Indian Textile Industry

INDIAN TEXTILE INDUSTRY

Indian Textile Industry

• One of the leading Textile Industry in the world• Contributes about 14 percent to industrial

production of India• 4 percent to the GDP of India• 17 percent to the country's export earnings• Direct employment to over 35 million people• Second largest provider of Employment after

Agriculture

History

• India is traditionally strong in textile production capabilities and in raw materials because of its strong relation with agriculture for natural fibers

• Indian textile enjoys a rich heritage and the origin of textiles in India traces back to the Indus valley Civilization where people used homespun cotton for weaving their clothes

• Tata, Ambani, Birla – all have started their business lives from the textile industry

Post Independence Era

• Strong Inward-looking policy• Decades of restrictive government policies & Strict

Industrial Licensing Regime• Favoured Small scale operations only, lead to

decentralized individual sectors.

• The processing and weaving sectors in particular are highly fragmented and technologically less advanced.

Post Liberalization

• Industrial Policy 1991 – relaxed several licensing requirements, raised the maximum limits on allowable investment and reduced import controls

• Businesses were also encouraged to modernize their technological base

• However, the sector remained largely stagnant and decaying during the 1990s when several large mills closed and several traditional entrepreneurs moved out of the textile trade

• It received a real boost only in the past five-six years as the general economy has substantially improved, leading to a surge in demand

Multi Fibre Agreement (MFA)

• The Multi Fibre Arrangement (MFA) governed the world trade in textiles and garments imposing quotas on the amount developing countries could export to developed countries

• 1974 – 2004• Developing countries have a natural advantage in textile

production because it is labor intensive and they have low labor costs

• However it turned out to be fatal to the developing countries like India, eating into their profits in a huge way. The system has cost the developing world 27 million jobs and $40 billion a year in lost exports.

Post MFA

• Indian Textile Industry is going through a major change in its outlook after the expiry of Multi-Fibre Agreement

• Increased investments into textile projects• The removal of the quota system has brought

the strong players in full swing – Increased Competition from China and Korea

• Increased Government Policies for its rapid growth

Government Regulations

• Ministry of Textiles in India is responsible for policy formulation, planning, development, export promotion and trade regulation in the textile sector

• Established Technology Upgradation Fund Scheme(TUFS)• Scheme for Integrated Textile Park (SITP)• Allocation of huge Budget amount to handicrafts and handlooms• Mega clusters in handlooms, handicrafts and powerloom sectors• Reduction in corporate tax rate from 35% to 30% with 10%

surcharge.• 100% FDI Allowed• Numerous Other Policies for Individual Sectors

Vertical Integration

• Cultivating and Harvesting (Natural Fibers)

• Preparatory Processes• Manufacture of Artificial

Fibers• Spinning• Weaving• Processing and Finishing• Marketing

• Cotton Textiles• Silk Textiles• Woollen Textiles• Readymade Garments• Hand-crafted Textiles• Jute and Coir

INDUSTRY ANALYSISPorter’s Five Forces

Competitive Rivalry

within the industry

Threat of New

Entrants

Bargaining power of

Customers

Threat of Substitutes

Bargaining power of Suppliers

Concentration ratio

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

00.020.040.060.08

0.10.120.140.160.18

0.2

4 firm concentration ratio

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

0

0.05

0.1

0.15

0.2

0.25

0.3

8 firm concentration ratio

Competition

• In the year 1995, WTO had renewed its Multi Fiber Agreement and adopted Agreement on Textiles and Clothing (ATC) which stated that all quotas on textiles and clothing shall be removed among the WTO member countries by 2005

• the Indian textile and clothing sector received an insignificant FDI inflow of only US$ 450.02 million between 1991 and March 2006, amounting to just 1.16 per cent of total FDI of US$ 38.96 billion

• The weak presence of major buyers such as Wal-Mart, Sears, Nike and Liz Claiborne hindered the organization of the domestic product towards substantive exports.

Herfindahl Index

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

0

20

40

60

80

100

120

140

160

180

200

HHI

HHI

Competition

• The MFA phase out had a very controversial impact on the operating profits of the firms

• Some firms continuously earned profits whereas some ran into losses

• The open market situation, with the abolition of the quota system, the global textiles market is witnessing tough competition situation.

