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The revenue of Indian hosiery makers is projected to increase 10-12 per cent (year-on-year) this fiscal following a revival in rural demand, volume support from the export market and robust modern trade sales, a report showed on Thursday.  

The industry’s operating margin is expected to improve 150-200 basis points (bps) this fiscal, owing to softer input prices and improved capacity utilisation, aided by higher volume growth, according to a CRISIL Ratings analysis of 30 hosiery makers, accounting for a third of the industry by revenue.

"The revenue growth of 10-12 per cent will ride on a higher contribution of rural sales, which account for almost half the domestic revenue. Increase in agricultural yield following an above-normal monsoon, hike in the minimum support price and higher government spending on rural infrastructure will support rural spending,” CRISIL Ratings Director Argha Chanda said.

An increase in exports to the Middle East and North Africa, along with expected growth in urban demand led by growing modern trade, will also improve volume growth, Chanda added.

The hosiery industry typically sees a spike in volume by year-end as channel partners start stocking to meet high demand during the summer season.

According to the report, stability in yarn prices this fiscal and a 1-2 per cent dip in selling prices have led to a resurgence in demand from channel partners.

Amid strong demand from channel partners, hosiery manufacturers will curtail their spending on advertising and marketing. The upshot is that the operating margin of hosiery manufacturers rated by CRISIL Ratings should widen 150-200 bps to 11.5-12 per cent this fiscal, driving up cash accruals.

“Higher cash accruals and reduced inventory holding periods are expected to lower the working capital requirement and strengthen the liquidity profile of players. Also, capacity utilisation continues to be moderate and no major expansion is expected. This should limit long-term borrowings and finance costs,” the report noted.