Garment exports ride on rupee skid.

COIMBATORE: A mid-sized garment export house in Tirupur, which took orders when the dollar was quoting at 58 about a month and a half ago, has earned a conversion rate of 63 for new bookings. For every Re 1 decline against the dollar, sales realizations would increase by about 1.5%-1.75% for garment makers.

The sharp fall in the rupee has brought cheer to garment exporters and improved their profit margins by 3%-4%. Most exporters are using spot rates for their order bookings providing them an opportunity to get higher realizations in rupee terms. They are not opting for forward covers as a hedge following the steep fall in the rupee.

"We are booking (orders) at spot (dollar) rates. We are not taking forward covers as it is risky," says Devendra Bajaj, a garment exporter. A forward cover taken at lower levels would deprive exporters the benefits of any further appreciation in the dollar.

Since the rupee has fallen at a faster pace than the currencies of key competitors such as Bangladesh and Sri Lanka, Indian products have become competitive, exporters say. But there has been no quantum jump in garment exports in volume terms to key markets such as the US and the European Union. "The markets are quite tepid. US (market) is doing better," says Premal Udani, MD, Kaytee Corporation.

Exporters are concerned about the steady increase in production costs as the strong dollar and the hike in raw material prices are eroding their gains. Textile mills in the region have already hiked cotton yarn prices by Rs 7 per kg across all counts on August 21. The Tirupur Exporters' Association has urged mills to rollback the price hike.

"Buyers are demanding discounts for even existing orders. The gains are getting neutralised," says Raja M Shanmugham, MD, Warsaw Internationa.

Source : timesofindia.indiatimes.com