• The firms with large scale capacity and a sound capital base are able to fight the situation and sustain their profits.

Major players over the years

Mar-91

Mar-92

Mar-93

Mar-94

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

0

20000

40000

60000

80000

100000

120000

140000

Grasim Industries Ltd.Century Enka Ltd.Raymond Ltd.Bombay Dyeing & Mfg. Co. Ltd.J C T Ltd.Madura Coats Pvt. Ltd.Indo Rama Synthetics (India) Ltd.Vardhman Textiles Ltd.Arvind Ltd.Alok Industries Ltd.

Sales over the entire industry

Mar-91

Mar-92

Mar-93

Mar-94

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

0

200000

400000

600000

800000

1000000

1200000

1400000

OthersAlok Industries Ltd.Arvind Ltd.Vardhman Textiles Ltd.Indo Rama Synthetics (India) Ltd.Madura Coats Pvt. Ltd.J C T Ltd.Bombay Dyeing & Mfg. Co. Ltd.Raymond Ltd.Century Enka Ltd.Grasim Industries Ltd.

Major Players

• Grasim: Viscose Staple Fiber: VSF volumes fell 18.2% yoy in Q1’09,while realization rate declined 5.1% qoq. Demand for VSF slowed down due to the sluggishness in the US market and the substitution effect on account of high VSF prices.

• Alok industries: Robust growth on account of aggressive capacity expansions, strong volumes & healthy realizations; net margins impacted by mark-to-market forex losses

• Others: Highly fragmented small players owning bulk of the market.

BARGAINING POWER OF SUPPLIERSCotton-based Textiles• India is the 2nd largest producer of cotton in the world - cotton fibre based textile

products constitute around 60% of total textile products.• About 70% of total cotton production is accounted for by the states of Gujarat,

Maharashtra and Andhra Pradesh – small farmers – highly fragmented.• Minimum Support Price set by government.Jute-based Textiles• India is the major producer of both raw jute and jute products. India accounted for

60% of world production in 2007-08 –highly fragmented sector. Man-made Fibres(MMFs)• India is the second largest producer of man-made fibres in the world with

presence of large plants having state-of-the art technology - MMF textiles constitute almost two-third of the domestic textile market.

• Raw materials like PTA, MEG are manufactured locally. • Some materials like Acrylonitrile and rayon grade wood pulp are imported due to

insufficient domestic production.

BARGAINING POWER OF CUSTOMERS

• Large and fragmented domestic potential for both raw material manufacturers as well as textile manufacturers.

• Exports have increased by 60.14% from 2004-2005 to 2009-2010.

• Exports are affected greatly by the exchange rate, global economic scenario.

Indian Textile Exports in 2010-2011

USA36%

UAE14%

UK12%

Germany11%

Bangladesh7%

France5%

Italy2%

Spain5%

China5%

Turkey4%

THREAT OF NEW ENTRANTS

• Industry is very fragmented – no distinctive barriers to entry

• TUFS - for additional capacity building, better adoption of technology.

• Minimum Support price for natural fibers.• Easy displacement of existing players – Grasim

Industries.• Focus on technology upgradation, capacity

expansion, operating efficiency, larger share of exports.

THREAT OF SUBSTITUTES

• No obvious substitutes.• Substitutes in terms of exports - intense

competition from China and Bangladesh due to low cost of production.

SALES GROWTH

Jan/91 Jan/92 Jan/93 Jan/94 Jan/95 Jan/96 Jan/97 Jan/98 Jan/99 Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 Jan/100

200000

400000

600000

800000

1000000

1200000

1400000

Textile Sales

SALES GROWTH - CAGRLPG

1991-1995 1995-2000 2000-2005 2005-2010 1991-2000 2000-2010 1991-20100

5

10

15

20

25

NTPS & TUFS (1999)

