ASSOCHAM

FINANCIAL

PULSE

STUDY

“Impact of recession on Indian fashion industry”

August 2009

Prepared by:

Ravish Jaggi
Assocham Research Bureau
INTRODUCTION

Fashion is the term which reflects the state of mind. It is generally associated
with textile, garments, gems & jewellery, leather and other accessories.
Assocham Research Bureau has carried out an analysis of financial results of the
major companies which are engaged in such activities.

The Study has been conducted under the brand name of Assocham Financial
Pulse (AFP). The report presents the growth of the Indian Fashion Industry
which includes other sectors like textile - readymade apparels, gems & jewellery
and leather products.

DATA SOURCE

The report is prepared on the data posted by companies on the Bombay Stock
Exchange (BSE) and analysis of Assocham Research Bureau (ARB).

SAMPLE SIZE

The ASSOCHAM Research Bureau (ARB) has taken 5 textile companies which
are engaged in manufacturing readymade apparels, 5 Gems & Jewellery
companies and 3 leather companies which are engaged in manufacturing leather
items for the performance analysis of the fashion industry.

PARAMETERS

The analysis of the textile companies is based on the parameters including sales
turnover, total income, total expenses and net profit.
Indian fashion industry sinking far off its pre-crisis growth rate:
AFP

Notwithstanding its improved global profile led by a boom during the pre-crisis
period, Indian fashion industry has been hampered by the global economic
recession as reflected by stark differences in the growth rates of pre-crisis and the
current period, according to the Associated Chambers of Commerce and
Industry of India (Assocham).

The Assocham Financial Pulse (AFP) Study on “Impact of recession on Indian

fashion industry” analyzed that top companies catering to the fashion industry
have faced huge losses as the demand of luxury readymade apparels, leather and
gems & jewellery fell down drastically which impaired the sector’s profitability.

Forming the major part of the fashion industry, growth rates in the net profit of
companies in readymade apparel, gems & jewellery and leather products
declined by 151.7 per cent, 81.8 per cent and 445.7 per cent respectively in FY
2008-09 as against ostensible growth rates of 38.2 per cent, 7.4 per cent and 87.6
per cent respectively during the pre-crisis period (2005-08).

“Even though the Indian economy is growing at a robust pace, the per-capita
income of the consumers is still too low to significantly boost the purchasing
power for the high-end fashion industry during the economic downturn” said
Mr. Sajjan Jindal, President, Assocham.
 Growth of Indian Fashion Industry

Change (in per cent)

SECTORS
2005-08 2008-09

Textile- Readymade Sales Turnover 18.3 9.0

Apparels Net Profit 38.2 -151.7

Sales Turnover 8.7 19.2

Gems and Jewellery
Net Profit 7.4 -81.8

Sales Turnover 203.0 203.4

Leather
Net Profit 87.6 -445.7

Source: Assocham Financial Pulse

The AFP Study carried by Assocham Research Bureau is based on the corporate
results of the companies from FY 2005-06 to FY 2008-09. The analysis includes the
companies which are engaged in manufacturing of readymade apparels, gems &
jewellery and leather based products.

The Chamber chief said, high operating cost borne by the textile sector is the
major factor responsible for the shrinkage in the net earnings of the readymade
apparel companies. The CAGR of net profit in the sector, which was 18.3 per cent
during the pre-crisis period (2005-08), declined by 9 per cent in last fiscal 2008-09.

The slowdown in the economy and the major fall in the exports figure in last
fiscal 2008-09 are attributable for this negative dip in the net profits of the
readymade apparels sector.
Severely hit by the economic slowdown, Gems and Jewellery is another sector
which dragged the fashion industry in deep trouble. The sector faced a decline of
whopping 81.80 per cent in the net profit during 2008-09 as against a positive
growth rate of 7 per cent during the pre-crisis period. External demand for the
sector dried up due to the global recession.

The AFP Study also analyzed that leather products which include finished
leather, leather footwear, leather garments & clothing, bags & handbags and
other accessories & products faced the grip of slowdown and the demand of
these products came down drastically. Also, India's leather exports posted an
almost flat growth rate in 2008-09 owing to slump in demand in major overseas
markets.

The companies engaged in leather sector faced a huge dip in profitability in 2008-
09 as the net profit declined by a staggering 445.70 per cent. In stark contrast, the
sector showed a high positive growth in net profit in terms of CAGR of 87.60 per
cent during the pre-crisis period.

Further AFP Study measure the aftermaths of slow down in the fashion industry
in which the comparison has been made between Q1 FY 2009-10 as against the
corresponding period last year.

The face of slowdown in textile sector still continues even as some signs of
recovery have been seen in the general economic. The net profit of the textile
companies has declined by an average 157 per cent while the companies
witnessed rise in average sales by 13.51 per cent during the first quarter ended
June 2009.
The same trend is followed by Gems & Jewellery sector which also faced the
decline in the average net profits by 127.44 per cent while the average sales
turnover also declined by 17.67 per cent in first quarter of the current fiscal year.

During the first quarter of financial year 2009-10, the scenario in the leather
sector has improved gradually with an increase in demand. Companies engaged
in the leather business saw a growth in average profit which rose to 16.13 per
cent in the first quarter. The average sales of the leather companies also went up
by a whopping 40 per cent in the same period.

The AFP has accorded the financial results of the listed companies which are
engaged in manufacturing of readymade apparels, gems & jewellery and lather
products are the majors to these finding.
ANNEXURE

For the analysis of financial performance of the Indian fashion industry,

corporate results of 13 companies have been taken as under:

Companies in Gems & Jewellery Sector

Classic Diamonds
Zodiac-JRD-MKJ
Suraj Diamonds and Jewellery
Silver Smith
Shantvijay Jewels

Companies in Textile-Readymade
Apparels

Kitex Garments
SPL Industries
Zodiac Clothing
Maxwell Industries
Gokaldas Exports

Companies in Leather Products

Liberty Shoes

Bhartiya International
Crew B.O.S. Products