Industry Analysis the on Indian Textile Industry- A comprehensive overview of the Textile Industry and performance of the key players

1. BY--
NEHA MOHTA-29
ANKIT PUROHIT-32
SHRIDHAR SHRIRAGHAVAN-39
SHREYA SOOD-43
PRASANTHI VELAMURI-46
Analysis of the Indian Textile Industry

2. TABLE OF CONTENT
S. No Topic
1 INTRODUCTION
2 OBJECTIVE OF THE STUDY
3 MARKET SIZE AND STRUCTURE
4 ECONOMIES OFSCALE
5 SCOPE OF THE INDUSTRY
6 FINANCIALANALYSIS
6.1) COST DRIVER
6.2) COST STRUCTURE
6.3) FINANCIAL RISK
6.4) TAX RATES
7 PORTER FIVE FORCES
8 SWOT ANALYSIS
9 PESTLE ANALYSIS
10 VALUE CHAIN ANALYSIS
11 PROFITPOOL ANALYSIS
12 ROLE OF TECHNOLOGY
13 INDUSTRYKPIs
14 CAPITALEXPENDITURE
15 FDI IN TEXTILE INDUSTRY
16 OPERATINGENVIRONMENT
17 COMPENSATION
18 PROBLEMS AND OPPORTUNITIES
19 GOVERNMENTSUPPORT
20 SOCIALRESPONSIBILITYINITIATIES
21 FUTURE OUTLOOK

3. 1. INTRODUCTION
The textile industryinIndiatraditionallyafteragriculture isthe onlyindustrythathas generatedhuge
employmentforbothskilledandunskilledlabourintextiles.The textileindustrycontinuestobe the second
largestemploymentgeneratingsectorinIndiaofferingdirectemploymenttoover35 millioninthe country.
Indiaisthe secondlargestproducerof fibre inthe worldand the majorfibre producediscotton.Otherfibres
producedinIndiainclude silk,jute,wool,andman-made fibres.60% of the Indiantextile Industryiscotton
based.
2. OBJECTIVE OF THE STUDY
Withthisbackdrop,the reportonthe textile industryshallstudyvariousaspectsof the industryrangingfrom
the marketstructure, operatingenvironmentsuchasgovernmentregulations,trade policies, the profit
makingabilitiesacrossthe value chainand the functioningperformance indicators tomake an
entrepreneur/incumbentaware of the attractiveness,arisingtrendsandchallengesinthe industry.
3. MARKET SIZE AND STRUCTURE
A leadingsectorinthe Indianeconomy,textilescontributes14 percentto industrial production,4percent
to the GDP and around17 percent to the total exportearnings.Itis,infact,the largestforeignexchange
earningsectorinthe country.
Indiaaccountsfor 61 per centof the global loomage ,22 percent of the global spindleage,12 per centof
the world'sproductionof textile fibresandyarn& 25 percent share inthe total worldtrade of cotton yarn.
Market operators - The textile sectoroperatesacrossavast array of products offeringyarns,fabricsand
garmentscateredto the personal wearandhomecare segments.VardhmanTextiles,ArvindMillsandAlok
Industriesare leadersinthe textilespace offeringproductsfromthe yarnto garmentssection.Raymondson
the otherhand isa leaderinthe fabricandgarmentssphere while BombayDyeingisamarketleaderinthe
home care segment.
28%
12%
11%
11%
9%
8%
7%
6%
5% 3%
Market Share Of Large Organised Players
Alok Vardhaman SKNL Arvind Trident Welspun BRFL RSWM Sutlej Mandhana

4.  STRUCTURE
The industrycomprisesmostlyof small-scale,non-integratedspinning,weaving,finishing,andapparel-
makingenterprises.Suchastructure arose due to the policiesontax,labourandotherregulationsthat
favouredsmall-scale,labour-intensive enterprises,while discriminatingagainstlarge-scale,capital-intensive
operations.
 SIZE
The size of India’stextile marketin2011 was US$ 89.0 billionandthe marketisexpectedtoexpandata
CAGR of 11 percentover 2009–20. The total productionvalue for 2015 isestimatedtobe at US$ 134 bn.
and expectedtoreachUS$ 220 bn. by2020
Exportshave beena core feature of India’stextileandapparel sector,afact corroboratedbytrade figures.It
stoodat $33.2bn inFY 2012. Textile exportsare expectedto increase to$80bn in 2020 inthe global market.