Post MFA

ASSETS GROWTH

Jan/9

1

Jan/9

2

Jan/9

3

Jan/9

4

Jan/9

5

Jan/9

6

Jan/9

7

Jan/9

8

Jan/9

9

Jan/0

0

Jan/0

1

Jan/0

2

Jan/0

3

Jan/0

4

Jan/0

5

Jan/0

6

Jan/0

7

Jan/0

8

Jan/0

9

Jan/1

0 -

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

1,200,000.00

1,400,000.00

1,600,000.00

1,800,000.00

Textile Assets

Textile Assets

MARKET CAPITALIZATION

Jan/91 Jan/92 Jan/93 Jan/94 Jan/95 Jan/96 Jan/97 Jan/98 Jan/99 Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 Jan/100

100000

200000

300000

400000

500000

600000

700000

800000

Industry Market Cap

MARKET CAPITALIZATION

Jan/9

1

Jan/9

2

Jan/9

3

Jan/9

4

Jan/9

5

Jan/9

6

Jan/9

7

Jan/9

8

Jan/9

9

Jan/0

0

Jan/0

1

Jan/0

2

Jan/0

3

Jan/0

4

Jan/0

5

Jan/0

6

Jan/0

7

Jan/0

8

Jan/0

9

Jan/1

0

Jan/1

10

100000

200000

300000

400000

500000

600000

700000

800000

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

Industry Market CapSensex Market cap

Trends in RoS

Jan/91 Jan/92 Jan/93 Jan/94 Jan/95 Jan/96 Jan/97 Jan/98 Jan/99 Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/110

0.02

0.04

0.06

0.08

0.1

0.12

median - Return on sales

II IIII IV V VI VIITenth five year plan Post MFA policies by

govtBudget provisionRaw mat.

costsNTP

Phase III

• Policy reforms in the textile sector• Setting up textile parks• Dealing with removal of raw material price

distortions• Modernisation of outdated technology

National Textile Policy 1999

Phase VI

• Since January 1, 2005, the Textile and clothing industry has been fully integrated into the World Trade Organisation (WTO).

• For boosting the industry post MFA, the government has launched competitive progressive policies, whose salient features included

• Established Technology Up gradation Fund Scheme for its longevity through a Rs 4.35 billion$ allocation.

• Reduction in corporate tax rate from 35% to 30% with 10% surcharge.

• Reduction in depreciation rate on plant and machinery from 25% to 15%.

Post MFA period

Phase VII

• To promote the exports and stimulate the industry the government has introduced a lot of sops. Some of the key measures were

• Reduction in customs duty from 5% to 3%• Ten more countries came under Focus Market Scheme(special

tax sops provided).• Refund of service tax upto 10%.• Credit targets of public sector banks revised upwards to meet

the needs of sector.• Guarantee cover provided upto 1 Crore.

Budgetary provisions

RoA


0.02

0.04

0.06

0.08

0.1

0.12

0.14

I II VIBudget impetus

VSITP

IVTIDS

IIITUFS

Phase III

• Technology up gradation fund scheme was launched on 1999

• Provide credit at reduced rates to the entrepreneurs both in the organized and unorganized sector.

• Propelled investments up to 1,66839 Crores.

Technology Upgradation Fund Scheme

Phase V

• In 2005 government of India launched Scheme for Integrated Textile Park (SITP) to create new textile parks of international standards at potential growth centres.

• 40 Integrated textile parks(ITP) were established with following facilities.

• Land, Machinery, Buildings, Infrastructure required for the parks are provided by government

• Central Govt. to provide one time financial assistance of 40% of the project cost (up to 40 crore for each Park) and technical support through reputed institutions as PMCs in establishing the Parks

• Sub sectors such as cotton ginning, spinning, texturing, weaving, processing, garmenting are covered.

Scheme for Integrated Textile Park

MB Ratio


0.5

1

1.5

2

2.5

3

II III IVI V

FDI Rupee Appreciation

BT Cotton

Budget provisions

FDI Inflows(in million$) in textile industry

2000 2001 2002 2003 2004 2005 2006 2007

Textile industry

1.9 4.5 45.9 18.2 38.8 79 117.5 40.1

Phase II Huge FDI Inflows into textile industry

Phase III Textile Exports effected by rupee appreciation.

Phase IV Global slowdown BT Cotton issue

Phase V Budgetary provisions made by government

THANK YOU

Documents

Indian Textile Industry