Icra’s analysis revealed that while retailers are seeing strong sales growth—an 18 per cent year-on-year increase in Q1 FY2025—this has been largely fueled by new stores and the introduction of new product categories
Fashion retailers in India are expected to maintain operating profit margins (OPM) in the range of 13-14 per cent for FY2025, despite a forecasted 14-15 per cent revenue growth, according to a recent report by rating agency Icra.
The revenue expansion will be driven by network expansion and a recovery in the value fashion segment, though inflationary pressures and high advertising and promotion (A&P) expenses will limit profitability.
Icra’s analysis revealed that while retailers are seeing strong sales growth—an 18 per cent year-on-year increase in Q1 FY2025—this has been largely fueled by new stores and the introduction of new product categories. However, the premium fashion segment has experienced a ~3 per cent decline in average sales per square foot (ASPSF), while value fashion has seen a recovery to pre-pandemic levels.
Despite the sales growth, profit margins remain constrained due to high A&P costs, particularly related to new store launches and product category expansions.
“The festive season in Q3 FY2025 is expected to boost revenues, but rising expenditure on advertising and store network expansion will keep profit margins range-bound,” said Sakshi Suneja, Vice President & Sector Head – Corporate Ratings, Icra. Suneja added that operating profit margins are expected to trail pre-pandemic levels by about 310 basis points.
The report noted that fashion retailers are continuing to invest in growth, with a capital expenditure of Rs 2,200 – Rs 2,300 crore planned for FY2025, primarily focused on expanding in tier-III and tier-IV cities.
These investments are expected to drive long-term growth, with a focus on tapping into the under-penetrated organised retail segment in India.
While online sales remain a smaller portion of the overall business—accounting for just 7 per cent of revenues in FY2024—Icra expects this figure to grow to 10 per cent in the medium term. Meanwhile, competition in the value fashion segment is intensifying, with many major retailers launching new brands to capture the lower price segment, and an emphasis on private label growth to boost margins.
Despite the challenges, retailers are optimistic about long-term demand growth in India’s retail sector. Icra expects the credit profiles of fashion retailers to remain stable in FY2025, with debt levels under control and interest coverage at 3 times OPBDITA.
