to see slower 4-6% revenue growth in FY25: CRISIL

Last fiscal, overall revenue growth was driven by a 10 per cent increase in domestic revenue even as export revenue declined 7 per cent. That is expected to reverse this fiscal, with exports rebounding and domestic apparel demand growth moderating, according to a press release by CRISIL.

The exports’ revenue, which accounts for a fourth of the RMG industry’s revenue, is expected to rise 5-7 per cent this fiscal as retailers in the United States and the European Union replenish inventories. Meanwhile, realisations may remain flat amid expectations of lower cotton prices, the credit rating agency further said.

Given relatively low and stable raw material prices, the operating margins of RMG players are likely to remain steady at 11.0-11.5 per cent this fiscal, like last fiscal, predicted CRISIL.

The RMG industry remains labour-intensive, with low reliance on capital expenditure (capex). Stable working capital cycles of RMG entities will minimise the need for incremental working capital debt this fiscal and, together with strengthened balance sheets, ensure credit profiles are stable.

An analysis of more than 140 RMG makers rated by CRISIL Ratings, with aggregate revenue of ~₹43,000 crore (~$5.18 billion), indicates as much.

Gautam Shahi, director, CRISIL Ratings, said, “The domestic market, which contributes three-fourths of the RMG industry’s revenue, is expected to grow a modest 4-6 per cent this fiscal due to a shift in consumer spending towards avenues such as travel, electronic gadgets and other services. Moreover, the contagion effect of retailers’ overstocking last fiscal impacted RMG manufacturers’ revenue growth in the first half of this fiscal. The second half, however, is expected to receive a fillip from the festive season and a higher number of weddings.”

Pranav Shandil, associate director, CRISIL Ratings, stated, “Moderate revenue growth and stable margins will help sustain operating performance of RMG manufacturers. This, along with modest capex and a steady working capital cycle, will support their credit profiles this fiscal. The interest coverage ratio is expected to improve to 5.6 times this fiscal from 5.2 times last fiscal, while the total outside liabilities-to-tangible net worth ratio will remain healthy at 0.7 time as on March 31, 2025 (0.8-time last fiscal).”

The recent political turmoil in Bangladesh will remain a monitorable for the industry. While it could have a transitory positive impact on Indian RMG exporters, the upside is likely to be limited due to the criticality of RMG exports to Bangladesh’s economy, differences between the product portfolios of RMG exporters in Bangladesh and India, and favourable import duty applicable for Bangladesh’s RMG exports to the European Union.

Any shift in consumer discretionary spending and unanticipated fluctuations in domestic and international cotton prices will bear watching, concluded the press release.

Fibre2Fashion News Desk (SG)