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The recent rupee depreciation has enabled the Indian textile industry to hold yarn prices and also increase yarn exports Though Indian industry demonstrates stronger backward linkages, low labour costs have enabled countries like Bangladesh, Pakistan and Vietnam to overtake India in terms of capturing textile export markets With Chinese Yuan appreciating, Indian exports have become more competitive. Indian textile export share is marginal (5% as compared to Chinas 30%) As a CEO of leading textile manufacturer, you are planning to go in for capacity expansion. Capacity expansion necessitates funding and thus you approach a consortium of banks. Prepare the detailed projections convincing the bankers how the global economic trends portray well for Indian textile exporters.
Overview
The Indian textile industry is one of the major sectors of Indian economy and contributes almost 14 per cent of Indias industrial production, 4 per cent of National GDP and almost 17 per cent of India's export earnings
As per the annual report 2010-11 of Ministry of Textiles, the size of Indian textile sector is reached up to USD 55 billion India has the potential to increase its textile and apparel share in the world trade from the current level of 4.5 per cent to 8 per cent and reach US$ 80 billion by 2020 Exports of textile grew to USD 26.8 billion in FY 2010 from USD 17.6 billion in FY 2006. Indias textile trade is dominated by exports with a CAGR of 6.3 per cent during the same period
Advantage India
According to the Confederation of Indian Textile industry, the continuous rupee depreciation has been profitable for many textile and apparel exporters in the country
Textile buyers from the US and EU are tempted to shift orders from China, Bangladesh and Vietnam to India thanks to the increased competitiveness of Indian exporters thanks to a weaker local currency Robust demand Increased penetration of organised retail, favourable demographics and rising income level to drive textile demand Growth in building and construction will continue to drive demand for non-clothing textiles Competitive Advantage Abundant availability of raw materials such as cotton, wool, silk and jute and skilled workforce has made India a sourcing hub
Advantage India
Increasing investments
Over USD35 billion of investments have been made in the textile & clothing sector during the last four years, with the cotton textile segment accounting for around 75 per cent Policy support 100 per cent FDI through the automatic route is allowed in the Indian textile sector SITP was approved in July 2005 to facilitate setting up of textiles parks with world class infrastructure facilities Market Value: USD220 billion
The Ministry of Textiles commenced an initiative to establish institutes under the public-private partnership (PPP) model to encourage private sector participation in the development of the industry
Technical textiles
Technical textiles, growing at around twice the rate of textiles for clothing applications, now account for more than half of total textile production
Increasing investments
Growing domestic and foreign investments
Inviting
Resulting in
Target Name Soma Textiles & Inds Ltd Bombay Rayon Fashions Ltd
3
4 5
721.1
526.9 447.6
From January 2000 to June 2011, 482 M&A deals have taken place The top five M&A deals* are listed above
190
CAGR of FDI in the sector during the period was 60.3 per cent
120 100 90
80
60 40 20
**Growing FDI in textile industry (In USD million)
54 40
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Opportunities
Immense growth potential
The Indian textile industry is set for strong growth, buoyed by both strong domestic consumption as well as export demand For the near term (2012), the sector is valued at USD110 billion by the Confederation of Indian Textile Industry (CITI)
Technical textiles
To achieve these targets, alliances with the private sector, especially major agro-based industries in pre-cocoon and post-cocoon segments, is being encouraged
Indias technical textile industry is mainly dominated by unorganised players. However, it is an emerging area for investment with good growth potential The market is likely to grow to USD31 billion by 2020, implying a CAGR of 10 per cent
Estimates put the sector market value at USD 220 Billion by 2020
Opportunities
Retail sector offers growth potential
With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with several international players like Marks & Spencer, Guess and Next having entered Indian market The organised apparel segment is expected to grow at a compound annual growth rate (CAGR) of more than 13 per cent over a 10-year period
Foreign investments
The government is taking initiatives to attract foreign investments in the textile sector through promotional visits to countries such as Japan, Germany, Italy and France
Hike in excise duty The hike in excise duty on branded readymade garment on branded from 10% to 12% coupled with an increase in abetment readymade from 55% to 70% would result in a net decline in effective garments from excise duty from 4.5% to 3.6% which is expected to result 10% (with 55% in marginal benefit to readymade garment manufacturers. abetment) to With falling cotton prices and proposed reduction in 12% (with 70% effective excise duty, the prices of cotton-based branded abetment) readymade garments is expected to come down which would lead to boost in demand.
Note In Union Budged 2012-13, the government has announced a financial package of Rs. 3,884 crore for waiver of loans of handloom weavers and their cooperative societies.
Consistent increase in per capita income of the masses Consumption of textiles expected to increase to about 11% CAGR
Propensity to spend in working women higher by around 1.3 times compared to a housewife Population of working women increased to about 32% from 26% in 2001
Avg household size decreased to about 5.0 from 5.36 in 2001 As a result, per household consumption is increasing
Sustainable real GDP growth outlook of around 7% p.a. Rising disposable income for rural consumers
Rising agriculture income & increased employment generation to drive the demand of basic textile products
Increasing industrial output, rising disposable income, vibrant construction activity etc., to drive demand for home textiles
Future Trends
After three months of sharp downturn, registration for yarn exports shot up by 17.8 per cent in May on renewed demand from the traditional markets, including North America and Western Europe
Fresh demand from other markets, such as Latin America , Russia, Japan and Africa.
US non-apparel sector (yarns and fabrics) recorded a staggering 19.5 per cent growth in Jan-April 2012. Carpets shipments grew at an average rate of over 10 % Government has revised upwards the textiles export target to $40.5 billion for 2012-13.
Zero per cent duty Export Promotion Capital Goods (EPCG) Scheme for technology upgradation extended till 31 March, 2013
Market-linked focus product scheme was also extended till the end of the current fiscal for exports to the US and the European Union in respect of the apparel sector
Investments Required
In order to capture the additional market (US$ 150 Bn) created for Textile and Apparel by 2020, investments to the tune of Rs. 3,20,000 crores (US$ 68 Bn) across the textile supply chain will be required
Segment
Spun Yarn Filament yarn
Additional Production
3.9 Bn. kg 5.8 Bn. Kg
Weaving
50 Sq. m.
37,000
Knitting Processing
25,000 90,000
38 Bn. Pcs
30,000
65,000
30,000
Total
320,000
Source: Technopak
Future Trends
Slow economic recovery and price competition from Bangladesh, Pakistan, Vietnam etc. Though Bangladesh is a competitor in price, it is heavily dependent on India for raw materials (like Cotton).
High raw- material prices, high interest rates, besides demand slowdown in its major markets caused downturn last year Medical, geo-textile, protective textiles & agricultural textiles are the growing segments
Thank You!
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