5.  GEOGRAPHYWISE DISTRIBUTION OFTHE INDUSTRY
Haryana
Factor Conditions
Haryana has a well-establishedtextilesector.The state produces textilesandRMG worthUS$ 1billion.Ithas
abundantavailabilityof cottonandwool,aswell asa large numberof garmentmanufacturingunits.Itoffers
easyaccess to keybuyingcentressuchasDelhi andGurgaon. The state alsohas a large labourpool withlow
labourcosts at US$ 8 permonth.
Incentives
Haryana InvestmentPromotionBoarddevelopsacustomisedsetof incentivesforprojectsinthe
textile sectorof value above US$0.14 million. The HaryanaGovernmentisactivelyinvolvedindeveloping
conducive ecosystemsforthe textile sector.Ithassetup a textile clusterinPanipat,whichisone of the
largesttextile clustersinIndiaandisproactive insettinguptextile-promotingSEZ’sandFEZ’s.
Andhra Pradesh
Factor conditions
AndhraPradeshisone of the majorexportersof textilesinthe country.Ithasan abundantsupplyof raw
materialsandproductionfacilities.Itisone of the leadingtextile processingcenterswithover100 unitsand
produces13 millionmetresof cottonclothperannum.The state has good powerinfrastructure,itisthe
thirdlargestpowerutilityinthe countrywithatotal powergenerationof 10,273 MW.
Incentives
• 100 per centreimbursementof stampduty,transferdutyandregistrationfee onall textile units
• All textile unitsare exemptfromzoningregulationsandconversionfees
• Unitsare exemptfromcorporate tax inSEZs besidesthe tax onexportsandimports
• Special incentivesfortextile unitsonpowertariffs,asperthe new Industrial Policy
• Incentive of US$110 perworkeremployedintextile parks
• Encouragesspinningmillswithacapacitygreaterthan12,000 units
• Textile parksof areagreaterthan25 acres inside the cityandgreaterthan 5 acresoutside the citywill be
underurbanland ceilingrelatedexemptions
Gujarat
Factor Conditions
The textile sectorcontributes12 percentto the total textile exportsof the country. The state hasa well
developedtextile machineindustryandalsovariousinstitutesfortextile productdesignanddevelopment,
like the National Institute of FashionTechnology(NIFT).
Incentives
• 20 percent credit- linkedsubsidyforsettinguppower-looms
• 5 per centinterestsubsidyunderTUF
• Capital subsidyof 10 percent inprocessingsector
• Interestsubsidyof 3percent p.a.to a new unitinthe textile sector
• Interestsubsidyof 3percent p.a.on purchase of capital equipmentunderTUF
Tamil Nadu
Factor conditions
Tamil Naduhas the largestcottontextile industryclusterinIndiawhichcontributesto39 per centof the
total productioninthe country.The country’slargesttextile cluster,Tirupur,isalsosituatedinTamil Nadu.
Thisclusteraccounts for90 percentof the country’scottonknitwearexports.The state isemergingasa
global sourcinghubforready-made garmentsandhostsmanyglobal brands.
Incentives
The state offerstailormade packagesforinvestmentoverUS$62 millioninfixedassets.Itoffersexemption
on Entry Tax and SalesTax onimportsof manufacturingunits.

6. There are capital subsidiesand exemptioninElectricityTax tocompaniesinvestinginfixedassets.Subsidies
for newindustrial unitslocatedingovernmentindustrialparks have beenincreasedto150 percent.
• Incentivesforpatentregistrationthroughaone-time reimbursementforthe process
• Encouragesestablishmentof textile parks
• Offersmanyweaver’spromotionalincentives.E.g.Prizesforbestdesign,setting-upof marketing
associationsforWeaver’scooperative Societies
Kerala
Factor Conditions
Spinningisthe single largestindustryinKerala- handloomscontribute to10 percent of the total exports.
Cottonyarn isthe mostpopulartextile product,followedbyknitted garmentsandfabrics.Some textile-
processingcomplex inKeralaofferwalk-in-andmanufacture environments.
Incentives
Some of the keyfiscal incentivesofferedbythe Government of Kerala,forthe textilessectorinclude:
• Textile unitseligibleforastate investmentsubsidyof 15 percent of fixedcapital investment,uptoa
maximumof US$ 30,000
• All investmentsexceedingUS$11 millioninthissectorwill be offeredcustomisedincentivesexceptfortax-
basedincentives
• All textile unitssetupinindustrial parkswill be exemptfromstampdutiesandregistrationfees
• The Governmentprovidesgrantsforqualitycertificationsfromrecognisedinstitutesupto50 per centof
the expenditure onobtainingthe certificationsubjecttoa maximumof US$ 4,500.
The state isintroducingpower-loomsinaphasedmannerandofferscustomisedincentivesforconversionto
powerlooms.Italsoofferstrainingstonewworkersinthe handloomweavingsegments.
4. ECONOMIES OFSCALE
Indianfirmsare typicallysmallerinscale whencomparedtotheirChinesecounterpartsandthere are fewer
largerfirmsinIndia.For instance,onan average,Chinese firmshave 1.5timeshigherspinningcapacitythan
those of India.Scale influencescoststructure asit givesanopportunitytoexploiteconomiesof scale andan
abilitytoattract customerswithlarge orders.Firmsmusthave managerial capabilitiestodesignappropriate
supplychainstomanage thisscale and alsothe workforce,especiallyinthe case of garmentmanufacturing,
whichisorder drivenandhence requiresfull-time workforce eveninleanseasons.
A crucial factor in achievingeconomiesof scale isthe incorporationof technology.Byanalysingthe total
TUFS disbursementduring2008 we foundthatthe weavingindustryaccountedforonly7.7% and garment
industryaccountedforonly5% as against34% of spinningindustry.Thisindicatesthatthe sectorshave not
undergone significanttechnologyupgradation.Thus,the fabricindustryandgarmentindustryshould
undertake technologyupgradationaswell asachieveeconomiesof scale tobecome costcompetitive.
A furtheranalysisbehindthe presence of scale acrossthe value chainledtothe followingconclusion:
Spinning Weaving Fabric
Processing
Garments
Economiesof
Scale
Present Absent Absent Absent
Remarks Large capacity
fragmented
Weakand
unorganised
Some Large
Players
Fragmented
Consolidating

7. 5. SCOPE OF THE INDUSTRY
An analysisof the trade basketshowedthatjute hasonly1% share inthe exportbasketwiththe majority
consumedlocally.We perceive thisasanindustrylimitedbymarketsize andhave therefore eliminatedit
fromthe study.Similarly,silkoccupiesasmall share amongthe total Indiantextileproductionvalue andthus
we have eliminatedthe silksectortoofromthe study.
Thus we have limitedthe scope of thisstudytocotton, blendedcottonandMMF basedproductsas they
formthe majorchunkof the Indiantextile industryintermsof productionandtrade.The reportwouldalso
entail adetailedstudyof all the processesinthe value chainof the industry,whichwouldinclude spinning,
weaving,processingandmanufacturing.
6. FINANCIALANALYSIS
6.1 COSTDRIVERS
The followingcostdrivershave beenidentifiedforboththe companies –
 COST OF RAWMATERIAL - Cotton,the major raw material whichgoesintothe productionof textilesis
procuredinhuge quantitiesanditsavailabilitydirectlyimpactsthe salesandthe costsincurred.Through
vertical analysis,we determinedthatthe costof raw materialsholdsmajorityof the total sales.Hence
we have selectedthe same asthe cost driver.
 DIRECT LABOUR HOURS - Since the Indiantextile industryislabourintensive,directlabourhourshave a
majorsay in the costsincurredinthisindustry.Eventhoughthe industryiscurrentlyfacingashortage of
skilledlabour,semi-skilledlabourisrecruitedinhuge numbersaslabourisavailable cheapatthatlevel.
 PRODUCTION MACHINE HOURS – The industryhave beenincreasinglyspendingonaddinghighgrade
machineryintotheirassetportfolio.Toovercome the problemof shortage of skilled labour,machine
hoursare soonreplacinglabourhoursandthe companieshave beenable todosobecause of higher

