India: The Next Big Frontier for Textiles

5th August 2014

Prashant Agarwal

Jt. MD and Co Founder - Wazir Advisors

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Presentation Flow

1 Global Trade

2 Changing Pattern of Fibre Consumption at Global Level

3 Disconnect in Fiber Consumption in India vis-à-vis Global Level

4 Opportunities for Indian Textiles Industry in Domestic & Export Market

5 Action Plan for Indian Textile Players

6 Global Study: ‘India: The Next Big Influence in Global Textile’

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360

504 556

616 628 542

630

738 686

770

2000 2005 2006 2007 2008 2009 2010 2011 2012 2013

Global trade of textile & apparel stands at US$ 770 bn. today

The global trade in textiles and apparel has grown at a CAGR of more than 6% from 2000 to 2013

In 2012, it slightly dipped to US$ 686 bn. from US$ 738 bn. in 2011 but grew at a level of US$ 770 bn. in 2013

In US$ Billion

Global Trade in Textile and Apparel

Date Source: UN Comtrade

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India is the second biggest exporter of textile & apparel

Country 2013 Exports

China 274

India 40

Italy 36

Germany 35

Turkey 28

USA 27

Bangladesh 26

Vietnam 22

Belgium 16

France 16

Rep. of Korea 16

Spain 16

Pakistan 14

Indonesia 13

Largest Exporters of T&A

Date Source: UN Comtrade

2nd in Textile

Export with 7% Share

6th in Apparel

Export with 3.7% Share

2nd in Global

Export with 5.2% share

India’s Ranking in Global T&A Trade in 2013

India has potential to double its export share from present

5% to 10% in next 10 years

Values in US$ Billion

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Globally polyester consumption is growing & will continue to grow further

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2000 2005 2010 2015

Kte

s

World Mill Consumption by Fibre

Polyester Nylon Acrylic

Viscose PP&Other Cotton

0

2,000

4,000

6,000

8,000

2000 2005 2010 2015 2020

Kte

s

World Mill Consumption by Fibre (excl Polyester and Cotton)

Nylon Acrylic Viscose PP&Other

20%

25%

30%

35%

40%

2000 2005 2010 2015 2020

Cotton Share of World Mill Consumption

Cotton Share

Polyester continues to grow market share. Other MMFs have relatively flat volumes

Date Source: PCI

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Polyester 63%

Nylon 15%

Acrylic 1%

Viscose 21%

Industrial Textile

Apparel 50%

Home 7%

Industrial 43%

Nylon 6 & 66

Apparel 65%

Home 27%

Industrial 8%

Polyester

Polyester 83%

Nylon 6%

Acrylic 4%

Viscose 7%

Fibre Market by Product

Polyester dominates in all end use categories

Polyester 85%

Nylon 5% Acrylic

4%

Viscose 6%

Apparel

Polyester 91%

Nylon 2%

Acrylic 4%

Viscose 3%

Home Textile

Apparel 60%

Home Textile

24%

Industrial Textile

16%

Textile Market by End Use

2012 Total 51,920 KT

2012 Total 31,332 KT

2012 Total 8,216 KT

2012 Total 12,372 KT

Apparel 65%

Home 30%

Industrial 5%

Acrylic

Apparel 46%

Home 9%

Industrial 45%

Viscose

2012 Total 41,080 KT

2012 Total 2,859 KT

2012 Total 1,872 KT

2012 Total 3,642 KT

2012 Total 49,453 KT

Excludes PP & Others

Date Source: PCI

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But Indian textile industry is still Cotton focussed

Indian textile industry is primarily cotton focused with cotton accounting for nearly 55% of total fibre consumption in 2012

However, consumption of polyester fibre is gaining momentum due to factors like fluctuation of cotton prices, increased presence & sourcing by global brands where polyester fibre dominates, growth of women’s wear segment, growth of value retail etc.

60% 59% 59% 59% 58% 56% 55%

34% 35% 35% 35% 36% 37% 38%

6% 6% 6% 6% 6% 7% 7%

2000 2007 2008 2009 2010 2011 2012

Cotton Polyester Others

Date Source: Fibre Policy 2011, Wazir Analysis

Fibre Consumption Trend in India

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India’s overall share in global textile and apparel trade is about 5% in 2013.

However, out of total 864 textile and apparel commodities* traded in 2012 there are 317 commodities in which India had a share less than 1%.

Collective trade in these commodities is ~ US$ 208 bn., while India’s trade in them is only ~US$ 385 mn. (0.19%).

The untapped opportunity remains in MMF based product categories, which can give an exponential growth to India’s export of textile and apparel.

