Indian Textile Industry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Disclaimer
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