In a recent report on India's fashion retail industry, ICRA said that while network expansion will contribute to revenue growth of around 14-15 per cent in FY25 for entities as a whole For example, the operating profit margin (OPM) will remain within the range of 13.-14 percent, following the proportional increase in advertising spending to stimulate growth.
According to ICRA, the Indian fashion retail industry remains hopeful of a recovery in demand from Q3FY25 onwards, driven by the festive season. In a recent report, ICRA said that while network expansion will contribute to revenue growth of around 14-15 per cent in FY25 for entities in its sample set, the operating profit margin will will remain within the range of 13-14 percent. ICRA's outlook on the sector is stable.
ICRA expects the sector's OPM for FY25 to be lower than pre-pandemic levels by 310 basis points.
Despite revenue growth led by retail space expansion from FY21 to FY24, fashion retailers' OPM remains under pressure, following slowing demand and below-proportionate returns in new segments commercials and product categories, including ethnic and beauty.
Companies in ICRA's sample set witnessed an 18 per cent year-on-year (y-o-y) rise in sales in Q1FY25, largely driven by increase in store networks and expansion of new categories of products, while same-store sales growth was impacted due to the slowdown in the discretionary sector. spending across the entire retail consumer basket.
However, the OPM in Q1FY25 at 13.4 per cent remained broadly flat year-on-year and continued to lag pre-pandemic levels.
ICRA's sample set of fashion retailers saw a marginal 70 bps YoY moderation in gross margin to 49 per cent in FY24 due to controlled discounting. However, heavy spending on advertising and promotion resulted in a 150 basis point moderation in the OPM to 13.3 percent.
The level of discounting remained controlled in the first quarter of FY2025, with companies in ICRA's sample set reporting a gross margin of 49.2 per cent and an OPM of 13.4 per cent.
The premium segment reported a 3 per cent year-on-year contraction in average sales per square foot (ASPSF) in FY24 and Q1FY25, respectively.
After two consecutive years of slowdown, the value fashion segment witnessed green shoots of recovery, with ASPSF surpassing pre-COVID levels for the first time in Q1FY25.
Players remain optimistic about the long-term demand outlook for the retail sector.
So, they continue to add stores, with an estimated capital expenditure (capex) outlay of ₹2,240 crore in FY25, a 20 per cent year-on-year expansion, towards the addition of 5.7 million sq ft (mn sq ft) of commercial space.
Debt protection metrics are likely to remain stable in FY25, despite significant capex plans, given revenue growth and range-bound OPM.
ICRA's outlook on the sector is stable.
Fiber2Fashion News Desk (DS)
