The Status of the Apparel Industry in India

Raghav Gupta KSATechnopak ECC/SCLC Spring 2005 Meeting St. Petersburg, FL April 30, 2005

Agenda

Indias Export Industry A Growing Domestic Market Opportunities & Challenges

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Agenda

Indias Export Industry A Growing Domestic Market Opportunities & Challenges

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Some Basic Figures

Global Trade in Textiles & Clothing estimated at US$ 375 Bn in 2004 & projected to touch US$ 560 Bn by 2010 or earlier Indias exports were about US$ 14 Bn in 2004 & imports below US$ 1 Bn (share of ~ 4%). Indias domestic market is about US$ 18 Bn in 2004 Chinas exports were about US$ 100 Bn in 2004 while imports were about US$ 35 Bn (share of ~ 36%). Chinas domestic market at about US$ 60 75 Bn in 2004
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Competition Beyond 2004: Some Key Success Factors

Presence of Fiber Base: Cotton, MMF Presence of Technology to Convert Fiber to Fabric & Garments Have Low Labor Cost Have Low Country Risk

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Presence of Fiber Base Cotton

S h are o f C o tto n P ro d u ctio n b y C o u n try
O thers Turk ey G reec e Latin A m eric a United S tates P ak is tan India China 0% 5% 10% 15% 20% 25% 30% 35%
India: 15% Asia: 56% Americas: 27% Others: 10% Europe: 7%

Source: Cootlook

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Presence of Fiber Base MMF

Share of MMF Production by Country
Others Latin America United States Eastern Europe Western Europe Other SE Asia Taiwan S.Korea India Japan China 0% 5%
Others: 7% Americas: 12% Europe: 11% Asia:70%

India: 6%

10%

15%

20%

25%

30%

Source: Association of Synthetic Fibre India

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Spinning Installed Capacities

USA Russia Iran Taiwan B angladesh Ukraine Uzbekist an UK Poland A rgent ina Spain Port ugal Romania Sout h Korea Japan Egypt M exico Thailand Brazil Turkey Indonesia Pakist an India It aly China 0 5000 1 0000 1 5000 20000 25000 30000 35000 40000 45000 50000

Turkey Indonesia

Pakistan

India China
55000 60000 65000 70000

Values in 000

Short Staple Spindles

Source: ITMF, Textile Intelligence (Data for 2003)

Long Staple Spindles

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Open End Rotors

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Weaving Installed Capacities

Iran V iet nam Nig eria A rg ent ina Ind ia M exico Turkey Jap an Ukraine Taiwan Ro mania Pakist an Uzb ekist an Ind o nesia B razil USA Thailand Russia China 0 10 0 0 0 0 200000 300000 400000 50 0 0 0 0 600000 70 0 0 0 0

India

Indonesia Brazil Thailand China

800000

Shuttleless Looms
Source: ITMF, Textile Intelligence (Data for 2003)

Shuttle Looms
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Manufacturing Cost Competitiveness

Canada USA Mexico Sri Lanka Honduras Guatemala Malaysia India China (Costal) Cambodia Bangladesh Nicaragua Dominican Republic Vietnam Pakistan China (Mainland)
0.04 0.07 0.05 0.07 0.04 0.07 0.04 0.05 0.04 0.05 0.04 0.05 0.04 0.05 0.03 0.05 0.04 0.10 0.08 0.09 0.07 0.08 0.05 0.08 0.07 0.08 0.07 0.08 0.25 0.23 0.46 0.44

Production & Transport Cost in USD / SAM Production Cost in USD / SAM
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Source: Global Sourcing Reference 2005, KSA

Have Low Country Risk: Indian snap-shot

Largest Democracy with independent Judiciary Av. inflation rate of 5.8% from 1994-95 to 2003-04 2nd Most Attractive Nation for FDI, after China* Stable currency. 6th largest Foreign exchange reserves US$ 130 Bn Rated as the best BPO destination: AT KEARNEY study Best technology licensing regime UNCTADs Global Competitiveness Report, 2003
* UNCTAD DITE : Global Investments Prospects Assessment 2004

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Competitiveness will also be affected by

Proximity to key Consuming Markets Political preferences & FTAs Presence of a Large Domestic Market
A large domestic market in a manufacturing base will give further impetus to local production China, India & Brazil hold the advantage here

