The sector 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 in this fiscal.

This is due to the larger share of exports in the state’s RMG sector, at 65-70 per cent, compared with 20-25 per cent at the national level, the rating agency said in a release.

Operating profitability will improve by 25-30 basis points (bps) on better operating leverage, marginal increase in realisations and stable yarn prices, an analysis of over 50 RMG exporters based in the state and accounting for over a fourth of the industry revenue indicates.

The central government’s impetus through various schemes, the recent political developments and the ongoing gas crisis in Bangladesh would also benefit the industry.

“Tamil Nadu RMG industry, which accounts for over 30 per cent of RMG 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 PLI3 scheme for textiles to expand its scope to the RMG sector will support exporters over the medium term,” said Jayashree Nandakumar, director of CRISIL Ratings.

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.

Realisations, too, will rise 1-3 per cent with rising demand as retailers in the United States 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. Better realisations coupled with higher efficiencies would push the operating margins up 25-30 bps to nearly 10.5 per cent in this fiscal.

Geopolitical uncertainties, any change in discretionary spending patterns and volatility in raw material prices will bear watching, the rating agency added.

Fibre2Fashion News Desk (DS)