The financial situation of garment manufacturers is expected to improve during 2013-14, mainly driven by growing demand from importing markets, depreciating rupee and structural changes in competing markets like China and Bangladesh, India Ratings & Research said in a report.
“Improving textile and apparel demand from large markets, benefits accruing from a depreciating rupee and structural changes in competing markets like China and Bangladesh have improved performance and stronger order book visibility for exporters. The trends are seen to sustain in the short-to medium term,” India Ratings & Research Associate Director (Corporates) Tanu Sharma said in a release.
Most garment exporters are, therefore, running on full capacity and also outsourcing manufacturing on a job work basis as order books are growing ahead of the peak festive season (December), it said.
During April-September 2013, garment exports grew 13 per cent year-on-year reaching $ 6.5 billion while growth in rupee terms was even higher at 18 per cent annually, it pointed out.
Rupee depreciation has improved the competitiveness of Indian exporters in global textile trade against China, Bangladesh and Vietnam.
India’s competitiveness has also has benefited from the appreciation of the Chinese yuan against USD and rising labour cost in China.
Large international buyers have also diverted orders to India from Bangladesh on account of wage protests in September 2013, and a factory accident in April 2013.
Strong revenue growth in FY14 and earnings are likely to improve the credit metrics of garment exporters.
However, the challenge for exporters is to manage liquidity amid increasing volumes coupled with a long working capital cycle and the consequent higher use of working capital limits, which is a characteristic of the textile export business.