Home Big Grid Apparel retailers could touch 23% revenue growth despite inflation jab

Apparel retailers could touch 23% revenue growth despite inflation jab

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Apparel retailing in India stands to grow by up to 23% in revenue in the current fiscal year ending March 2023, riding on strong same-store sales, a boost in online sales and aggressive store expansions, a report by credit rating agency Crisil said on Tuesday. This growth of ~500 basis points (bps) more than the pre-pandemic (fiscal 2020) level comes “despite elevated inflation impacting discretionary demand,” Crisil stated.

According to the report, the operating margin of apparel retailers will improve between 175-200 bps on-year to 7.75-8%, thanks to an increase in scale leading to better fixed-cost absorption, price hikes and greater share of their private labels. However, the higher input cost for brands and retailers will play a small spoilsport. “Higher input prices will cap the operating margin 50-70 bps below the pre-pandemic level. Among key inputs, domestic prices of cotton almost doubled between April 2020 and May 2022. Despite some moderation since June 2022, they are expected to remain higher than what they were before the pandemic,” Crisil said in the statement.

The credit rating agency also highlighted that apparel retailers managed their balance sheets well during the pandemic through timely equity raising that helped them mitigate the impact of volatility in revenue and profitability. “Now, given improving revenue and profitability, and therefore higher cash from operations, apparel retailers are well placed to invest in increasing store and online presence, which will gradually benefit their credit profiles,” the report said.

Crisil further stated that the potential improvement in demand will encourage apparel retailers to hike their capital expenditure or Capex by over 30% this fiscal. “Apart from store expansions, addition of warehousing space and investment towards brand acquisitions, a significant part of the spending would be to augment tech platforms and online offerings. The share of online channels in overall revenue of apparel retailers is expected to cross 15% this fiscal vs ~5% in fiscal 2020,” it added.

The Crisil report is based on a study of 46 apparel retailers that account for more than a third of the organised sector’s annual total revenue of approximately Rs90,000 crore.