8. revenuesincurreddue toincreaseddemandforgarmentsandalsobecause of helpfromthe
governmentinthe formof subsidies,etc
 COST OF YARNS- Yarns are majorlyprocuredbycompaniesforspinning,weaving,etcof theirfinal
Product.Hence,itis a majorcost driver.
6.2 FINANCIAL COSTSTRUCTURE
The capital structure of thisindustryishighlydebtfinanced.Itishighlycapital intensive withheavy
machinery.TwocompaniesAlokIndustriesandArvindMillshave beenchosentorepresentthe entire Indian
textile industryasawhole.
**Please referthe Annexure 1
a) AlokIndustriesLtd.islargelyskewedtowardsDebt.About80- 85 % of itstotal borrowingshave been
throughUnsecuredandSecuredloans. Witha pre-tax Kd(Costof debt) of around 4% overKe(Costof
equity) of 18% forthe year2012 , we can say that the companyhas takena good decisionof goingforDebt
as itssource of borrowinghasbeencheaper.Overandabove this, it has alsogot a huge tax benefitof ₹
1234.7 Crs. But on the otherhandInterestcoverage hasbeenreducingfrom2.1 to 1.2 overthe last5 years.
The WACC of Alok hasmore or lessbeenthe same about7% .
b) ArvindLtd.`scapital structure alsohas a major share comingfromLoans. It is65% debt-financed and
35% Equity-financed.The WACC of thiscompanyis around16.9 whichismuch higherthanthat of AlokInd.
Ltd. It can be seenthat EPSis maximizedwitha60-40 ratio of D/E witha slightlyhighWACC.Ithashad a tax
benefitequivalentto55% of itsearning .
Therefore throughequityinfusionanddebtrepaymentcompaniescanboosttheirnetworthas well as
improve the D/Eratio and there byimprove the ratingof the company.Thismay evenresultinashare price
boostmovingforwardandby generatingfree cashflowstherebydeleveragingcompanies.
An analysis ofthe players withinthe textile supplychainconcludesthat the Garmentingand Technical
Textile segmentsare the most attractive in terms of financial returns.

9. 6.3 FINANCIALRISK
Riskand exposure of textilefirms - RatingagencyfirmFitchRatingssayscash lossesinthe Indiancotton
textile sectorare impairingthe debtservicingcapacityof manufacturers,makingdebtrestructuring
imminent.The agencyalsonotesthatwhile the Indiangovernment'sdebtrestructuringproposalforthe
textile sectorwill provide temporaryrelief fromliquiditypressures,itwill notstemdeteriorationinthe
capital structure of cottontextile companies,mostof whichare heavily-geared.
Systemicriskisa measure of volatilityof acompany`sshare comparedtothe broadmarket.Here we have
consideredSensex asthe broadmarketforcalculatingthe Systemicrisk componentor“Beta”.Boththe
companieshave abetagreaterthan 1 that ishighvolatilityin comparisontothe broadmarket.
ALOKIND.LTD has a lowerbetacomparedArvindLtd.by0.4 points.Thiscan be attributedtothe measures
the companyis takingto mitigate risktothe extentpossible throughEnterprise RiskManagement(ERM)
toolsand techniques. Riskcanbe attributedtothe normal industryrisk,raw materialsprices,fluctuationsin
Forex andotherlocal market downturns.Exportsaccountforclose to 34% of the Company’sstand-alone
sales.Ithas establishedstrongrelationshipswithleadingglobal brandsacrossthe globe ;the exportsare
well diversifiedwith36%to the US, 29% inAsia,18% in SouthAmericaand14% inEurope.Such
diversification helpsde-riskagainstlocal marketdownturns. Onthe otherhandArvindLtd.has a Betaof 1.7.
6.4 TAX RATES
Accordingto the Trade FacilitationMeasures(SupplementToForeignTrade Policy) aSpecial package of Rs.
325 crore has been allottedforthe textiles sector. The governmenthasrationalizedthe fiscal structure,
exemptservice tax,reduce interestratesonpre- andpost-shipmentcreditandfacilitatefasterclearance of
arrears on terminal excise dutiesandcentral salestax.
Recognizingthe Handloom sectorasthe mostvulnerable segmentof the Textileindustry,Governmenthas
announcedaHandloomRevival,Reform&RestructuringPackage underwhichRs.3884crore was allocated
for waiverof loansof handloomcooperatives,individual weavers,etc.andforinterestsubsidy,margin
moneyandcreditguarantee forfreshloans.Governmentalsoapprovedadebtrestructuringpackage tohelp
lossmakingtextilemills,tobe administeredonacase by case basisbythe banks withinthe prudential norms
of the Reserve Bankof India.
a. EXCISE DUTY:
 Excise dutiesare indirecttaxesleviedbythe governmentonmanufacturingandexportof goods.
 To incentivizeexportsinanenvironmentof global slowdown,the Budgethasexemptedhandmade
carpet andtextile floorcoveringsof jute orcoirfrom excise duty.
 Zeroexcise dutyinadditiontoCENVATroute isalsoavailable tothe cottonand manmade sectorand
spunyarn at the yarn,fabricand garmentstages.
 In case of cotton,there iszeroduty at the fibre stage andin case of spunyarn, there will isadutyof 12%
at the fibre stage.
 Duty onbrandedgarmentswasbroughtdownto zero percentunderthe optional route from3.5%
earlier.
These measuresof reducedexcise allow Indianplayerstocompete againstemergingcompetitorslike
Bangladesh.

