2.
The recent rupee depreciation has enabled the Indian textile industry
to hold yarn prices and also increase yarn exports
Though Indian industry demonstrates stronger backward
linkages, low labour costs have enabled countries like
Bangladesh, Pakistan and Vietnam to overtake India in terms of
capturing textile export markets
With Chinese Yuan appreciating, Indian exports have become more
competitive. Indian textile export share is marginal (5% as compared
to China’s 30%)
As a CEO of leading textile manufacturer, you are planning to go in for
capacity expansion. Capacity expansion necessitates funding and thus
you approach a consortium of banks. Prepare the detailed projections
convincing the bankers how the global economic trends portray well
for Indian textile exporters.
Caselet
3.
The Indian textile industry is one of the major sectors of Indian
economy and contributes almost 14 per cent of India’s industrial
production, 4 per cent of National GDP and almost 17 per cent of
India's export earnings
As per the annual report 2010-11 of Ministry of Textiles, the size
of Indian textile sector is reached up to USD 55 billion
India has the potential to increase its textile and apparel share in
the world trade from the current level of 4.5 per cent to 8 per cent
and reach US$ 80 billion by 2020
Exports of textile grew to USD 26.8 billion in FY 2010 from USD
17.6 billion in FY 2006. India’s textile trade is dominated by
exports with a CAGR of 6.3 per cent during the same period
Overview
4.
According to the Confederation of Indian Textile
industry, the continuous rupee depreciation has been profitable for
many textile and apparel exporters in the country
Textile buyers from the US and EU are tempted to shift orders from
China, Bangladesh and Vietnam to India thanks to the increased
competitiveness of Indian exporters thanks to a weaker local currency
Robust demand
• Increased penetration of organised retail, favourable demographics and
rising income level to drive textile demand
• Growth in building and construction will continue to drive demand for
non-clothing textiles
Competitive Advantage
• Abundant availability of raw materials such as cotton, wool, silk and
jute and skilled workforce has made India a sourcing hub
Advantage India
5.
Increasing investments
• Over USD35 billion of investments have been made in the textile &
clothing sector during the last four years, with the cotton textile
segment accounting for around 75 per cent
Policy support
• 100 per cent FDI through the automatic route is allowed in the
Indian textile sector SITP was approved in July 2005 to facilitate
setting up of textiles parks with world class infrastructure facilities
Market Value: USD220 billion
Advantage India
6.
Notable trends in the Indian textile sector
• The Ministry of Textiles is encouraging
investments through increasing focus on
schemes such as TUFS & TMC and cluster
development activities
Increasing investment in
TUFS & TMC
• The Ministry of Textiles commenced an
initiative to establish institutes under the
public-private partnership (PPP) model to
encourage private sector participation in the
development of the industry
Public-Private
Partnership (PPP)
Technical textiles
• Technical textiles, growing at around twice the
rate of textiles for clothing applications, now
account for more than half of total textile
production
7.
Strong demand & policy support driving investments
Growing
demand
Rising demand
in exports
Increasing
demand in
domestic market
Policy support
100 per cent FDI
in textile sector
Government
setting up SITPs
Growing
population
driving textile
demand
Increasing
loans under
TUFS
Increasing
investments
Growing
domestic and
foreign
investments
Commitment of
USD140 billion
of foreign
investments
Inviting Resulting in
8.
M&A scenario – details
Period: 1 January 2000 to 30 June 2011
Top 5
deals
Acquirer Name Target Name Largest deal
(USD mn)
1 Krishnaa Glass Pvt Ltd Soma Textiles & Inds Ltd 6001.5
2 AAA United BV Bombay Rayon Fashions
Ltd
968.0
3 BR Machine Tools Pvt Ltd Bombay Rayon Fashions
Ltd
721.1
4 Group of investors Provogue (India)Ltd 526.9
5 Spentex Industries Ltd Indo Rama Textiles Ltd 447.6
Foreign investments flowing in; M&A activity up
→From January 2000 to June 2011, 482 M&A deals have taken place
→The top five M&A deals* are listed above
9.
