'Apparel Sector May See Gradual Gains From GST Rate Cuts': Arvind Fashions Eyes Medium-Term Growth

The apparel sector is expected to witness the benefits of the recent goods and services tax (GST) cuts and income tax reductions gradually, instead of immediate gains, according to Kulin Lalbhai, Vice Chairman of Arvind Fashions. The company expects medium-term demand growth, following the GST rate cuts.

Arvind Fashions is known for brands like Flying Machine, Arrow and Tommy Hilfiger (licensed). In a conversation with NDTV Profit, Lalbhai outlined that the apparel industry might not see an immediate spike in demand like other big-ticket sectors such as automobiles.   

“What we have seen in the market is that big-ticket items, like cars and air conditioners, experience short-term spikes due to pent-up demand. For disposable-income businesses like apparel, the benefits will be spread out over the medium term as fashion becomes more affordable and people start purchasing more frequently,” Lalbhai said.

On premiumisation, Lalbhai said it is a separate, secular trend from GST. Customers are willing to pay more for differentiated and aspirational products.

“We expect that premiumisation trend to be a secular trend over the next three to four years as people upgrade their wardrobes. On GST, I think the big positive for apparel is that under Rs 2,500 (items)....now GST is 5%. That is around 60% of Arvind Fashions’ sales…So, I think in the medium term, we do expect strong demand trends,” he explained.

His remarks followed as the GST rates were slashed by the government in September to stimulate economic activity in India. On future expansion, Lalbhai highlighted a pivot towards direct channels, including retail stores, which account for 45–50% of revenue, and online direct sales, around 15%. 

“I think both of those are growing incredibly well. Our direct online sales this quarter saw 50% growth. And we intend to open 1,50,000 square feet of retail space. So, we have bold targets on square foot expansion as well. Overall, I think our direct component of revenue is going to keep going up,” he added.

When asked about the company’s initial guidance of adding 150 new stores in FY26, Lalbhai confirmed that the company plans to open 1,50,000 square feet of retail space, with 60 new stores already opened in H1 and additional openings planned for H2.

Regarding financial targets, he said return on capital employed (ROCE) is strong at 23%, ahead of the 20% target. He expects operating leverage to further improve ROCE as gross margins expand.

“Each of our brands has the potential to be multi-thousand crore in size, so we just want to keep investing in scaling up our brands and as we've indicated, the operating leverage should continue to be between 50 to 100 basis points every year. We are investing more in marketing… if we weren't doing that, it would be more like 100 basis points every year, but we are planning to plough that back and accelerate growth,” he added.

Arvind Fashions reported an 11.3% year-on-year (YoY) growth in revenue at Rs 1,418 crore in Q2FY25, compared to Rs 1,273 crore in Q2FY25. Ebitda advanced to Rs 200 crore, up 18% YoY against Rs 170 crore a year ago. The company’s net profit (PAT) increased 27% YoY to Rs 38 crore in Q2FY26 compared to Rs 30 crore in the same period of the preceding fiscal.