10/19/2016

IndianTextilesIndustryReportTextilesSectorResearch&AnalysisinIndiaEquitymaster

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ARVIND LTD. STOCK QUOTE

TextilesSectorAnalysisReport
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[KeyPoints|FinancialYear'15|Prospects|Sector
Do'sandDont's]

Oct 19, 2016 10:30 AM

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TheIndiantextilesectorhadallthetailwindsthebusinessesneeded,overthelasttwo
to three years, to grow and become more profitable. Right from higher export demand
to lower cotton prices to falling interest rates to favourable exchange rates, the
companies had everything going in their favour. The industry realized export earnings
worth US$ 41.4 billion in FY15, a growth of 5.4% YoY, as per The Cotton Textiles
ExportPromotionCouncil(Texprocil).
As per the Ministry of Textiles, the Indian textile industry contributed about 14% to
industrial production, 4% to the countrys GDP and 27% to the countrys export
earnings in 2015. The industry is the second largest employer after agriculture,
providingemploymenttoover45millionpeopledirectlyand60millionpeopleindirectly.
The Indian Textile Industry contributes approximately 5 per cent to Indias gross
domesticproduct(GDP),and14percenttooverallIndexofIndustrialProduction(IIP).
AccordingtotheMinistryofTextiles,thedomestictextileandapparelindustryinIndia
isestimatedtoreachUS$223bnby2021fromUS$108bnin2015.Apparelexports
fromIndiaisexpectedtoincreasetoUS$82bnby2021fromUS$15bnin2014.Total
clothproductioninIndiaisexpectedtogrowto112bnsquaremetresbyFY17from64
bnsquaremetresinFY14.

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5-Yr Analysis (Factsheet)
8-Qtr Analysis

ARVIND LTD. 5-YR ANALYSIS

Price / Book Value ratio (x)

Indiaenjoysasignificantleadintermsoflabourcostperhouroverdevelopedcountries
likeUSandnewlyindustrialisedeconomieslikeHongKong,Taiwan,SouthKoreaand
China
AsperdatafromNationalBureauofStatistics,duetosteepwageinflation,theaverage
monthly wage cost in China stood at US$ 230 per month in 2013 as against US$ 80
permonthinIndia.Also,Indiaisrichintraditionalworkersadeptatvalueaddingtasks,
which could give Indian companies significant margin advantage. However, India's
inflexible labor laws have been a hindrance to investments in this segment. Unlike in
home textiles, garment capacities are highly fragmented and leading Indian textile
companies have been slow to ramp up their apparel capacities, despite strong order
flowsfromoverseasbuyerswhoaretryingtodiversifyoutofChina.
The textile industry aims to double its workforce over the next 3 years. As a thumb
rule, for every Rs1 lac invested in the industry, an average of 7 additional jobs is
created.
The sector witnessed a spurt in foreign investment during the last five years. It
attracted Foreign Direct Investment (FDI) worth US$ 1.6 billion during April 2000 to
May2015.

KeyPoints
Supply

Despite some pickup in demand from both global and domestic markets,
most new capacities in the apparel and home textile segments are not
operatingatfullcapacities.

Demand

High for premium and branded products due to increasing per capita
disposableincome.

Barriers to Superior technology, skilled and unskilled labour, distribution network,

entry
accessto

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Bargaining Because of over supply in the unorganised market like that of denim,
power
of suppliers have little bargaining power. However, premium products and
suppliers
brandedplayerscontinuetogarnerhighermargins.
Bargaining Domestic customers Low for premium and branded product segments.
power
of Global customers High due to presence of alternate low cost sourcing
customers destinations
Competition High.Veryfragmentedindustry.Competitionfromotherlowcostproducing
nationsislikelytointensify.
TOP
FinancialYear'15
Textile exports did remarkably well in an otherwise dull exports scenario in FY15. A
weakerrupeeandfirmoverseasdemandhelpedthesectoraddUS$41bntooverall
exports of US$ 310 bn, second only to engineering goods. Readymade garments,
whichaccountsfornearlyhalfofalltextileexportsatUS$14.9bn,grew15.5%.
Most companies in the sector timed their expansion plans FY04 onwards, so as to
avail themselves of the funding under TUF (Technology Upgradation Fund, offering
loans at 6% subsidy). This led to the capexspending phase in the textile sector
peakinginthelastfourfiscals.
Relatively lower cost of cotton helped the margins of export dependant textile
industry in FY15. However, since these trends are temporary in nature, pressure on
marginscouldincreasethedebtlevelsforplayersinthesector.
TOP
Prospects
TheTransPacificPartnership(TPP)adutyfreetradeagreementbetween12nations
may impact the Indian textile and garment export sector negatively and put Indian
textileexportsofaroundUS$40bnatriskoverthemediumterm.TheTPPmember
nations led by the US account for 40% of world trade and the deal gives them duty
freeaccesstoeachother,andmakesimportsfromothercountriesuncompetitive.
Thekeynationsoutofthe12countrieswhichIndiaexportstextileandapparelstoare
US, Japan and Canada. The value of India's textile and apparel exports to these
threecountriesstoodatUS$11.5bninFY15whichislikelytoreduceduetotheTPP.
IndiaexportedUS$41.4bnoftextiles(includingrawcotton)outofwhichUS$18bn
wasapparelsinFY15.USisakeydestinationfortextileandapparelexports,andUS
import duties range between 15% to 50%, depending upon woven or knit textile, or
typeofrawmaterialused,whichcanleadtolossofexportsalesforIndia,especially
detrimental to companies which are exporting majorly to the US. Companies with
superiorgeographicdiversificationarebetterplaced.
A slew of measures have been recommended for reforms in labour laws particularly
fortextilesectorpendinglengthylegislativeamendmentsoflabourlaws.
IndiaandChinaarecurrentlycompetinginthesamecategories(premiumsegment)of
apparels and home textiles and given Indias established presence in the high end
segment, India could gain significant market share in US apparel imports. However,
the ongoing economic slowdown in the US could result in lower orders from US
retailersthat,inturn,mayresultinlowercapacityutilisationandimpactprofitabilityof
textilecompaniesinIndia.
As per the 12th Five Year Plan, the Integrated Skill Development Scheme aims to
train over 2,675,000 people within the next 5 years (this would cover over 270,000
peopleduringthefirsttwoyearsandtherestduringtheremainingthreeyears).This
scheme would cover all subsectors of the textile sector, such as textiles and
apparel,handicrafts,handlooms,juteandsericulture.
TOP
RelatedLinksforTextilesSector:QuarterlyResultsN E W |SectorQuote|OverTheYears

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