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Thus, on an Overall Basis

China is expected to gain significantly in both US & EU. However, its growth will be tempered by uncertainty over use of the China Safeguard India is the next likely gainer, after China In South Asia, Sri Lanka is likely to be a niche supplier for specialty or fashion goods, hosiery & womens intimate apparel. Other countries in South Asia (Bangladesh & Pakistan) are expected to emerge as suppliers for a narrower but still significant range of goods
Source: KSA Analysis; IMF, World Bank, USITC, WTO studies

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% Change in Value & Volume in US Imports for Jan-Feb 2005

Sri Lanka Thailand Guatem ala Bangladesh Honduras Vietnam Indonesia India Hong Kong Mexico CBI China

Value Change Jan-Feb 05 Volume Change Jan-Feb 05

Overall, US imports are up by ~ 16% in volume

-40%

-20%

0%

20%

40%
13 13

60%

80%

100%

120%

Source: US department of Commerce / OTEXA, Emerging Textiles

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Structure of the Textile & Apparel Industry in India

Spinning Processing Weaving Garment Making Retailing

US$ 42 Bn Domestic US$ 28 Bn Clothing US$ 18 Bn

Source: KSA Estimates for 2003-04

Exports US$ 14 Bn Clothing US$ 6 Bn

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Others US$ 10 Bn

Textiles US$ 8 Bn
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Structure of the Textile & Apparel Industry in India

Financially strong players at the back end. State of the art spinning facilities Large weaving capacity. However, a major capacity is in the unorganized / small scale sector. Processing is the weakest link in the entire chain. Barring a few large, organized sector players, operating largely in the 100% Cotton and / or Cotton Rich blends in finer counts & in denim, this sector is unorganized
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Structure of the Textile & Apparel Industry in India

In Towels & Home Textiles, some significant players that compete strongly with Pakistan, Turkey & China Garment making has a number of small to large players. Larger companies expanding capacity rapidly. Most have Full Package capability. Large number of retailers at the front end, though only a few are big (relatively).

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Most Traded Product Categories

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In US $ Bn

16 12 8 4 0

World's Most Traded Product Categories

Underwear

Overcoats

Women's Trousers

Dresses/ Skirts

Men's Trousers

T Shirts

Blouses

Jerseys

1000 800 600 400 200 0

In US $ Mn

India's Most Exported Product Categories

Women's Dresses/Suits etc.

Mens Woven shirts

Women's Woven Tops 17

T shirts

Knitted shirts

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Jackets

Shirts

Some Retailers / Brands Sourcing from India

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Indias Export to US: Key Categories

% Change in India's Export Volume to US of Key Categories Post Quota (1st Q 2005)
641 636 447 445 436 Categories 434 348 347 342 339 338 333 332 130% 153% 156% 156% 9% 10% 12% 9% 9% 20% 78% 73% 221%

332 Cotton Hosiery 333 Suit - Type Coat (M/B) 338 Knit Shirt (M/B) 339 Knit Blouse (W/G) 342 Cotton Skirts 347 Cotton Trousers (M/B) 348 Cotton Trousers (W/G) 434 Wool Coats (M/B) 436 Wool Dresses 445 Wool Sweater (M/B) 447 Wool Trousers (M/B) 636 MMF dresses 641 N-K Blouses (W/G)

Source: US department of Commerce / OTEXA, Emerging Textiles

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Leading Players Reliance Industries Ltd.

Worlds largest producer of Polyester Fiber & Yarn, after acquisition of Trevira, Germany in 2004 Polyester Capacity in 2002: 1 mn tonnes. Expanding to 2.0 mn tonnes by 2005
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Leading Players Arvind Mills Ltd.

Indias largest textile company. Worlds 4th largest denim manufacturer Raising its garment capacity to 25 Mn pieces by end 2005 Arvind Brands manages & runs local brands including Arrow, Lee, Wrangler, Newport, Tommy Hilfiger, etc.
Product Denim Fabric Cotton Shirting Knit Fabric
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Production/Annum 120 mn metres 34 mn metres 4,700 tonnes KSATechnopak

Leading Players Ambattur Clothing Ltd.