10. b. CUSTOMS DUTY:
 Customdutiesare indirecttaxesleviedonthe importof goods.
 The Budgethas enhancedthe customsdutyonraw silkfrom5% to15%.
 The uniongovernmentonThursdayreducedthe customsdutyontextile machineryandpartsto 5%
from7.5% ina bid to helpthe growth of the textiles sector.A reductiononcustomsdutyformachineryand
raw material allowsreduce the costforthe industryplayerswhile the increaseinsilkproductshelpsprotect
the domesticindustry.
7 PORTERS FIVE FORCES MODEL
One of the worsthitsectors duringthe skyrocketinginterestrate scenariointhe late 90s and early2000s,
the debt-ladenIndiantextileindustry hasspunmanyturn-aroundstoriessince then.Aidedbylowerinterest
rates,restructuringpackagesfromfinancial institutionsandthe recentdismantle of quotas,the sectoris
todaywell poisedtocapture growthopportunities.The textile sectoremploysnearly35m people andisthe
secondhighestemployerinthe country.Infact,itis estimatedthatone outof everysix householdsinthe
countrydirectlyorindirectlydependonthissector.Here we analyse the sector'sdynamicsthroughPorter's
five-factormodel.
 Bargaining power of customers(demandscenario)
On the customerfront,the bargainingpowerismediumdue tocountrieslikeBangladeshandChina
posinga potentthreatto jeopardise India’sUSPof cheaptextiles.The bargainingpowerhoweveris
reducinglatelydue toincreasinglabourcostsinChinathatare makingitan unattractive supplierforthe
US and EU.
 Bargaining power of suppliers(supplyscenario)
Indiaisthe third largestproducerof cottonin the worldafterChinaand US and has the largestarea
undercultivation.Cotton,akeyrawmaterial inthe textile andgarmentindustry,accountsforabout30%
of the fabriccost and 13% of the garmentcost. Indiahasan abundantsupplyof locallygrownlongstaple
cotton,whichlendsita cost advantage inthe home textile andapparelssegments.Othercountries,like
Chinaand Pakistan,have relativelylowersupplyof locallygrownlongstaple cotton.
Moreover,lowcottonpricesdue to a bumpercottoncrop wouldenable Indiatoloweritsproduction
cost and sustainpricingpressure.Further,effortsonimprovingthe yieldperhectare wouldensure
higherproductivityand production,therebyprovidingthe much-neededsecurityof raw-material supply
to textile producers. Indiaisrichintraditional workersadeptatvalue-addingtasks,whichcouldgive
Indiancompaniessignificantmarginadvantage.
 Threat of new entrants
In the quotafree regime,capacityexpansionisthe name of the game inthe textile sector.Resultantly,
smallerplayerswhocannotventure intothe global marketsare floodingthe domesticmarketswith
excesssupply,thusweakeningthe pricingscenario.Be itdenim(ArvindMills),home textiles(Welspun
and AlokIndustries) orbrandedapparels(Raymond),newcapex andconsolidationwithinternational
playersisalsonot likelytosafeguardmarginsforthe largerplayers,unlesstheycantap a significantpie
of the overseasmarkets.
 Threat of substitutes
Low cost producingcountrieslikePakistanandBangladesh(labourcost50% cheaper) are alsoposinga
threatto India'sexportsdemand.Infact,playerslike ArvindMillshave alreadystartedfeelingthe pinch
as overseasbuyershave startedshiftingto'alternativesources',thusimpactingtheirincremental
volume off-takes.
 Competitive rivalry
India'slogisticdisadvantagedue toitsgeographical locationcangive itamajor thumbs-downinglobal

11. trade.The countryisdistantfrommajor marketsas comparedto itsglobal competitorslikeMexico,
Turkeyand China,whichare locatedinrelativelyclose vicinitytomajorglobal marketsof US, Europe and
Japan.As a result,highcostof shipmentsandlongerlead-time coupledwithlackof infrastructure facility
may prove tobe majorhindrances.
Establishmentof 'Apparel ExportParks'andfiscal incentivesinthe recentbudgetsalsoindicatethe
government'sresolve toaidthe sector'sgrowthand internationalcompetitiveness.Asone can
comprehendfromthe above analysis,the potential forthe sector'sgrowthare ample,butthe trick liesin
competingeffectivelyagainstrivals.Consolidationof the industryanddeliveryof betterqualityat
effectiveratesandminimumleadtimewouldcertainlyhelpthe playerssurmountall competitive
pressures.
8 SWOT
STRENGTHS
 High operational efficiency in spinning
and weaving
 Low-cost skilled and unskilled labour
 Abundant raw materials
 Well-established network of related and
supporting industries
 Fully developed textile value chain
extendingfromfibre tofabricto garment
exports
 Strong backward integration
 Flexible in terms of production quantity
and lead time.
 Steadilydiversified its raw material base
to include man-made fibres
WEAKNESS
 Shortage of skilled labour
 Highly Fragmented Industry.
 Industry is highly dependent on Cotton
 Lack of Technological Development that affect the
productivity and other activities in whole value chain.
 Infrastructural Bottlenecks and Efficiency such as,
Transaction Time at Ports and transportation Time.
 Lacking to generate Economies of Scale.
 Higher Indirect Taxes, Power and Interest Rates.
 Delay in delivering the goods at the right time.
OPPORTUNITIES
 Growing Export Market opportunity
 Market Growth potential due to Free
Trade Agreements
 Growing Domestic Market
 Huge demand for value added goods in
all major countries.
 Relocation from high cost economies.
 Large and relatively untapped domestic
market
 Large Indian Expatriate community.
Hence there is large demand for Indian
Garments.
 Custom and import duties are relatively
low
THREATS
 Fluctuation in currency exchange rate
 Increasing competition from countries like Vietnam
 Increasing RMcosts
 Reducedtrade barriersand increased price pressures due
to US & EU from other competitor countries due to Trade
agreements
 Increased, cost-based competition from other countries
 Fluctuations in the demand in exports due to the
elimination of quota regime
 Higher borrowing cost which affects the profitability