India’s presence is insignificant in some of the major MMF based product categories

* At 6 digit HS code level Data Source: UN Comtrade

India’s Trade Share in Top Traded MMF based Apparel Categories in 2012

Category End user Type Total Trade

(US$ Billion) Indian Trade (US$ Billion)

Share

Jerseys, pullovers, cardigans, waistcoats - Knitted 18.05 0.03 0.20%

Overcoats, capes, cloaks, wind-cheaters, etc. M/B Woven 6.58 0.001 0.02%

Overcoats, capes, cloaks, wind-cheaters, etc. W/G Woven 5.94 0.001 0.02%

Dresses W/G Woven 5.1 0.35 6.90%

Trousers, bib and brace overalls, breeches and shorts M/B Woven 4.85 0.07 1.40%

Blouses, shirts and shirt-blouses W/G Woven 4.3 0.37 8.60%

Dresses W/G Knitted 4.07 0.06 1.50%

Note: M/B – Men’s/Boys’; W/G – Women’s/Girls’

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Globally consumption of polyester will increase further

Till 2000, fibre consumption at global level was majorly cotton focussed.

By 2030, it is expected that consumption of polyester will be more than double to that of the cotton fibre.

37% 36% 36% 35% 33% 31% 31% 30% 27%

36%

43% 44% 46% 48% 50% 50% 52%

59%

27%

21% 20% 19% 19%

19% 18% 18% 14%

2000 2007 2008 2009 2010 2011 2012 2020 (P) 2030 (P)

Cotton Polyester Others

Date Source: PCI Fibres

Widening gap between

Polyester and Cotton fibre

consumption

Global Fibre Consumption Trend

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Consumption of Polyester based products will increase in domestic market as well

Volatility and upward trend of cotton price has already pushed the fibre mix in favour of Polyester for major apparel an home textile products. Following are the few major trends which will help increased consumption of Polyester fibre in domestic market:

Increasing women participation in workforce will push the demand of western office wear, party dresses as well as lingerie

India’s large young population base with increasing awareness towards fitness will increase the consumption of active-wear / sportswear

Increasing no. of school going children & consciousness of corporates towards their image are likely to create more usage of school & corporate uniform

Awareness of Indian women towards health and hygiene will cause increased women hygiene product usage

India’s emergence as global automobile manufacturing hub will surge the demand of technical textile products like seat belts, airbags, seat covers and headliners

Stricter compliance norms and increasing workers’ awareness towards health and safety will create large demand for protective wear products

To reap maximum benefit of the future scenario, India needs to focus on manufacturing of Polyester based textile products

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China, Taiwan & South Korea are the Global leaders in MMF based fabric

Top ten exporters of MMF based fabrics constituted 75% of world’s total trade in 2012

China has over dominance in the exports of MMF based fabrics with 40% share followed by Taiwan having export value only one eighth of China

35%

4% 4% 4% 5%

5%

5%

6%

6%

27%

2007

China

Italy

Taiwan

Germany

South Korea

USA

Turkey

France

Japan

Others

36%

4% 4% 4% 5%

5%

6%

6%

31%

2008

China

Italy

Taiwan

Germany

South Korea

USA

Turkey

Japan

Others

34%

4% 4% 4% 5%

5%

5%

6%

33%

2009

China

Taiwan

Italy

South Korea

Germany

USA

Turkey

Japan

Others

37%

4% 4% 5% 5%

5%

5%

35%

2010

China

Taiwan

South Korea

Italy

Germany

USA

Turkey

Others

36%

4% 4% 5% 5% 5%

5%

38%

2011

China

Taiwan

South Korea

Germany

Italy

USA

Turkey

Others

38%

4% 4% 4% 5% 5%

40%

2012

China

Taiwan

South Korea

Germany

Italy

USA

Others

No. of Countries

9 8 8 7 7 6

Countries with > 4% Share in Global Exports of MMF Based Fabrics

Date Source: UN Comtrade

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Taiwanese competitor Chinese competitor South Korean competitor

Far Eastern New Century

Jiangsu Hengli Group

Hyosung

Polyester fibre & filament, spun yarn, knitted & woven fabric, apparel

Polyester filament yarn, garment fabric and home textile fabric

Polyester, Nylon, Spandex fibre & filament, Aramide & carbon fibre, performance fabrics and carpets

Fibre & filament manufacturing , spinning, weaving/ knitting, processing and apparel manufacturing

Filament manufacturing and weaving

Fibre & filament manufacturing, weaving and processing

PSF: 360,000 MT PFY: 150,000 MT Spun Yarn: 395 MT Fabric: 22,000 MT Apparel: ~83 million pcs.

