PremiumNEW DELHI: Hit by temporary store closures, limited mobility, and a general slump in discretionary spending in the June quarter, apparel retailers are expected to report a 15-20% growth in revenue this fiscal, down from the earlier projection of 35%, rating agency Crisil said in a note.
The growth comes on a significantly lower base of 2020, when apparel retailers witnessed a 35% decline in revenue growth.
The ratings agency has pegged demand recovery for the organised apparel segment to pick up from the second quarter of the current fiscal but will be dependent on moderation of the second wave as well as the vaccination drive.
“Reopening from June is likely to ignite a gradual recovery," it said in a note released Wednesday.
Meanwhile, it expects the share of online sales to touch 8-9% of total sales of apparel retailers this fiscal compared to 4-5% reported by companies pre-pandemic.
Revenues this financial year, ending March 2022, will touch 70-75% of pre-pandemic levels, the ratings firm said.
The June quarter hit apparel sales as several states moved into lockdowns in April and May to control the second, more severe wave of covid-19.
“Revenue this fiscal will only be 70-75% of the pre-pandemic level (60% in fiscal 2021). Moreover, unlike the first wave that had higher impact in tier-1 cities, the second wave has spread in tier-2 and 3 cities and rural areas as well, resulting in a similar impact on departmental and value fashion retailers," Anuj Sethi, senior director, Crisil Ratings, said.
The ratings firm analysed 60 Crisil-rated apparel retailers, which account for a third of the sector's revenues.
A sluggish recovery in the topline will translate into moderate growth of 4-5% in operating margins at apparel retailers this year. This is lower than Crisil’s earlier forecast of a 7-8% growth in operating margin.
“However, renegotiation of rental arrangements and trimming of employee cost, which together account for 20% of revenue, will help keep operating margin at 4-5% this fiscal, a slight improvement over 3-4% last fiscal, but much below the pre-pandemic level of 9%," it said.
Meanwhile, apparel retailers rated by Crisil will be better placed helped by equity raise to the tune of Rs2,000 crore last fiscal. Others could “take recourse to additional debt to plug near-term cash-flow mismatches, which could impact their credit quality," it added.
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