8/2/2019 CRISIL Ratings Readymade Garments 010312

1/2

March 01, 2012 www.crisil.com1

March 01, 2012Mumbai

Ready-made garment exporters resilient despite business slowdown

A CRISIL study of 181 ready-made garment (RMG) players rated by itaccounting for a fifth ofIndias RMG exports by valuereveals that these players are well equipped to tide over thechallenges posed by the uncertain business environment. The ongoing economic crisis, and resultantdip in demand, especially in the Eurozone, a major export destination for RMG, may constrainrevenue growth for most RMG exporters. However, CRISIL believes that its rated players willcontinue to outpace the industry on growth as in the past, despite the fact that they derive 80 per centof their revenues from exports. Their established customer relationships, cost efficiencies, and stablefinancial risk profiles will continue to drive their resilience to slowdown in business.

The RMG industry is highly fragmented, and exposed to risks relating to small scale of operations

and customer concentration. Dependence on overseas (especially EU- and US-based) customersincreases the industrys vulnerability to the global economic conditions, and to fluctuations in currencyrates. CRISIL-rated entities have, nevertheless, maintained a compound annual growth rate of 16 percenttwice that of the industryin the five years through March 2011.

Says Mr. Gurpreet Chhatwal, Director, CRISIL Ratings,We expect therated players to buckthe industry trends, and maintain growth of 4 to 5 per cent over the medium term, supportedby their ability to closely align internal processes, quality standards, and delivery timelines tothe stringent norms of clients. The clients, in turn, will benefit from cost economies ofoutsourcing to India, given its abundance of raw material and skilled labour.

The rated players stable financial risk profiles, sustained by steady margins and moderate capitalstructures, will also help them withstand decline in demand. Gearing may remain moderate and

range-bound, at 2.0 to 2.2 times over the medium term, in the absence of significant capitalexpenditure (capex). The fact that debt consists largely of short-term working capital borrowings, willalso support their financial risk profiles. Profitability will hold steady around the historical average of8.5 to 9.5 per cent, through appropriate input procurement and forex hedging measures.

Adds Mr. R Vasudevan, Head, CRISIL Ratings, We believe that the rated RMG exporters willmaintain stable credit quality over the medium term, underpinned by comfortable financial riskprofiles, and ability to withstand business turbulence, as they have done in the past five years,which includes the recession in 2008-09.

CRISIL believes that the Technology Upgradation Fund Scheme, if extended beyond March 2012,will serve as a fillip to the RMG sector, and result in fresh capex over the medium term. Someplayers, especially those in niche RMG segments, and having strong linkages with buyers, may even

undertake capacity expansions in the near term to capitalise on business opportunities presented bybuyers vendor-consolidation initiatives.

8/2/2019 CRISIL Ratings Readymade Garments 010312

2/2

March 01, 2012 www.crisil.com2

Note:

This Press Release is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The press

release may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However,CRISIL alone has the sole right of distribution of its Releases for consideration or otherwise through any media including websites,portals etc.

About CRISIL LimitedCRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India'sleading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leadingcorporations.

About CRISIL RatingsCRISIL is the largest credit rating agency in India. CRISIL pioneered ratings in India 25 years ago, and is today theundisputed business leader, with the largest number of rated entities and rating products: CRISIL's rating experiencecovers more than 46,496 entities, including 23,500 small and medium enterprises (SMEs). As on December 31, 2011, wehad more than 15,643 ratings (including over 8000 SMEs) outstanding.

CRISIL PRIVACY NOTICECRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfill your request andservice your account and to provide you with additional information from CRISIL and other parts of The McGraw-Hill Companies, Inc. youmay find of interest.For further information, or to let us know your preferences with respect to receiving marketing materials, please visitwww.crisil.com/privacy. You can view McGraw-Hill's Customer Privacy Policy at http://www.mcgraw-hill.com/site/tools/privacy/privacy_english.Last updated: March 31, 2011

Disclaimer: CRISIL has taken due care and caution in preparing this Press Release. Information has been obtained byCRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy orcompleteness of information on which this Press Release is based and is not responsible for any errors or omissions or forthe results obtained from the use of this Press Release. CRISIL, especially states that it has no financial liabilitywhatsoever to the subscribers/ users/ transmitters/ distributors of this Press Release.

Media Contacts Analytical Contacts CRISIL Rating Desk

Mitu SamarHead, Communications andBrand ManagementCRISIL LimitedTel: +91-22- 3342 1838Mobile No: +91- 9820061934

E-mail: msamar@crisil.com

Tanuja AbhinandanCommunications and BrandManagementCRISIL LimitedTel: +91-22-3342 1818Mobile: +91- 98192 48980Email:tabhinandan@crisil.com

Gurpreet S ChhatwalDirector CRISIL RatingsTel: +91-11-4250 5100Email: gchhatwal@crisil.com

Vasudevan RHead - CRISIL RatingsTel: +91-44-6656 3106Email:rvasudevan@crisil.com

Tel: +91-22-3342 3047/3342 3064Email:CRISILratingdesk@crisil.com