Apparel exporters wary of shrinking orders from EU, bank on US lift

As apparel exporters gear up to bag fresh orders from key Western markets in the coming weeks, the sovereign debt crisis in the euro zone has put them in doubt. Most expect that the 27 countries in the European Union, which account for around 40 per cent of the Indian apparel export market, will shrink their order books for the quarter.

Even as most are unsure to what extent their order books might shrink, a majority say they are still battling with the recession. “It’s only on paper that the recession is out; it is still very much here. The order situation is currently steady and we are relying on the US orders. But, orders will shrink (due to the European crisis). The retail situation there is quite uncertain,” said Rajendra Hinduja, managing director of Bangalore-based Gokaldas Exports Ltd, with a turnover of around Rs 1,000 crore.

Given that the euro’s depreciation has made exports to the EU more expensive, the margins of exporters are bound to get hit. Analysts say the major challenge for exporters is pricing their products to bag orders, as well as maintain margins.

“Any depreciation directly hits the bottom line. Given a depreciation of around 15 per cent in the euro, there would be around 10 per cent hit on the bottom line of exporters. I do not think orders are shrinking but pricing and maintaining margins has become an issue,” said Prashant Agarwal, vice president of consultancy firm Technopak .

However, some are wary of losing orders to bigger players like China, who can maneuver their currency to assist their exports. “Definitely, the crisis in Europe might hit our exporters. Europe is a big market for us and bookings from there are important for our businesses. Given the situation, orders might also shift to bigger nations who can control their currency to assist them in the given situation,” said Premal Udani, chairman of the Apparel Export Promotion Council (AEPC) and chairman of the Mumbai-based Kaytee Corporation.

The Indian apparel industry has been in rough weather since 2008, when most exporters incurred losses due to appreciation in the rupee, followed by the global economic downturn which sapped orders from major markets of the United States and the EU. With a sling of retail bankruptcies in the US and EU, the Indian textile export industry suffered through massive job losses, accompanied by temporary closing of factories. India’s export performance fell by around 9 per cent to Rs 45,971 crore in 2009-10.

Most exporters, including small and medium-sized ones are now banking on the recovery in the retail space in the US, which constitutes around 33 per cent of the Indian apparel export. US overall retail sales rose for the seventh month running in April, signalling that consumers were sustaining the recent momentum that helped solidify the economic recovery. Sales had risen by 2.1 per cent in March and by 0.4 per cent in April. However, in the EU-27, retail sales dropped by 0.6 per cent in February, followed by stagnant performance in March, which has undermined hopes of a recovery in consumer demand.

“The situation in the US is quite optimistic right now. The retail market has picked up, an extremely positive thing for us. Given that now we have raw materials at better rates than our competitors, orders are expected to come back to us,” said Lalit Gulati, managing director of Gurgaon-based Modelama Exports.