Indian Textile Industry

October 2006

Contents

Market Overview

Government regulations & policy

Business opportunities and Advantage India

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IMaCS 2006 Printed 28-Apr-12 Page 2

Indian Textile industry - important from perspective of overall economy

Total market size (2004-05): USD 38 bn

Domestic market ~ USD 25 bn Exports ~ USD 13 bn

Strong contribution to Indian Economy

14% contribution to industrial production 4% contribution to GDP 16% contribution to export earnings Direct employment to more than 35 million people

Industry functions in the form of clusters (roughly 70 in number) across India, producing 80% of the countrys total textile

Sector is diverse, with the hand-spun and hand woven sector at one end of the spectrum, and the capital intensive, sophisticated mill sector at the other

Source: Ministry of Textiles Annual Report, Industry Research

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India has a strong base in raw materials

Cotton dominates the industry

Nearly 56% of yarn produced is made of cotton Country produces nearly 23 varieties of cotton India is the second largest player in the world cotton trade

Indias position is strong vis--vis other countries in most raw materials

Largest producer of jute

Second largest producer of silk Third largest producer of cotton, accounting for nearly 16% of global production Third largest producer of cellulosic fibre/yarn Fifth largest producer of synthetic fibres/yarn Eleventh largest producer of wool

Abundant availability of raw material is one of the key advantages of the Indian textile industry

Source: Ministry of Textiles Annual Report, Industry Research

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Industry fragmented and dominated by small scale units

Spinning 100% = 2922 mills
Composite mills 8%

Weaving 100% = 5.83 million units

Processing & manufacturing

Organized sector 2%

Small Large independent independent units units 39% 53%

Powerloom Handloom 31% sector 67%

Of the 2300 processors in India, only 200 units are integrated with spinning, weaving or knitting units Bulk of apparel and home textile manufacturing accounted for by 77,000 small scale units

The textile industry across the value chain is largely decentralised

Units mostly independent and small scale in nature, rather than composite units undertaking all activities together Large scope for entry of organised integrated textile manufacturers

Source: Compendium of Textile Statistics, 2004

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Manufacturing units present at all levels of value chain

Raw materials Cotton, wool, silk, jute Fibres and yarn Grey fabric Knitting Weaving Petrochemicals Man-made fibre/ filament yarn* Processed fabric Dyeing Finishing Home textiles Garments

Production unit

Spinning mills

Weaving/ knitting units - handlooms, powerlooms, hosiery units

Hand processing units, independent power processing units, units attached to mills

Garments & home textile producers

Composite Mills
*Includes viscose staple fibre, polyester staple fibre, acrylic staple fibre, viscose filament yarn, nylon filament yarn, polyester filament yarn
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Source: Industry Research

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Industry experiencing high growth

Yarn production million tonnes
3.4 3.1 8% 100% non cotton yarn Blended yarn 17% 2.4 8% 20% 10% 17%

CAGR
3.6% 6.0% 3.8%

Cloth production billion sq. mtrs

38.6 100% non cotton cloth 31.5

CAGR
45.0 4.1% 8.9% 41%

36% 15% 13% 4.6%

27%

Blended cloth 13% Cotton yarn

75%

72%

73%

3.2%

Cotton cloth

60%

49%

46%

0.9%

1996

2000

2006

1996

2000

2005

Increased output of yarn and fabric - CAGR of 3.6% and 4.1% respectively; global market has grown at a CAGR of 2-2.5% in this period
Highest growth seen in 100% non cotton yarn and fabric, followed by blended yarn and fabric Cotton cloth continues to dominate the industry
Source: Compendium of Textile Statistics
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Exports are dominated by readymade garments

800 700 600 500

Textile exports
100% = INR 390 bn 9% 5%

100% = INR 654 bn 7% 13% 25% 55%

34%
400 300 200 100 0

52%

Year 2005-06

Readymade garments
Cotton yarn, fabric & made-ups

100% = INR 199 bn 10% 4% Year 1999-00 51%

Manmade staple fibres, yarn, fabric & made-ups Silk & woolen textiles, cotton raw, incl waste

35%

Year 1994-95

Readymade garments dominate textile exports Share of manmade textiles in overall textile export basket has risen, whereas that of cotton textiles has fallen
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Source: Ministry of Textiles

