In a recent report on the Indian fashion retail industry, ICRA said while network expansion shall aid revenue growth of around 14-15 per cent in FY25 for entities in its sample set, the operating profit margin (OPM) shall remain range-bound at 13-14 per cent, following the commensurate increase in advertisement spends to spur growth.
The Indian fashion retail industry remains hopeful of demand recovery from Q3 FY25 onwards led by the festive season, according to ICRA.
In a recent report, ICRA said while network expansion shall aid revenue growth of around 14-15 per cent in FY25 for entities in its sample set, the operating profit margin shall remain range-bound at 13-14 per cent.
ICRA’s outlook on the sector is stable.
ICRA expects the sector’s OPM for FY25 to be lower than the pre-pandemic levels by 310 basis points.
Despite revenue growth led by retail space expansion from FY21 to FY24, the OPM of fashion retailers remains under pressure, following demand slowdown and lower-than-commensurate returns in new business segments and product categories, including ethnic and beauty.
ICRA’s sample set companies witnessed a year-on-year (YoY) sales increase of 18 per cent in Q1 FY25, largely led by increase in store networks and expansion in new product categories, while same store sales growth was affected owing to slowdown in discretionary spends across the retail consumption basket.
The OPM in Q1 FY25 at 13.4 per cent, however, remained largely flat on aYoY basis and continued to trail pre-pandemic levels.
ICRA’ssample set of fashion retailers witnessed a marginal 70 bps YoY moderation in gross margin to 49 per cent in FY24 due to controlled discounting. However, large spends towards advertisement and promotion resulted in 150 bps moderation in the OPM to 13.3 per cent.
The level of discounting remained controlled in Q1 FY025, with ICRA’s sample set companies reporting gross margin of 49.2 per cent, and an OPM of 13.4 per cent.
The premium segment reported a YoY contraction of 3 per cent in average sales per square feet (ASPSF) in FY24 and Q1 FY25 respectively.
After two consecutive years of slowdown, value fashion segment witnessed green shoots of recovery, with ASPSF surpassing pre-COVID levels for the first time in Q1 FY25.
Players remain optimistic of the long-term demand prospects of the retail industry.
Thus, they continue to add stores, with an estimated capital expenditure (capex) outlay of ₹2,240 crore in FY25, a YoY expansion of 20 per cent, towards addition of 5.7 million square feet (mn sq ft) of retail space.
Debt protection metrics are likely to remain stable in FY25, despite the sizeable capex plans, given the revenue growth and range-bound OPM.
ICRA’s outlook on the sector is stable.
Fibre2Fashion News Desk (DS)