STRATEGIC FINANCIAL MANAGEMENT

“SECTOR - TEXTILES”

Submitted To- Submitted By-

Prof. Suvendu Bose Niraj Agarwal

ICFAI Business School

Batch of 2010

Enrollment No: 08BS0002006

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 India is the 3rd largest
producer of cotton with
the largest cotton field in
its territory.
It is the largest producer
of Jute.
It is the 2nd largest
producer of Silk.
It is the 3rd largest
producer of Yarn.
It is the 11th largest
producer of Wool.
Strengths
1. Largest producer of
natural & man-made
fibres.
2. Self sufficient in raw
materials.
3. Present throughout the
value chain.
Weaknesses
1. Highly Fragmented.
2. Lack of Investment.
3. Poor Infrastructure.
Opportunity
1. Strong market growth.
Threat
1. Competition from
other low cost players.
INTRODUCTION & BACKGROUND
Spinning of cotton thread in India dates back to 3000 B.C. The
Indian textile industry is one of the oldest and most significant
industries in the country. It accounts for around 4 per cent of the
gross domestic product (GDP), 14 per cent of industrial
production and over 13 per cent of the country's total export
earnings. Moreover, it provides direct employment to over 35
million people & indirect employment to around 88 million
people.
The Indian textile industry is estimated to be around US$ 52
billion and is likely to reach US$ 115 billion by 2012. The
domestic market is likely to increase from US$ 34.6 billion to
US$ 60 billion by 2012. It is expected that India's share of
exports to the world would also increase from the current 4 per
cent to around 7 per cent during this period.
India's textile exports have shot up from US$ 19.14 billion in
2006-07 to US$ 22.13 billion in 2007-08, registering a growth of
over 15 per cent.
As per the latest figures available with the Ministry of Textiles,
India exported textiles worth US$ 17.62 billion during April-
February 2008-09, a 7.08 per cent increase over the
corresponding period last year.
Share of textiles in total exports has fallen to 10.54% as
compared to 25% in 1999-2000.
In India the Textile sector can broadly be decomposed into-
1. Handloom – It is highly price competitive. It caters to
towels & home furnishings.
2. Powerloom – It is also highly price competitive. It
primarily caters to bed sheets. Both the sub-sectors cater to the
lower end of the market.
3. Composite Mill Sector – It is basically the branded
section of the Textile sector where majority of the big players
focus into.
4. Embroidery – It is the segment where India has its
expertise in the small scale segment. The size of the market is
around Rs 750 cr.
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 Profile of Major Players
Arvind Mills Limited REVIEW OF LATEST FINANCIAL
RESULTS
After reasonable growth in FY07 and FY08, companies
1. World‟s largest in Indian textile sector bore the brunt of poor domestic sales, low
exporter of Denim and
Asia‟s largest Denim export volumes and high raw material costs in FY09. Instead of
Producer gaining from the rupee‟s depreciation in the last fiscal,
2. Ranks amongst the top companies suffered foreign exchange losses due to their hedging
denim manufacturers mechanism. Indian textiles companies took recourse to measures
of the world such as replacing US dollar denominated export orders with
3. Also in the garment other currencies, increasing revenue from value-added products,
and men‟s shirt
and diversifying into other emerging export markets.
business under names
such as „Newport‟ The global textile industry also faced the brunt of
4. „Flying Machine‟, economic slowdown in FY09, wherein, exports to the US from
„Lee‟ and „Arrow‟ two of its largest suppliers India and China dipped in terms of
besides textiles, the value and volumes respectively. While India sustained volumes
company also has an because of better product quality as compared to China, it lost
EPBAX unit. out in terms of realizations. Competitors like Vietnam,
Bangladesh and Indonesia gained substantially because of
relatively lower labour costs.
Raymond Ltd The global textile industry also faced the brunt of
economic slowdown in FY09, wherein, exports to the US from
two of its largest suppliers India and China dipped in terms of
1. Businesses in Textiles, value and volumes respectively. While India sustained volumes
Readymade Garments, because of better product quality as compared to China, it lost
Engineering Files and out in terms of realizations. Competitors like Vietnam,
Tools, Prophylactics Bangladesh and Indonesia gained substantially because of
and Toiletries. relatively lower labour costs.
2. Leader in textiles and
apparel in India and
enjoys a prominent
position
internationally
3. Produces pure wool,
wool blended and
polyester viscose
fabrics, blankets and
furnishing fabrics.