12. 9. PESTLE
POLITICAL(LEGAL)
 Witha viewtoraise India'sshare inthe global textilestrade to10 percent by2015 (fromthe current3
percent),the Ministryof Textilesproposes50 new textile parks.
 Setup underthe Scheme forIntegratedTextile Parks(SITP),thisinitiative will notonlymake the
industrycostcompetitive,butwill alsoenhance manufacturingcapacityinthe sector.
 Indiaand Chinahave signedamemorandumof understanding(MoU) forpromotionof exportsof
Indianhandicrafts
 Indiaand Mauritiushave signedaMoU to enhance the trade & economicrelationsbyexpanding
businessandcooperationinthe sphere of textilesandclothingincludingsericultureandsilkand
fashionindustries.
ECONOMIC
 Risingincomes
 growingmiddle classhave beenthe keydemanddrivers
 Strongglobal demand
 Changingdemographics
 To surmountthe huge skill gapof workforce,the Ministryof Textileshave launchedanIntegratedSkill
DevelopmentSchemestoimpartemployableskillsindifferentsegments.
 Foreigndirectinvestment(FDI)of upto100% is allowedinthe textilessectorthroughthe automative
route.
SOCIALCULTURAL
 Indiahas a youngpopulation,abundantskilledandunskilledlabours
 It beinga nationwhichisheavilydependentonagriculture,resourcesare abundant
 Rich culture andheritage hasledtoa highdemandforthe handloomandcottage industryproduce
 Low wage rate-thuscheaplabouravailable
TECHNOLOGY
 Shortage of powersupply
 lowand expensiveR&D
 Lack of modernisedequipment,largelylabourintensive
 TechnologyUpgradationFundScheme (TUFS) tocontinue in12th Planwithan investmenttargetof Rs
151,000 crore (US$ 27.58 billion)
ENVIRONMENT
 On average,approximately 200 litresof waterare requiredtoproduce l kg of textiles.The large
volumesof wastewatergeneratedalsocontainawide varietyof chemicals,usedthroughout
processing.
 Energycrisis
 Aceticacidand formaldehydeare twomajoremissionsof concernin textiles.
 waterbecomesfull of chemical additivesandisthenexpelledaswastewater;whichinturnpollutes
the environment:bythe effluent’sheat;byitsincreasedpH;andbecauseit’ssaturatedwithdyes,de-
foamers,bleaches,detergents,optical brighteners,equalizersandmanyotherchemicalsusedduring
the process.

13. 10VALUE CHAIN ANALYSIS
VALUE ADDITION THROUGH THE VALUE CHAIN
India’stextile andapparel industrycomprisesmostlyof small scale,non-integratedspinning,weaving,
finishing,andapparel-makingenterprises.Thusitisa highlyfragmentedindustry.
The fundamental strengthof thisindustryflowsfromitsstrongproductionbase of awide range of
fibres/yarnsfromnatural fibreslike cotton,jute, silkandwool tosynthetic/man-madefibreslikepolyester,
viscose,nylonandacrylic.Unlike othermajortextile-producingcountries,India’stextile industryis
comprisedmostlyof small-scale,non-integratedspinning,weaving,finishing,andapparel-making
enterprises.Thisuniqueindustrystructure isprimarilyalegacyof governmentpoliciesthathave promoted
labour-intensive,small-scale operationsanddiscriminatedagainstlarger-scalefirms.
FIBRE
SPINNING WEAVING/
KNITTING
BLEACHING
DYEING
PAINTING
FINISHING
MAKE-UP
TEXTILE INDUSTRY VALUE CHAIN

