Study paints grim picture for garment sector with likely job cuts, closures

74% of its respondents see a 90% drop in sales for the quarter ending June 2020

Around 95 per cent garment makers expect to resume operations at less than 50 per cent of their production capacity amid coronavirus pandemic, says a survey. Among this lot, 68 per cent of the respondents anticipate using less than 25 per cent of their production capacities in the next 3 months.
 

The survey by the Clothing Manufacturers Association of India (CMAI) reflects the crisis the industry is going through, with 74 per cent of its respondents seeing a 90% drop in sales for the quarter ending June 2020. An additional 13 per cent indicated a drop of more than 75 per cent.
 

The respondents do not see much improvement in the next 12 months either. Around 21 per cent of the respondents expect to operate at less than 25 per cent of their capacity in the coming 12 months, and 46 per cent expect to operate at between 25 per cent and 50 per cent. Which means almost half of the Industry expects to operate at less than 50 per cent of capacity in the coming 12 months.
 

"What is obviously adding to the worries of this largely MSME dominated sector, is the drying up of working capital funds, with manufacturers not receiving payments from the equally stressed Retail sector," said CMAI.
 

Around 91 per cent of the respondents have received less than 25 per cent of their dues in the last quarter – and close to 85 per cent are not expecting their dues to be cleared in the next 3 months. In fact, 44 per cent of the respondents fear that 20-50 per cent of their dues will turn in to bad debts.

 

“All these findings reflect an extremely grim future for the garment industry, and survival of many of the smaller players looks extremely doubtful," said Rakesh Biyani, President of CMAI.
 

“It will take at least another year for our members to reach back to the normal business conditions,” added Rajesh Masand, Vice President., CMAI.
 

Chief Mentor of CMAI, Rahul Mehta, cautioned about the severe job losses in the Industry. “Looking at the survey results, I would not be surprised if close to 25% to 30% units shut down. I am also expecting job cuts of 25% to 30% even in the companies that somehow survive this year," he said.
 

The industry currently has around 85,000 factories, largely in the MSME sector, and employed around 12 million workers in the pre-Covid era.
 

A recent report by Crisil stated that sharp fall in both domestic and exports demand because of the Covid-19 pandemic, lower profitability, and elongation of working capital cycle are expected to impair the credit profiles of readymade garment (RMG) makers this fiscal.  The impact will be felt more by exporters owing to higher revenue de-growth and stretched receivables, an analysis of over 180 CRISIL-rated RMG manufacturers (representing revenue of around Rs 40,000 crore) shows.