The industry has witnessed a phenomenal growth during

the last two decades in terms of production of yarn, output of

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Bombay Dyeing
cloth and its per capita availability. There is a 7.13 per cent
compounded annual growth rate (CAGR) in cloth production,
1. One of India‟s largest 3.6 per cent in the per capita availability of fabrics and 13.32 per
producers of textiles cent in the export of textiles in the last two decades. The number
Manufactures cotton of textile mills rose from about 700 in the beginning of the 80's
and blended textiles to 1850 by 2000. The growth has been more significant in case
2. Product mix comprises of the spinning mills, which rose from 400 in 1980 to 1565 by
suitings, shirtings,
March 2000, with spinning capacity increasing from 21 million
sarees, towels and bed
linen to 37 million spindles during the same period.
3. Manufacture `Vivaldi‟
The charts below compare the financial performance of key
brand of mens
clothing. players –
4. It is also a
manufacturer of DMT

Century Textiles & Industries

1. Has Asia‟s largest

composite 100 per
cent cotton textile mill
2. The trend setter in
cotton textiles, with a
presence in yarn,
denim, viscose
filament, rayon yarn,
tyrecords, caustic
soda, sulfuric acid,
salt, cement and pulp
& paper.

Indian Rayon

1. Aditya Birla Group‟s

most diversified
conglomerate
2. Second largest
producer of viscose
filament yarn and the
largest branded
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apparel in India.
areas are viscose filament
yarn, carbon
 RECENT DEVELOPMENTS
Ministry of Textiles, under Dayanidhi Maran is very bullish on the sector with the rising
purchasing power of the middle class along with demand from the developed economy.
It is one of the sectors where 100% Foreign Direct Investment (FDI) is permitted.
Ministry has set up a special FDI cell to strengthen and promote FDI in this particular
sector.
Though Union Budget did not bring any cheer for this sector, as the demands for
scrapping service tax and excise duties were not met but the allocation of Rs 3140 cr
under TUFS for cheaper loans did provide some relief to the cash trapped sector.
The industry requires close to USD 40 billion to compete with the global players, it
would be possible with the opening up of the economy and the targets set in the “New
Textiles Policy”.
The global economic slowdown has impacted the textile sector badly, both in regard to
exports and in regard to domestic sales. In order to provide an impetus to the sector the
government had, as part of the stimulus package, exempted pure cotton textiles from the
levy of excise duty altogether, perhaps with an intent to make textile exports more
competitive. However, this has had an unintended effect on companies manufacturing
textiles for the domestic market as the unconditional exemption led to accumulated input
tax credits which the manufacturers were not able to pass on to customers through
increased prices of textile products.
In order to further rationalise the duty structure in the textile sector, the duty rates on
various items have been increased to the 8% levels. Also, in a bid to balance the
increased duty structure on the finished goods with that of the inputs, the duties on major
textile intermediaries like polyester chips, Di-methyl terephthalate (DMT), Pure
terephthalic acid (PTA) and acrylonitrile has also been increased from 4% to 8%. These
measures are also indicative of the inclusion of the textile sector in the GST regime and
for the GST rate on textile goods to be at the 8% level.
With retailers like Wal-Mart, JC Penney and GAP planning to substantially increase their
outsourcing from India and FDI in single brand retailing making its way into the country,
the opportunities for domestic apparel exporters are immense. As per the Government of
India targets, while India's textile export is poised to grow from US$ 13 bn (3.3% of
world textile trade) to US$ 50 bn (8.9%) by FY10, at a CAGR of 21%, its share in
apparel and garment exports are set to double and triple respectively until FY10.
However, oversupply led pricing pressures and forex losses continue to mar the long-
term earnings visibility of the textile companies.
In an effort to increase India's share in the world textile market, the government has
introduced a number of progressive steps.

o 100 per cent FDI allowed through the automatic route.

o De-reservation of readymade garments, hosiery and knitwear from the small-scale
industries sector in end-2000.
o Technology Mission on Cotton was launched in February 2000 to make quality
raw material available at competitive prices.
o Technology Upgradation Fund Scheme (TUFS) which was launched to facilitate
the modernisation and upgradation of the textiles industry in 1999 has been given