14. 11 PROFITPOOL ANALYSIS
The textile industryisgoing throughinterestingtimes.Andthe thingsthathave made these timesinteresting
are the abilityof textile companiestotide overthe difficultiesinoperatingprofitably.
Due to highoperatingcosts,a numberof textile companiesare shiftingtheirbusinessstrategiestothe
higherendof the textile valuechaininsteadof focussingonthe lowerendof the value chain,where the
dependence onrawmaterialssuchas raw cottonand yam isunnaturallyenormous.
Beingheavilygovernedbygovernmentpolicies,whichare inexplicableandmanya timesunwarranted,
textile companies,especiallythoseinvolvedinthe manufacture andsale of yamand cotton,have shifted
theirfocusto the sale of fabricsand garments,where returnsare highandproductioncostsrelatively
economical.
In the lastthree years,there hasbeena markedchange inthe businessstrategiesof spinningcompaniesas
highoperational costshave pulleddownearningsof thesecompanies.Manya spinningcompanyismoving
up the value chaininthe textile industryinabidto become a verticallyintegratedtextile player.
SpinningcompanieslikeVardhmanTextiles,Loyal Textiles,KPRMills,Suryajyoti MillsandNaharSpinning
Millshave diversifiedfromthe capital-intensivespinningbusinessintothe businessof manufacturingfabrics
inrecentyears.
Two factorshave contributedtothe shiftinthe businessof spinningtothe businessof fabrics.One,highcost
of powerandtwo,highinterestrates.Instatessuchas Tamil Nadu andAndhraPradeshwhere 50% of India’s
spinningcapacityisproduced,only30%powerissuppliedtospinningcompaniesbythe state electricity
boards.Hence,spinningcompaniesfromthese stateshave tobuythe remaining70% electricityatmarket
rates,whichcan be as highas 18 perunitfor spinningcompanies.
Thisis the reasonwhypowercost forms15% of the total expenditureof spinningcompanies.Apartfrom
this,highinterestburdenhasalsoerodedrevenuesof the companiesinthe lastfive years.Thesecompanies
made lossesonhuge production,boostedbythe TechnologyUpgradationFundScheme intimesof subdued
demand,puttingpressure onthe marginsof spinningcompanies.
A comparative analysisof the financial performance of standalone spinningcompaniespittedagainst
verticallyintegrated(healthymix of fabricsandgarment) textile companiesshowedthatthe netprofitof
verticallyintegratedcompanieshasgrownata compoundedannual growthrate (CAGR) of 35%, while
standalone spinningcompanieshave aCAGRof 28% in theirnetprofitsinthe lastfive years.
Thisclearlyshowsthatconcentratedfocusinthe higherendof the value chainof a textile businessisa
lucrative strategyevenintimesof slowdowninthe business.Hence,aconsciousstrategytodiversify into
the fabricsegmentinthe lastthree yearshas helpedthe spinningcompaniestoincrease theirearnings.
Garmentingandfabricsegmentsbytheirverynature of businessdemandrequire lesscapital incomparison
withpure spinningbusinesses.Goingahead,increasingfocusonfabricsandgarmentswouldhelpspinning
companiestoretaintheirmarginsandthushelpthemgrow.

15. SPINNINGSECTOR
We analysedthe resultsof AmbikaSpinning,aplayersolelyintoSpinning.We determinedthatitoperated
witha NetProfitMargin of 0.075. Aswe were unable tofindthe spinningsectorprofitsof playerswhowere
operatingacrossthe value chain,we assumed0.075 as the NetProfitMargin forthese playersand
calculatedthe PAT.
COMPANIES REVENUE (Cr.) NetProfitMargin PAT (Cr.)
AmbikaSpinning 398 0.075 30
Nahar Spinning 1711 0.075 128
TridentTextile 1683.7 0.075 126.28
VardhmanTextile 3012 0.075 226
WEAVINGSECTOR
AlokIndustriesaccountfornearly70% of the weavingmarketshare intermsof salesand hence canbe taken
as a representativeof thisvertical.Inthe entire pool of companiesunderweaving,above 70% intermsof
profitsgoestoAlokIndustries.
Company Revenue (Cr.) PAT (Cr.) NetProfitMargin
AlokIndustries(Weavingdivision) 7806 381 0.048

16. Thus we can performan analysisof furthersegmentsinthe value chainanddeduce the attractive segments
of the industry.
12 ROLE OF TECHNOLOGY
The Indian textile Industryispredominantlylabourintensive comprisingsmall-scale,non-integrated
spinning,weaving,finishing,andapparel-makingenterprisesdue tothe policiesontax,labourandother
regulationsthatfavouredsmall-scale,labour-intensive enterprises,while discriminatingagainstlarge-
scale,capital-intensive operations.Notmanytextileunitshave adoptedtechnologicallyadvanced
machineryintheircompanies.
Textile technology,once consideredahandicraft,hasbecome ahighlysophisticated,scientificand
engineeringactivityof newtypesof fibresandtechnologies.The fieldencompassesdifferentareasof
engineeringsuchasmechanical,electrical,computer,chemical,instrumentation,electronicand
structural engineering.
The IndianTextilesIndustryhassufferedfromseveretechnologyobsolescenceandlackof economiesof
scale,which,inturn,had diluteditsproductivity,qualityandcosteffectiveness, despite distinctive
advantagesinraw material,knowledge base andskilledhumanresources. InordertoaddressthisThe
TechnologyUpgradationFundScheme (TUFS),the flagshipscheme of Ministryof Textileswaslaunched
on 01.04.1999.
13 INDUSTRYKPIS
Operational
metrics
Customer Metrics Corporate Strategy Working Capital
Management
Human
Resource
Reduce
Inventorycost
Improved
Customerresponse
time
Improve Stakeholder
value
Improve cash
management,minimize
borrowing
Reduce Worker
turnover
Reduce
Distributioncost
Improve customer
retention&loyalty
Enhance market
share,sales& Profit
Improve collections,
reduce receivables
Training&
Development
Reduce Lead
time
Transaction
satisfaction
Enhance
innovativeness
Reduce material
obsolescence
Improve
capacity
Productquality ImprovedROI ImprovedCapital
budgeting

17. utilization
14CAPITALEXPENDITURE
Withthe highgrowthpotential andgrowingdemandof apparel inthe domesticandExportmarkets,a heavy
investmentof around3.2 lakhCr has tobe made inorder to meetthe requirements.Followingchartgivesan
insightintothe amountof investmentsrequiredasperthe value chaincomponents
15 FDI IN TEXTILE INDUSTRY
Foreigndirectinvestment(FDI)of up to 100% isallowedinthe textilessectorthroughthe automativeroute.
The Ministryof Textileshassetupan FDI cell at the EconomicDivisiontoattract FDI inthe sector.
India’sliberalisationof itsforeigninvestmentregulations,buoyantdomesticdemandfortextiles,andstrong
exportpotential have ledtogrowingforeigninvestmentinthe country.The countryhas become one of the
fastestgrowingdestinationsforFDIinflowsandcollaboration.Foreigncompanieshave beenmotivatedto
enterintocollaborationswithIndianfirmsbythe increasingprofitsgainsthatcanbe made byproducing
brandsin Indiaandsellingthem intothe Indianmarket.Indiancompanies,onthe otherhand,have been
motivatedbythe scope forgainingtechnical andmarketingexpertise fromforeignpartners.
 The textilesindustryhasattractedFDIworth US$ 956.97 millionbetweenApril 2000 and March
2011, accordingto data releasedbythe Departmentof IndustrialPolicyandPromotion(DIPP)
 Ahmedabad-basedtextile companyArvindLtd.hastiedupwithanothermajorinternational brand,
GeoffreyBeene,LLCforapparel and non-apparel products.GeoffreyBeenehaslicensedArvind
Retail Ltd.to manufacture andmarketitsmen'sapparel and non-apparel products
 Indiahas the most liberal andtransparentpoliciesinForeignDirectInvestment(FDI) amongst
emergingcountries.Underthe automaticroute,100 percent FDIis allowedinthe textile sector.FDI
insectorsto the extentpermittedunderautomaticroute doesnotrequire anypriorapproval either
by the Governmentof IndiaorReserve Bankof India(RBI)