Foreign investments flowing in; M&A activity up
5
54
9
40
90
130
190
160
140
129
0
20
40
60
80
100
120
140
160
180
200
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
→ FDI in the textile industry stood at
USD 129 million in FY11
→ CAGR of FDI in the sector during
the period was 60.3 per cent
**Growing FDI in textile industry (In USD million)
10.
Opportunities
Immense growth
potential
Private sector
participation in silk
production
Technical textiles
The Indian textile
industry is set for strong
growth, buoyed by both
strong domestic
consumption as well as
export demand
The Central Silk Board has
set a target of 28,000 tonnes
of raw silk production by
2012–13
Technical textile market
estimated at USD12 billion in
2012
For the near term
(2012), the sector is
valued at USD110 billion
by the Confederation of
Indian Textile Industry
(CITI)
To achieve these
targets, alliances with the
private sector, especially
major agro-based industries
in pre-cocoon and post-
cocoon segments, is being
encouraged
India’s technical textile
industry is mainly
dominated by unorganised
players. However, it is an
emerging area for
investment with good
growth potential
Estimates put the sector
market value at USD 220
Billion by 2020
The market is likely to grow
to USD31 billion by
2020, implying a CAGR of 10
per cent
11.
Opportunities
Retail sector offers
growth potential
Centres of Excellence
(CoE) for research and
technical training
Foreign investments
With consumerism and
disposable income on the
rise, the retail sector has
experienced a rapid
growth in the past
decade with several
international players like
Marks & Spencer, Guess
and Next having entered
Indian market
The CoEs are aimed at
creating testing and
evaluation facilities as well as
developing resource centres
and training facilities.
Further fund support would
be provided for appointing
experts to develop these
facilities
The government is taking
initiatives to attract foreign
investments in the textile
sector through
promotional visits to
countries such as Japan,
Germany, Italy and France
The organised apparel
segment is expected to
grow at a compound
annual growth rate
(CAGR) of more than 13
per cent over a 10-year
period
Existing four CoEs, BTRA for
Geotech, SITRA for Meditech,
NITRA for Protech and
SASMIRA for Agrotech,
would be upgraded in terms
of development of incubation
centre and support for
development of prototypes
13.
Budget proposals Impact on the industry
Hike in standard
excise duty from
1%, 5% and 10% to
2%, 6% and 12%
on various items
• The hike in excise duty on cotton-based products from 5%
to 6% is not expected to have any significant negative
impact on cotton textile players since the excise duty on
cotton-based products is concessional and optional.
• The hike in excise duty on textile products other than
cotton-based products from 10% to 12% is expected to
increase the cost of production for non-cotton textile
players.
Hike in excise duty
on branded
readymade
garments from
10% (with 55%
abetment) to
12% (with 70%
abetment)
• The hike in excise duty on branded readymade garment
from 10% to 12% coupled with an increase in abetment
from 55% to 70% would result in a net decline in effective
excise duty from 4.5% to 3.6% which is expected to result
in marginal benefit to readymade garment manufacturers.
• With falling cotton prices and proposed reduction in
effective excise duty, the prices of cotton-based branded
readymade garments is expected to come down which
would lead to boost in demand.
Union Budget - Proposal and Impact
14.
Budget proposals Impact on the industry
Exemption of
customs duty for
new automated
shuttle looms
The exemption of new automated shuttle looms from customs
duty is expected to boost investments and capacity addition
in weaving and garment sectors which may increase
competition considering the fragmented nature of the
industry.
Union Budget - Proposal and Impact
Note
In Union Budged 2012-13, the government has announced a financial package of
Rs. 3,884 crore for waiver of loans of handloom weavers and their cooperative
societies.
15.