Dismantling of quotas has resulted in higher growth in large markets

In the first nine months of CY2005, US imports grew by

Share in US textile and clothing market

15.0%

Share in EU textile and clothing market

9.0% 7.3% 6.0%

7% to USD 8.9 bn and EU imports grew by 3.7% to Euro 54.5 billion

4.4%

5.2%

India has been one biggest beneficiaries in post quota

2004

1st 9 months of 2005

2008*

2004

1st 9 months of 2005

2008*

regime in these two markets, while countries like Mexico, South Korea and Turkey have lost share

*Forecasts
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Source: WTO study on gainers and losers post quota abolishment

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Going forward, exports as well as domestic market to drive growth

Drivers of exports

Rising outsourcing budgets of retail giants Indian companies evolving from mere converters to vendor partners of global buyers Large outsourcing orders helping Indian companies build capacities, lower their per unit cost and become more competitive Imposition of caps on certain import segments from China by EU and US given the surge in Chinese exports has opened up opportunities for India

Market size estimates USD bn 65

30

37
Exports 12

Domestic market

25

35

Drivers of domestic market

Growing young population Rising household income levels Growth of organised retail

2005

2010*

*Forecasts Source: Research commissioned by Confederation of Indian Textile Industry

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Contents

Market Overview

Government regulations & policy

Business opportunities and Advantage India

www.imacs.in

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Industry has witnessed a change in regulations

Emphasis on increasing scale Post 1985 Emphasis on small scale sector Pre 1985

Importance given to cotton textiles Favourable fiscal treatment given to powerlooms (mainly tiny and smallscale units) as compared to composite mills Most segments reserved for smallscale industry (SSI)* Restrictions on installation of automatic looms

Many segments (especially readymade garments, knitwear and hosiery) deserved from reservation for SSI Schemes for technology upgradation and modernisation introduced Multifibre approach adopted; emphasis on man made and synthetic fibres, in addition to cotton Taxation structure made simpler

*Latest definition: Investment in plant & machinery of INR 10 million for most industries, INR 50 million for specified industries like hosiery, hand

Measures aimed at improving competitiveness of industry to face a post quota regime

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tools, drugs & pharmaceuticals, sports goods and stationery items

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Several government initiatives targeted to attract investments

Technology Upgradation Fund Scheme

Scheme launched in 1999 to provide firms access low interest loans for technology upgradation and setting up new units with state-of-art technology Scheme has disbursed INR 91.61 bn till 31st December 2005

Policy related to foreign investment

Upto 100% foreign direct investment allowed in textile and apparel manufacturing industry, with approval of the Foreign Investment Promotion Board (FIPB) ~ USD 1.02 bn of FDI in the sector approved between 1991 and 2004 Companies free to set up fully-owned sourcing (liaison) offices, as well as marketing operations Scheme for Integrated Textile Parks (SITP), based on public-private partnership model to build world class infrastructure facilities Product specific Cluster Approach targeting development of 100 additional clusters in textiles Technology Mission on Cotton (TMC), focusing on cotton R&D, dissemination of technology to farmers, improvement of market infrastructure and modernisation of ginning and pressing sector
Source: Ministry of Textiles, Industry Research
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Upgrading infrastructure

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Contents

Market Overview

Government regulations & policy

Business opportunities and Advantage India

www.imacs.in

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India has a cost advantage vis--vis competing countries

Cost competitiveness
Yarn: USD per kg of yarn Fabric: USD per yard of fabric Open-ended yarn & fabric
2.35

South Korea China Brazil India

Ring yarn & fabric

2.68 2.76 2.61 2.45 0.75 0.69 0.65 0.66 1.22 1.21 1.21 1.12

Textured yarn & fabric

1.68 1.40 1.90 2.06 0.55 0.51 0.55 0.59 0.18 0.14 0.20 0.21

Yarn

2.51 2.31 2.17

Woven fabric
0.06

0.70 0.65 0.60 0.61

Knitted fabric

0.04 0.07 0.06

India is cost competitive vis--vis competing countries in textile production, except in case of textured yarn and fabric
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There are several other industry specific advantages arising out of the unique nature of the industry in India

Large raw material base

India has a rich raw material base, especially cotton which has seen improved productivity in the country

under the Cotton Technology Mission Wide variety of cotton produced India, making India capable of catering to various segments of world trade Indian industry has ability to handle different materials - cotton, wool, silk and jute with equal skill

Positive developments in the Textile Policy

Reservation for small scale sector, especially key segments removed over last few years Fiscal anomalies in terms of excise duty structure removed

Flexibility in production

Capabilities across the entire value chain within the country reduces lead time for production and reduces intermediate shipping time