18. 16 OPERATINGENVIRONMENT
THE Ministryof Textilesisresponsibleforimplementingthe policyandregulatoryframeworksof the
industry.Several environmentconventionshave tobe compliedwith.theyare classifiedasproduct
related,processrelatedandwaste managementrelated.Underthe productpolicy- LifeCycle
Assessment(LCA) isthe majorcriteriatoevaluate the product’simpactonenvironment.Underthe
processpolicy,the sole aimistomake the productionprocesssustainable.Similarly,underwaste
management, legislationsregardingproperdisposalof packages etcistaken.The governmentallows
100% FDI intextiles.The TechnologyUpgradationFundScheme(TUFS) attractsmajorityof investment(
Rs. 2 Trilliontill 2010). The ExportPromotionCouncil overlooksthe exportactivitiesalongwiththe
Departmentof Commerce andMinistryof Textiles.From1stApril 2000, Govt.Of Indiareducedseveral
tariffsindifferentcategoriesof fiberslike- Manmade Fibers&FilamentYarnsfrom35% to 20%, Cotton
Yarn from 25% to 20%, · Spun,Blended,andWoolenYarnfrom40% to 20 %. Also, Customsdutyon
PolyesterStaplefibersisreducedfrom10% to 7.5%. A host of incentivesforthe sectorinclude:-
 proposal toset upmega clusters;
 Rs 500-crore scheme forpromotionandapplicationof geo-textilesinthe North-East;
 Rs 5,000-crore Venture FundwithSIDBItoenhance availabilityof equitytothe MSME sector
17 COMPENSATION
The textile workersinthe entireSouthAsiaare poorlypaidandIndialeadsthe pack.Indiantextile
workersreceive the secondlowestwagesinthe world,despite Indiabeingone of the world'sleading
textile-exportingcountries.Workersare paidanaverage wage of just $0.38 an hour.EventhoughFY
2013-14 saw an average salaryhike of around11% intextilesthe wagesforthe shopfloorworkers
remainedlow.The workshiftsare scheduledona12-hour basis,called1 ½ shifts.There isnouse of
overtime wage ratesandthissystemleadstoworkersbeingunderpaidforovertime byabout20%.
 WORKER TURNOVER-
The risinginabilityof factoriestorecruit,trainandmaintaintheirworkforce has quicklybecome one
of the leadingconcernsof factories.Worker turnoveristypicallyarange of 15% to 25% annually.
 WAGE PAYMENTSYSTEM-
The piece-rate wage paymentsystemhasbeenadoptedasthe preferredmethodof paymentbymany
garmentfactories.Althoughthissystemmayprovide real productivityincentivesand rewardstoa
cross-sectionof workers,itcancreate several barrierstoo.Eg.The firstbarriercreatedby the piece
rate systemisthatthe minimumwage isusuallynotguaranteedasa wage ‘floor’.
 TRAINING/DEVELOPMENTHOURS ANDCOST
The TextilesIndustryinIndiaprovidesdirectemploymentto35 millionpersonsandindirect
employmenttoanother47 million. The shortage of skilledlabourhasbeenrankedasthe secondmost
severe businessconstraintfacedbythe Indiantextileindustry.The emerging new technologiesin
weaving,spinning,processing,non-woven,knitting,etc.,require knowledge-basedskilledmanpower
at the shopfloor. The missinglinkshave beenidentifiedas - orientationtowardsmoderntechnology,
retraining,skillupgradation,managerial skill,entrepreneurshipdevelopment,etc.
With an objective of capacitybuildingof Institutionsprovidingskilldevelopment&traininginTextiles
Sector,The Union TextilesMinistrylaunched anew IntegratedSkill DevelopmentScheme forthe
Textiles&Apparel Sector,includingJute &Handicrafts .
FUNDING PATTERN:Eachof the projectswill be fundedtothe extentof 75% of the cost of the
project,withanoverall ceilingof Rs.7500 foreach trainee whosuccessfullycompletestraining.
Successful candidateswillbe certifiedbyanaccreditedagency.Inthose cases,where 50% of the
traineesare employed/self-employedwithin6monthsof receivingtraining,abonuswill be givenas
an incentive tothe ImplementingAgency.

