Indian handicraft industry expected to see a 6-8% decline this fiscal year

CRISIL Ratings on Monday said that a slowdown in discretionary spending in key global markets will drag the largely export-oriented Indian handicraft industry 6-8 per cent lower to $3.3 billion this fiscal, after a decline of 20 per cent last fiscal. That said, a healthy balance sheet, along with negligible capital expenditure (capex) debt, will keep the industry credit profile stable. An analysis of 10 companies rated by CRISIL Ratings, which account for 10 per cent of the industry revenue, suggests as much.

Says Rahul Guha, Director, CRISIL Ratings, “Amid the slowdown in key export markets, Indian handicraft exporters will face increased competition from their Chinese counterparts post easing of Covid-19 curbs in China. Handicraft exporters will rely on lower pricing and extended credit to counter subdued demand, which may pull down operating profitability by 200-250 basis points to 12 per cent.”

The longer credit periods may, in turn, stretch working capital cycles — from 90 days to more than 120 days, on average. This could imply higher working capital borrowings.


Says Nitin Kansal, Director, CRISIL Ratings, “Despite the likely increase in working capital borrowings, healthy balance sheets should keep debt metrics comfortable. Also, with demand expected to remain sluggish, the capex outlay will be negligible and will be funded through cash accrual. Hence, credit profiles of handicraft exporters will remain stable.”

Handicraft exporters used cash accretions to deleverage their balance sheet to 0.5 times as on March 31, 2022, from 0.9 times as on March 31, 2019. Moreover, the debt is largely for working capital with more than 85 per cent being short-term. Hence, CRISIL Ratings expects gearing and interest coverage for its rated portfolio at 0.7 times and 8 times, respectively, until fiscal 2024, compared with 0.6 times and 10 times, respectively, on average in the past three years. All said global inflationary pressure and currency movements will bear watching.