Indian Textile Industry October 2006

Contents Market Overview Government regulations & policy Business opportunities and Advantage India

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 country’s 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

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 country’s 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

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 India’s position is strong vis-à-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 Source: Ministry of Textiles Annual Report, Industry Research Abundant availability of raw material is one of the key advantages of the Indian textile industry

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

India’s position is strong vis-à-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

Industry fragmented and dominated by 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 Spinning Weaving Processing & manufacturing Source: Compendium of Textile Statistics, 2004 Large independent units 53% Small independent units 39% Composite mills 8% 100% = 2922 mills 100% = 5.83 million units Handloom sector 67% Powerloom 31% Organised sector 2% 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

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

Manufacturing units present at all levels of value chain Raw materials Cotton, wool, silk, jute Petrochemicals Fibres and yarn Man-made fibre/ filament yarn* Grey fabric Knitting Weaving Processed fabric Dyeing Finishing Garments Home textiles 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 Source: Industry Research

Grey fabric

Knitting

Weaving

Processed fabric

Dyeing

Finishing

Industry experiencing high growth 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 1996 2000 2006 Cotton yarn Blended yarn 100% non cotton yarn Yarn production million tonnes 2.4 3.1 3.4 75% 17% 8% 72% 20% 8% 73% 17% 10% CAGR 3.2% 3.6% 3.8% 6.0% 1996 2000 2005 Cotton cloth Blended cloth 100% non cotton cloth Cloth production billion sq. mtrs 31.5 38.6 45.0 60% 13% 27% 49% 15% 36% 46% 13% 41% CAGR 0.9% 4.1% 4.6% 8.9% Source: Compendium of Textile Statistics

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

Exports are dominated by readymade garments Readymade garments dominate textile exports Share of manmade textiles in overall textile export basket has risen, whereas that of cotton textiles has fallen Readymade garments Cotton yarn, fabric & made-ups Manmade staple fibres, yarn, fabric & made-ups Silk & woolen textiles, cotton raw, incl waste 51% 35% 10% 4% 52% 34% 9% 5% 55% 25% 13% 7% 100% = INR 654 bn 100% = INR 390 bn 100% = INR 199 bn Year 1994-95 Year 1999-00 Year 2005-06 Textile exports Source: Ministry of Textiles

Readymade garments dominate textile exports

Share of manmade textiles in overall textile export basket has risen, whereas that of cotton textiles has fallen

Dismantling of quotas has resulted in higher growth in large markets In the first nine months of CY2005, US imports grew by 7% to USD 8.9 bn and EU imports grew by 3.7% to Euro 54.5 billion India has been one biggest beneficiaries in post quota regime in these two markets, while countries like Mexico, South Korea and Turkey have lost share 2004 1st 9 months of 2005 2008* 2004 1st 9 months of 2005 2008* Share in US textile and clothing market Share in EU textile and clothing market Source: WTO study on gainers and losers post quota abolishment *Forecasts

In the first nine months of CY2005, US imports grew by 7% to USD 8.9 bn and EU imports grew by 3.7% to Euro 54.5 billion

India has been one biggest beneficiaries in post quota regime in these two markets, while countries like Mexico, South Korea and Turkey have lost share

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 Drivers of domestic market Growing young population Rising household income levels Growth of organised retail 2005 2010* *Forecasts Market size estimates USD bn Domestic market Exports 25 12 37 35 30 65 Source: Research commissioned by Confederation of Indian Textile Industry

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

Drivers of domestic market

Growing young population

Rising household income levels

Growth of organised retail

Contents Market Overview Government regulations & policy Business opportunities and Advantage India

Industry has witnessed a change in regulations Pre 1985 Emphasis on small scale sector Importance given to cotton textiles Favourable fiscal treatment given to powerlooms (mainly tiny and small-scale units) as compared to composite mills Most segments reserved for small-scale industry (SSI)* Restrictions on installation of automatic looms Emphasis on increasing scale Post 1985 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 Measures aimed at improving competitiveness of industry to face a post quota regime *Latest definition: Investment in plant & machinery of INR 10 million for most industries, INR 50 million for specified industries like hosiery, hand tools, drugs & pharmaceuticals, sports goods and stationery items

Importance given to cotton textiles

Favourable fiscal treatment given to powerlooms (mainly tiny and small-scale units) as compared to composite mills

Most segments reserved for small-scale 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

Several government initiatives targeted to attract investments Technology Upgradation Fund Scheme Policy related to foreign investment Upgrading infrastructure 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 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

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

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

Contents Market Overview Government regulations & policy Business opportunities and Advantage India

India has a cost advantage vis-à-vis competing countries India is cost competitive vis-à-vis competing countries in textile production, except in case of textured yarn and fabric Cost competitiveness Yarn: USD per kg of yarn Fabric: USD per yard of fabric Open-ended yarn & fabric Ring yarn & fabric Textured yarn & fabric Yarn Woven fabric Knitted fabric South Korea China Brazil India

India is cost competitive vis-à-vis competing countries in textile production, except in case of textured yarn and fabric

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

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

Business opportunities exist for foreign players Investing in India Sourcing from India Export to 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 India’s cost competitiveness 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 With Indian consumers increasingly getting exposure to international fashion trends, potential exists for export of lifestyle brands of garments and accessories to 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 India’s cost competitiveness

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

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

Many foreign players have also entered India Top 10 buyers in India (Gap, Wal-Mart, Li & Fung, The Children’s 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 Buying and liaison offices Brand licensing - Hugo Boss, Tommy Hilfiger, Mango, Lovable, Nike, Lacoste Master franchisee - Marks & Spencer, Crocodile Brand licensing/ franchising Manufacturing/ manufacturing cum retailing VF Arvind Brands - joint venture between Arvind Brands and VF Corporation to manufacture and sell latter’s brands in India Benetton Levi Strauss Reebok Carreman Michel Thierry Source: News articles Illustrative, not exhaustive

Top 10 buyers in India (Gap, Wal-Mart, Li & Fung, The Children’s 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 - Hugo Boss, Tommy Hilfiger, Mango, Lovable, Nike, Lacoste

Master franchisee - Marks & Spencer, Crocodile

VF Arvind Brands - joint venture between Arvind Brands and VF Corporation to manufacture and sell latter’s brands in India

Benetton

Levi Strauss

Reebok

Carreman Michel Thierry

Key players in India 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 men’s 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 Illustrative, not exhaustive 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 India’s 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

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 men’s 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

India’s largest exporter of readymade garments, having turnover of USD 180 million

Supplies to more than 100 retailers and fashion brands across 39 countries

Key players in India 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 Illustrative, not exhaustive Source: Capitaline, Company websites 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

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

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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 Author’s and IBEF’s 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. ICRA Management Consulting Services Limited

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 Author’s and IBEF’s 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.