Indian companies have flexibility and skilled manpower to handle small orders with complex designs

Product development and design capabilities

Several institutes in India for textile development, the major one being National Institute of Fashion Technology (NIFT) Several leading colleges also offer courses in Textile Engineering
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Business opportunities exist for foreign players

Investing in India

Invest in setting up vertically integrated large scale units Invest in setting up retail chains (single brand) Enter into marketing joint ventures with Indian companies Brand licensing to Indian players

Sourcing from India

Partner with Indian vendors to import from India, by nominating large Indian companies having credibility in terms of capacities and quality Readymade garments have maximum opportunity, given Indias cost competitiveness

Export to India

With Indian consumers increasingly getting exposure to international fashion trends, potential exists for export of lifestyle brands of garments and accessories to India

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Many foreign players have also entered India

Illustrative, not exhaustive

Buying and liaison offices

Top 10 buyers in India (Gap, Wal-Mart, Li & Fung, The Childrens Place, JC Penny, H&M, Federated, Fifth Avenue, Carrefour and Synergies India) account for 35% of total textiles sourced from India Other major companies include El Corte, Ecko, Kellwood, VF Corporation, Tesco, Next, Karstadt-Quelle

Brand licensing/ franchising

Brand licensing - Hugo Boss, Tommy Hilfiger, Mango, Lovable, Nike, Lacoste Master franchisee - Marks & Spencer, Crocodile

Manufacturing/ manufacturing cum retailing

VF Arvind Brands - joint venture between Arvind Brands and VF Corporation to manufacture and sell latters brands in India Benetton Levi Strauss Reebok Carreman Michel Thierry
Source: News articles
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Key players in India

Illustrative, not exhaustive

Large industry conglomerate, with turnover of USD 279 million and presence in textiles, retail, engineering goods, personal care and prophylactics Textile products - worsted fabrics, wool and blended fabrics, specialty ring colour and stretch denim fabric, cotton and linen shirting fabric, readymade garments, woolen blankets and home furnishings One of the oldest textile companies in the country, having turnover of USD 231 million Produces suitings, shirtings, sarees, towels, bed linen and mens apparel; significant exporter of polycotton blended fabrics and made ups

One of the largest producers of denim in the world, having turnover of USD 338 million and exports to more than 70 countries Produces denim fabric, cotton and blended fabric, knitted fabric, voiles, apparel One of the largest textile business houses in India, having turnover of USD 400 million Significant presence in acrylic fibre, cotton, synthetic and blended spun yarns, grey and processed fabrics, cotton and synthetic sewing threads Indias largest exporter of readymade garments, having turnover of USD 180 million Supplies to more than 100 retailers and fashion brands across 39 countries

Source: Capitaline, Company websites

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Key players in India

Illustrative, not exhaustive

Leading producer of silk yarns and fabric (mainly for decorative and bridal use), with annual turnover of USD 32 million

Other businesses include retailing of home furnishings in India and manufacture of bed linen products for domestic and export market

Amongst the top 3 terry towel producers in the world, with annual turnover of USD 132 million Other products include cotton yarns, polyester filament yarn, bathrobes, buttons and saw pipes

Belongs to one of the most diversified business groups in India (Aditya Birla Group) and has turnover of USD 577 million) Key products in textiles include viscose filament yarn and branded apparel; other interests include insurance, telecom, IT, carbon black

Having turnover of USD 303 million, company is a major producer of polyester yarns, fabrics, garments and textiles

Has the largest composite textile mill in India for producing cotton fabric Having a turnover of USD 95 million, its products include viscose filament yarn, viscose tyre/ industrial yarn, denim, cement and pulp and paper Source: Capitaline, Company websites
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The India Brand Equity Foundation is a public-private partnership between the Ministry of Commerce & Industry, Government of India and the Confederation of Indian Industry. The Foundations primary objective is to build positive economic perceptions of India globally India Brand Equity Foundation c/o Confederation of Indian Industry 249-F Sector 18, Udyog Vihar Phase IV Gurgaon 122015, Haryana, INDIA Tel +91 124 401 4087, 4060 - 67 Fax +91 124 401 3873 Email ajay.khanna@ciionline.org Web www.ibef.org

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Disclaimer

This presentation has been prepared jointly by the India Brand Equity Foundation (IBEF) and ICRA Management Consulting Services Limited, IMaCS (Authors) All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Authors and IBEFs knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.
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