A CRISIL Ratings analysis of 30 hosiery manufacturers, representing a third of the industry by revenue, forecasts a 10-12% on-year revenue growth for the Indian hosiery sector in FY24. This positive growth projection comes despite a 1-2% dip in average sales realization due to efforts to clear year-end inventory at reduced selling prices. However, the industry is expected to offset this decline with strong volume growth, driven by several key factors such as a revival in rural demand, strong export markets, and the growing prominence of modern trade sales in urban regions.

Key Drivers of Growth

Rural Demand Revival
Rural demand plays a pivotal role in this growth. According to CRISIL, rural sales account for almost half of domestic revenue in the Indian hosiery industry. Several macroeconomic factors contribute to this rebound, including:

• Above-normal monsoons resulting in higher agricultural yield.
• Increased minimum support prices for crops, which boosts farmers' income.
• A surge in government spending on rural infrastructure, which increases disposable income in rural areas.

This combination of positive agricultural performance and rural infrastructure development is expected to boost rural spending, significantly driving hosiery sales in these markets.

Export Market Support
In addition to domestic growth, the export market also contributes to the revenue surge. Notably, exports to the Middle East and North Africa (MENA) regions are anticipated to bolster the overall sales volume. As the global demand for Indian hosiery products continues to rise, these export markets will help support the revenue growth alongside domestic demand.

Urban Demand and Modern Trade
Urban demand is expected to continue growing as well, supported by an increasing share of modern trade channels. These include large retail outlets, both physical and online, which are growing in prominence across India's urban markets. The convenience of modern trade along with changing fashion trends in hosiery products will drive increased sales volumes.

Operational Margin and Financial Performance

CRISIL Ratings predicts that the industry’s operating margin is likely to improve by 150-200 basis points during FY24. Several factors are expected to contribute to this margin improvement:

• Softer input prices, which help reduce production costs.
• Improved capacity utilization driven by higher volumes.
• Lower advertising spending, as the demand revival itself fuels sales growth.

These factors combined will lead to stronger cash accruals and reduced inventory holding periods, which will enhance liquidity in the industry. Additionally, the working capital requirement is expected to decrease, helping firms maintain lower debt levels. As a result, the debt-to-net-worth ratio for many companies in the sector is expected to remain below one, signaling financial stability.

Risks and Challenges

Despite the positive outlook, the Indian hosiery industry faces several risks:

• Rural inflation and the sustainability of farm income remain concerns for the long-term growth of rural demand. If inflation outpaces income growth in rural areas, it could limit demand for non-essential goods like hosiery products.
• While export growth is promising, any changes in global trade dynamics or international tariffs could impact the strength of export demand.
• The modern trade sector, while growing, may also face challenges such as shifting consumer preferences and the increasing competition from private labels and e-commerce platforms.

However, the strong export growth and the ongoing dynamics of modern trade are expected to be key factors in maintaining higher-than-expected growth in both volume and margins.

Conclusion

In conclusion, the Indian hosiery industry is poised for healthy growth in FY24, with a projected revenue increase of 10-12%. While challenges exist, particularly in terms of rural demand sustainability and inflation risks, the broader factors of government infrastructure investments, rural spending, and robust export growth should continue to drive industry performance. The anticipated margin improvement, coupled with reduced working capital requirements, suggests that the industry will enjoy stronger financial health, making it a promising sector for investors and manufacturers alike.