Organised sector brick and mortar apparel retailers are expected to register a 7-8 per cent revenue growth this fiscal, buoyed by festival and marriage season demand, and despite inflation impacting discretionary spending in the first quarter, according to a report.
Continued store expansion, including into tier-II and III cities, will also help revenue growth this fiscal and over the medium term, Crisil Ratings said in a report on Wednesday.
Despite moderation in topline growth, revenue growth will be comparable to the 8 per cent range seen before the pandemic, the report said.
Last fiscal, retailers had seen a strong 38 per cent growth on a low base, driven by swift recovery from the pandemic-induced slump and higher realisations following a steep jump in raw material prices.
Operating margins are seen at 8 per cent this fiscal as improving product mix in favour of the premium segment and lower input costs will offset the impact of higher marketing spends, the report said.
The pace of store area addition will be at the pre-pandemic level of 2.2 million sq ft in FY24, the report said, adding that it was 3.7 million sq ft in the last fiscal.
The Crisil report is based on an analysis of 39 organised apparel retailers, which accounted for a fourth of the Rs 1.9 lakh crore revenue last fiscal.
According to Anuj Sethi, a senior director at the agency, demand in the premium segment is rising gradually with consumers increasingly preferring branded garments, driven by return to office and buoyant corporate activity.
This is helping offset muted-to-low demand from the economy and value segments, which account for 60 per cent of the revenue, because of changes in discretionary spends, he said.
With continuous store expansion, and the onset of the festive and wedding seasons, demand should improve in the third quarter, which normally fetches around 35 per cent of the annual revenue.
Operating margin is seen at previous year's level of 8 per cent, despite significant reduction in prices of cotton, the key raw material, as per the report.
While store expansion in metros and tier-I cities will continue, retailers are also expanding to small towns, which will be relatively smaller-sized outlets.
Hence, the pace of area addition will normalise to pre-pandemic levels this fiscal. That, coupled with continuing investments to augment technology platforms and omni-channel infrastructure, will keep annual capex flat at last fiscal's Rs 2,000 crore.
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