4th largest Apparel exporter in India Over 35 Mn pieces per annum from 10 factories Sales Turnover of US$ 110 Mn for 2004. Targeting US$ 210 Mn in the next 4 years Key buyers include GAP, Kohls, Eddie Bauer, LL Bean, Levis, Ann Taylor, J.Crew, Next, Esprit, Diesel, etc.

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Leading Players Madura Garments

Largest branded apparel company in India. 2003-04 revenue of US$ 120 Mn. Over 350 stores across India Launches 720 designs in shirts & 360 designs in trousers annually across all brands One of the largest manufacturer-exporters for Tommy Hilfiger and Marks & Spencer Adding innerwear manufacturing capabilities

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International Investments in Textile / Apparel Manufacturing in India

Indian Partner Morarjee Mills GIVO Raymond Annual Sales 2004 US$ 24 Mn US$ 20 Mn New Venture New Venture US$ 25 Mn New Venture
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Company Manifattura di Valle Brembana, Italy Marzotto, Italy Gruppo Zambaiti, Italy Carrera, Italy Gruppo Tessile Monti, Italy Sara Lee & MAS Holdings Srilanka

Partnership Details High Quality Shirting Fabrics Mens Suits High Value Shirting Fabrics Fabric Processing Yarn Dyed, Fine Count Shirting Fabrics Innerwear KSATechnopak

Challenges for the Indian Textile & Apparel Industry

Competitive Prices (from our experience most Indian companies have opportunities of Cost Savings of 10%+) Shorter Lead times Wider Style Variations & Smaller production runs thus need for Flexible Manufacturing More for Less Value added Services Stringent workplace and human rights standards Demand for the most efficient logistics capability Demand for high manufacturing standards
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Overall, a Positive Outlook

Government Policy Distortions in Textile sector eliminated only in the last 3 years impact beginning to be seen with fresh investments Input costs substantially lower in last 18 months with reduction in interest costs & in select cases, cost of Utilities as well as duty set-offs Increased domestic consumption Emerging Verticalization: Both Actual & Virtual Indian Textile & Clothing sector at the threshold of a major growth curve in the next few years
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Agenda

Indias Export Industry A Growing Domestic Market Opportunities & Challenges

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A Large Economy
4th largest economy in the world, in terms of Purchasing Power Parity Growth primarily from Services Sector, currently accounting for 59% of the Economy India is a part of the golden triangle countries (others being China & Russia) that are high on target list of intl. premium & luxury brands
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USA China Japan India Germany France UK Italy Brazil Russia 3.6 3.1 2.3 1.7 1.7 1.6 1.4 1.3 6.5 11

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GDP (US$ Trillion), adjusted for PPP

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A Growing Economy
Economy size: US$ 575 Bn 2nd fastest growing economy in the world, with a GDP growth rate of 8.2% in 2004 Growth projections for 2005 between 7-8% With an average of 8% growth, GDP could cross US$ 1.9 Tn by 2020 Rated among the most favourite investment destinations (UNCTAD, JETRO, JBIC, Deutsche Bank, EIU, etc.)
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China

India

USA

Brazil

South Africa

EU15
0 2.5 5 7.5 10

USD GDP YOY Pe rce ntage Growth

2001 2002 2003 2004*

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Improving Infrastructure & Business Environment

Golden quadrilateral project underway connecting all major metros, cities and business centers Infrastructure within major cities being upgraded rapidly Telecom & Internet connectivity amongst the best in the world Airports & Seaports still lag size, but plans for major renovations & expansion underway Excellent Banking, Financial & Stock markets
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Resurgent India
100% 80% 60% 40% 20% 0%
30% 15% 28% 14% 26% 13% 10% 20% 24% 11% 21% 26% 12% 23% 27%

Younger

2001

2006

2010

0-6 yrs

6-19 yrs

20-35 yrs

35-54 yrs

55+ yrs

Over 70% population below 35 years, while 50% is below 25.