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 further extension till 2011-12. A total of 18,773 applications involving a project
cost of US$ 24.91 billion have been sanctioned under TUFS up to March 31,
2008. The government has given a further subsidy of US$ 533.9 million under
TUFs to underpin its modernisation efforts for meeting market challenges and
enabling it to stay competitive in quality and price.
o 40 textile parks are being set up under the Scheme for Integrated Textile Parks
(SITP) which will attract an investment of US$ 4.38 billion.
o The government has also announced a US$ 618 million financial package to
waive loan overdues of handloom cooperatives and make available loans at
concessional rates for the industry.
o The government is also implementing five new schemes during the 11th Five-
Year plan period (2007-12) for the development of the handloom sector and the
welfare of weavers.
o These schemes are namely, the Integrated Handloom Development scheme, the
Handloom Weavers' Comprehensive Welfare scheme, the Marketing and Export
Promotion scheme, the Mill Gate Price scheme and the Diversified Handloom
Development scheme.
India has gained immensely through the abolition of quotas on textiles imports by the US
and EU after the “Agreement on Textiles & Clothing (ATC)” was abolished. From a
regime of quota now they source directly based on quality and lead time thus benefitting
India.
Porter‟s Five Forces model to show the competitive position of the Textile Industry –

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Problems faced by the
Textile Industry –
Economic downturn has
severely affected the
industry.
Lack of quality, scale &
Finance.
Exports fallen by more
than 10% in last fiscal.
Weaving needs help on
priority basis.
Outdated technology leads
to lesser production , poor
quality of clothes and
hence less competitive
edge.
Some stakeholders do not
want to upgrade as that
will take the subsidized
power from them and
resulting into increase in
the range of 5-10 rupee
per unit of consumption.
Competition from low
cost countries such as
China, Bangladesh &
Turkey is huge.
RECOMMENDATIONS
1. Big ticket investment both from public and private sector
is a must.
2. National Fibre Policy to fibre neutrality and reduction in
rates.
3. Technological Up gradation & Fund Scheme (TUFS) ON
weaving as well to help the farmers.
4. Exploration of newer markets such as Japan & Australia
to export products to diversify the consumer base. This will
prevent India‟s Textile Industry from any furthus economic
downturn which hurt the US, the most.
5. Since India has a young and vibrant population with
median age of just 24, its domestic demand is bound to grow. So
some stimulus must be provided by central ministry to upgrade
and modernize the sector.
6. India has the lowest wage rate compared to competitors
but is unable to use the competitive advantage as its yield per
hectare for cotton is very low. It must develop its cotton sourcing
power.
7. It can strengthen its Research & Development (R & D)
by importing technology and machinery.
8. To minimize the lead time , India can furthur strengthen
its supply chain and textile clusters.
9. India can develop the service aspect of Textile Industry
thus promoting it as a brand to the developed world. For the
same to be successful it needs finance and world class training &
development. It will lead to higher FDI.
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 REFERENCES
http://www.businessworld.in/bw/2009_08_04_We_Will_Take_Brand_India_To_New_M
arkets.html
http://www.businessworld.in/bw/2009_08_07_Cash_Prop_For_Textiles.html
http://www.businessworld.in/bw/dataPage/tag/textiles
http://www.businessworld.in/index.php/The-New-Stitch.html
http://www.mckinseyquarterly.com/Freeing_Indias_textile_industry_1467
http://www.ey.com/Publication/vwLUAssets/India_in_the_Global_Textiles_Ecosystem_
EY___CII_Report/$FILE/India%20in%20the%20Global%20Textiles%20Ecosystem%20
EY%20&%20CII%20Report.pdf
http://www.adbi.org/e-newsline/090203.html#5
http://www.ficci.com/ficci-in-news-page.asp?nid=2998
http://www.imf.org/external/pubs/ft/wp/2005/wp05214.pdf
http://www.in.kpmg.com/Sectoral_Snippets/Misc/SectoralSnippets_Issue36.pdf
http://www.ibef.org/industry/textiles.aspx
http://in.reuters.com/article/domesticNews/idINBOM15015720090706?pageNumber=2&
virtualBrandChannel=0
http://www.business-standard.com/general/pdf/new_tax_code_090709_05.htm

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