PFY: 600,000 MT Loom: 12,000 (hydraulic & air-jet)

Spandex: 150,000 MT Processing: 2.3 million meter

Company reported revenue of US$ ~8 billion in FY 2013

Group had consolidated revenue of US$ 5.3 billion in FY 2010

Group reported consolidated revenue of US$ 10 billion in FY 2013

Leading companies in MMF based textile manufacturing are mostly vertically integrated with big capacities

Company

Products

Revenue

In-house Facilities

Capacities

Date Source: Company Websites

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India has to work across its value chain

Staple fiber

Filament

Yarn spinning

Knitting Weaving

Processing

Garments Home

Textiles Technical textiles

• Existing Indian manufacturers can scale up the capacities but for specialty fibers, we will see international players investing on their own or in partnership with Indian players

• Existing Indian yarn spinners are competitive globally. They will be able to meet the demand growth through expansions as and when required

• Significant investments will be required in knitting including warp knitting.

• Weaving infrastructure will need to be upgraded to handle specialty yarns and complex fabric types

• Processing will be the main challenge for Indian sector

• Players will have to opt for tie-ups with international partners for technical and market exposure

• Industry will have to focus on design and product development aspect to sensitize demand growth

• Technical textiles investments will be required from Indian as well as international players

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Fiber Manufacturing

Spinning Fabric

Manufacturing Processing Garmenting

Attractive Investment opportunities

Investment in MMF based fabric manufacturing, processing as well as garmenting is an attractive investment opportunity

India is leading man-made fibre manufacturer of the world and has over capacity of manufacturing polyester fiber

India is globally very competitive in spinning and enjoys leading position. The intra-industry competition level is very high and it is majorly a commodity business. It would be difficult for any new entrant to establish itself in this business scenario.

• Investment in fabric manufacturing will open immense opportunities in garment sector

• Bigger players can leverage this opportunity by setting large scale factories with defined process systems

• Indian players can bring high end garment manuf. technology in JV with Korean, Chinese, Japanese companies

• Weak-link in manmade fibre based textile value chain of India

• Smaller units are unable to take the advantage of economy of scale

• Too many players are involved in this part of the value chain, which increases the cost & degrades the quality of service

• Most units have old technology, which are not suitable for high quality products

• Focus is on commodity products

• Lot of MMF based processed fabric are imported to India

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Indian textile industry will consume more Polyester than Cotton within next five years

Share of manmade fibre in total mill consumption is expected to reach ~65% by 2030. However, the share of cotton is expected to decrease from current level of ~55% to 32% by 2030.

A drastic change is expected in the mill consumption of polyester fibre, share of which is projected to grow to 53% (9,455,000 MT) by 2030

Values in ‘000 MT

Source: Wazir & PCI Analysis

40% 41% 42% 43% 44% 45% 46% 53%

6% 6% 6% 7% 7% 8% 8% 11%

51% 48% 47% 46% 45% 44% 43% 32%

3% 4% 4% 5% 4% 3% 3% 5%

2014 2015 2016 2017 2018 2019 2020 2030

Polyester Other MMF Cotton Other Natural Fibres

10189 9163 9741 10670 11093 11392 17951 11678

Total Fibre Consumption At Mill Level

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The Next Big Influence In Global Textiles

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Coverage of Study Report

Chapter 1 • Global economic scenario with India in perspective (FY2013 – FY2025)

Chapter 2 • Global Textile & Apparel Industry

Chapter 3 • Indian Textile & Apparel Industry

Chapter 4 • Current and future structure of India’s polyester industry (Fibres, PET and Film)

Chapter 5 • India’s polyester based textile value chain (yarn, weaving, knitting to apparel)

Chapter 6 • Investment climate for India’s textile industry

Chapter 7 • Textile industry profiling of selected Asian countries

Conclusion

• Based on the analysis done, it will be concluded how India can influence the global textile industry by playing a major role in global polyester based textile trade

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Benefits of the Study

This report provides a comprehensive study of global textile supply chain. Investors as well as existing players can understand various trends which will lead textile industry’s future.

Benefits of the study

Insights of global scenario in Textile Supply Chain

India’s positioning in global textile industry

Investment opportunities in India

Analysis of various gaps in Indian textile industry vis-à-vis its competing countries will divulge various opportunities in the Indian textile industry.

To bridge the gaps in Indian textile industry, investment opportunities will be identified. Thus, enhancing the prospects of investment through FDI or JVs with Indian companies.

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Prashant Agarwal Joint Managing Director prashant.agarwal@wazir.in +91 9871195008 Wazir Advisors Pvt. Ltd. Tel : +91 124 4590 300 www.wazir.in