Domestic Growth Drivers
Increasing retail penetration
Textiles and clothing retail comprise of 40% of India’s organized retailing
Share of organized retailing to increase from about 5% currently to about
24% by FY 2020
Higher disposable income
Consistent increase in per capita income of the masses
Consumption of textiles expected to increase to about 11% CAGR
Higher percentage of working women
Propensity to spend in working women higher by around 1.3 times
compared to a housewife
Population of working women increased to about 32% from 26% in 2001
Increase in nuclear families
Avg household size decreased to about 5.0 from 5.36 in 2001
As a result, per household consumption is increasing
Favorable demographic profile
Rise in percentage of earning population (15 – 60 years) to about 60%
16.
Domestic Growth Drivers
Higher growth in urban population
Urban population growing gradually
Favorable demography coupled with rising urban population
and income levels will act as a key growth factor for the Indian
textile and apparel Industry
Increased usage of credit cards
More spending capacity
Sustainable real GDP growth outlook of around 7% p.a.
Rising disposable income for rural consumers
Rising agriculture income & increased employment generation
to drive the demand of basic textile products
Increasing industrial output, rising disposable income,
vibrant construction activity etc., to drive demand for
home textiles
17.
Export Growth Drivers
Textile manufacturing continues to shift to low cost Asian
countries
China’s growth restricted – Increasing cost of labor,
scarcity of raw material & power, rising domestic demand
Buyers need to diversify sourcing risk
Availability of raw materials, especially cotton, integrated
operations and design skills in India
Favorable demographics, rising income and population
levels, and rising retail penetration in other developing
countries (other Asian countries, Latin America etc.)
18.
After three months of sharp downturn, registration for yarn
exports shot up by 17.8 per cent in May on renewed demand from
the traditional markets, including North America and Western
Europe
Fresh demand from other markets, such as Latin America
, Russia, Japan and Africa.
US non-apparel sector (yarns and fabrics) recorded a staggering
19.5 per cent growth in Jan-April 2012.
Carpets shipments grew at an average rate of over 10 %
Government has revised upwards the textiles export target to $40.5
billion for 2012-13.
Zero per cent duty Export Promotion Capital Goods (EPCG)
Scheme for technology upgradation extended till 31 March, 2013
Market-linked focus product scheme was also extended till the end
of the current fiscal for exports to the US and the European Union
in respect of the apparel sector
Future Trends
19.
Investments Required
Segment Additional
Production
Additional Capacities Required Investment Reqd
(In Rs. Crores)
Spun Yarn 3.9 Bn. kg New Spindles – 13.6 million
Modernized Spindles – 8 million
42,000
Filament yarn 5.8 Bn. Kg Production from modernized capacity – 0.5 Bn. Kg
Production from brownfield expansion – 4.2 Bn. Kg
Production from greenfield projects – 1.1 Bn.kg
31,000
Weaving 50 Sq. m. New Shuttle-less Looms – 77 thousand
Second hand Shuttle-less Looms – 65 thousand
Semi-automatic – 2 Lakhs
Plain – 2.35 Lakhs
37,000
Knitting 76 Bn. Sq.
m.
New Machines – 84 thousand
Second hand Machines – 56 thousand
25,000
Processing 95 Bn. Sq. m. 90,000
Garment and
Made-ups
38 Bn. Pcs Machines required – 21 lakhs (for 2 shift working) 65,000
Technical
Textiles
30,000 30,000
Total 320,000
Source: Technopak
In order to capture the additional market (US$ 150 Bn) created for Textile and
Apparel by 2020, investments to the tune of Rs. 3,20,000 crores (US$ 68 Bn) across
the textile supply chain will be required
20.
Slow economic recovery and price competition from
Bangladesh, Pakistan, Vietnam etc.
Though Bangladesh is a competitor in price, it is heavily
dependent on India for raw materials (like Cotton).
High raw- material prices, high interest rates, besides
demand slowdown in its major markets caused downturn
last year
Medical, geo-textile, protective textiles & agricultural
textiles are the growing segments
Future Trends