Households in Mn

120 80 40 0
30,000-55,000 55,000-90,000 90,000-1,45,000 Above 2,50,000 1,45,000-2,50,000

60 41

73 80 24 38 14 22 12 23

Wealthier

Income (Rs per year) FY 2003 FY 2008

Source: Population Division, DESA, UN & India Economics, Merril Lynch

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Young, Richer, Global Indian

About 70% Indians are below 35 years age & 50% are below 25 years Over 60 mn households have access to Cable TV & International media & are exposed to the world & have nurtured aspirations Working in a different economy more than 50% in services more than 2 mn jobs from ITES sector expected in next 3 years 4.0 mn Indians traveled abroad (& were found to be busiest shoppers in Singapore, Malaysia, Thailand & UK) Indian students constitute largest single nationality group in US universities & amongst top 3 in UK & Australia
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Consumers Shifting From Markets to Malls

About 70 - 80 million sq. ft. of space from more than 400 malls expected to be operational by end of 2008 And perhaps as many as 600 by end of 2010 across 60 cities
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Organized Retailing growing at 25 30% p.a.

300 250 200 150 100 50 0 2003 2004 2005 2006 2007 Total Retailing Market Organized Retailing 2008 2009 2010

Organize d Re tailing - M arke t Size

30 25 20 15 10 5 0
Figures in USD Bn

Retail industry in India is estimated at US$ 200 billion and is projected to grow at 5% p.a. Size of organized retailing market stands at over US$ 6 billion & is growing at 25-30% p.a. Its share of total retail market is anticipated to become 10% from current 3%
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Across Product Categories

The Organized Retailing Pie
Catering Services 7% Food & Grocery 11% Furniture & Furnishings 10% Consumer Durables 10% Health & Beauty 3% Footw ear 9% Others 5%

Clothing & textile 38%

Jew ellery & Watches 7%

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Attracting International Brands & Retailers

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In the next 3 years, India Could See

Luxury / Premium Brands such as: Chanel Burberry Gucci Paul & Shark Versace Armani Polo Ralph Lauren Prada Valentino
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Mass Affluence / Fashion Brands such as: Esprit Diesel Next Gant Zara H&M Gap
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Agenda

Indias Export Industry A Growing Domestic Market Opportunities & Challenges

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Forecasts: 2010
Current Size of Industry (about US$ 32 Bn):
US$ 18 Billion (Domestic) US$ 14 Billion (Exports)

Likely Size by 2010 (about US$ 55 Bn):

US$ 25 Billion (Domestic) US$ 30 Billion (Exports)

Source: KSA Technopak estimates

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Opportunities in Sourcing through Vertical Capabilities

Opportunities in Verticalization
Vertical Manufacturing Bases will have an edge
Will reduce complexity of Sourcing Would have lower lead times Will be more competitive
Verticalization at Regional & National Level China India Verticalization at Cluster Level Tirupur Ludhiana

Verticalization at Company Level Arvind Mills Raymond Ltd.

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Opportunities in Sourcing
Companies already sourcing from India should:
Develop Joint Strategic Planning Increase Collaboration in Product Development Implement Consistent Manufacturing Standards Increase Efficiency & Productivity

Companies planning to source from India should:

Work carefully on vendor selection Remember challenges on Infrastructure weaknesses & Government bureaucracy still remain Seek local experience in developing sourcing strategies
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Opportunities in Domestic Market

Within 7-10 years India will become one of the 5 largest retail markets in the world A country-wide network of several hundred department stores & shopping malls across 100 plus cities will exist Well positioned apparel brands have significant opportunities to create a strong foot-print A well positioned middle market brand can expect to have a retail turnover exceeding US $100 million Again, understand local challenges well & plan ahead to meet them
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Summing Up
India has a large & globally competitive Textile and Apparel Industry & Market Both domestic & exports sectors present ample opportunities India is in a favorable situation post Quota phaseout. India scores favorably on various counts. Certain key challenges also exist Timing conducive for international companies to consider making sourcing and or brand launch investments either independently or through strategic alliances / partnerships
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Thank You!

For a further dialogue

Please contact:
Raghav Gupta Principal KSA Technopak India Pvt Ltd. 2nd Floor, Tower D, Global Business Park Mehrauli Gurgaon Road Gurgaon 122002, INDIA Phone Fax Email Web : : : : +91-124- 5141111 & 2881111 +91-124- 5141112 & 288 1112 raghav@ksa-technopak.com www.ksa-technopak.com & www.kurtsalmon.com KSATechnopak

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