19. 18 PROBLEMS AND OPPORTUNITIES IN THE INDUSTRY
 MAJOR ISSUES
Textile supplychainscompete onlowcost,highquality,accurate deliveryandflexibilityinvarietyand
volume.Several challengesstandinthe wayof Indianfirmsbefore theycanowna largershare of the
global market.Majorchallengesfacedbythe industryapart fromtechnologyare asfollows:
 SCALE: There are fewlarge firmsinIndia,affectingthe coststructure as well asabilitytoattract
customerswithlarge orders.Consideringthe size of the Indianeconomythere isaneedof biggerfirms
that produce standardproductsin large volumesaswell assmall andmid-sizefirmsproducinglarge
varietyinsmall tomid-size batches.
 SKILLS: There are three majoraspectspertainingtothisproblem. Firstly,there isapaucityof technical
manpower,secondly,Indianfirmsinvestverylittle intrainingitsexistingworkforce andthe skillsare
limitedtoexistingprocessesandlastly,thereisanacute shortage of trainedoperatorsandsupervisorsin
India.The real bottlenecktogrowthisgoingto be availabilityof skilledmanpower.
 CYCLETIME: Cycle time reductionisstronglycorrelatedwithhighfirstpassyield,highthroughput
times,lowvariabilityinprocesstimes,low WIPandconsequentlycost.Indianfirmsneedastrong
deploymentof industrialengineeringwithparticularemphasisoncellularmanufacturing,JITand
statistical processcontrol toreduce leadtimesonshopfloors.
 DOMESTIC MARKET: Firmsare not takingadvantage of the large domesticmarketingenerating
economiesof scale todelivercostadvantage inexportmarkets.This inthe longrun,will peril the export
marketsfordomesticproducers.Inaddition,highretail propertypricesandhighchannel marginsinIndia
will restrictgrowthof thismarket.Firmsneedtomake theirsupplychainleanerinordertoovercome
these disadvantages.
 OPPORTUNITIES
 Governmenthasliberalizedthe textilessectorandhastakenseveral measure like TUFs,topromote large
and integratedtextileunits
 The future growthin textileswouldbe drivenbyorganisedplayersandtheirshare isexpectedtoincrease
fromthe present5-6%to about15-20% by 2020
 Moreover,India’scottonsurplussituationislikelytobe overinnext3- 4 yearswithrisingdomestic
consumptionandexports.Asaresultcottonpricesare likelytomove furtherandpeoplebyforce would
move towardsblendedfabrics.
 Indiahas unique positioninglobal textile industrydue tostrongmanufacturingbase andisnow emerging
as a strong consumptionbase aswell
 India’sinherentstrengthslike astrongtextile infrastructurealongwithhighservice capabilitiesmakesita
preferredsourcingdestination
 The traditional playerslikeChinaare gettingstagnatedandothermajorplayerEurope isona decline.
Othercompetingnationsare at a far distance,thusclearlygivingIndiaasuperiorplatformtograb
additional marketshare
 Indiantextileindustryisall settowitnessalmost3timesgrowthinthe nextdecade fromusd78 bn.To
usd220 bn

20. 19 GOVERNMENTSUPPORT
 ISSUES FOR INSTITUTIONAL SUPPORT:
Industryismainlydrivenbyglobal competitionandinternational trade regulations.However,few areas
of policyweaknessstandout – labourreforms,poweravailabilityanditsquality,customsclearanceand
ship-mentoperationsfromports,creditforlarge scale investmentsthatare neededforupgradationof
technology,anddevelopmentof manpowerforthe industry.
 CLUSTER BASEDAPPROACH TODEVELOPMENT
The Governmentof India’sclusterdevelopmentinitiatives, involvingtechnical assistance,subsidies for
technology upgradation and marketing support, have strengthened the competitivenessof the SMEs
(Small andMediumEnterprise) ,whichhas alsoconsolidatedtheirpositioninthe global valuechain. A
case in point is the initiative undertaken by the Textile Committee under the Ministry of Textiles,
which has undertaken a cluster‐based programme for capacitybuildingintextile andclothingSMEs
inacross 20 clustersinthe country.Some keybenefitsof aclusterbased approachfor developingSMEs
are:
 Networkingamongenterprises
 Economiesof scale
 Improvedbargainingpower
 Technologyandskill upgradation
 Global visibilityandbeingpartof the value chain
 Easieraccess to finance
 Greaterinstitutional support.
The concentration of textile firms in the form of clusters is to a natural advantage foradoptinga
cluster‐baseddevelopmentapproachof the textile SMEsegment.International and domestic experience
has proved that this approach has helped firms in attainingcompetitiveness,arequisiteintoday’snew
market.
20SOCIALRESPONSIBILITYINITIATIVES
There are differentwaysinwhichthe textile industryfulfillsitssocial responsibilitytowardsthe various
stakeholders, includinghavingethical recruitment,remuneration,promotionandotherpolicies,ensuringa
safe workingenvironmentforthe employees,ensuringapollution-freeproductionprocess,presentinga
true and fairpicture of the financial conditiontothe investors,undertakingcommunitydevelopment,
ensuringpurchase of environment-friendlysupplies,havingefficientwaste disposal system,payingthema
fairrate of dividend,etc.
Example:- Welspunhasdevelopedthe conceptof 5 Es – Enrichmentof mind,enrichmentof body,
education,empathy,andempowermentof women.Itregularlyconductsworkshopson Yoga, contribution
towardsthe spreadof education, etc.
Similarly,ArvindMillsisknownforestablishingthe Narottambhai Lalbhai Rural DevelopmentFundandThe
Lalbhai Group Rural DevelopmentFundforthe benefitof the weakersections.Italsoorganizesnutritional
programmesandfoodcamps for rural people.Inthe nearfuture,the textile industryplanstojoinhandswith
a global industrygroupcalled‘Reducingthe Impactof TextilesonEnvironment(RITE)’—toreducethe
negative impactduringthe productionof textilesandapparel throughoutitssupply chain.
21 FUTURE OUTLOOK
STRATEGIC PERSPECTIVE

21. DomesticMarket: Firmsare not takingadvantage of the large domesticmarketingeneratingeconomiesof
scale to delivercostadvantage inexportmarkets.This,inthe longrun,will peril the exportmarketsfor
domesticproducers.Inaddition,highretail propertypricesandhighchannel marginsinIndiawill restrict
growthof thismarket.Firmsneedtomake theirsupplychainleanerinordertoovercome these
disadvantages.
Addressingand proceedingahead: Expectations are high, prospects are bright, but capitalising on the
new emergingopportunitieswillbe achallenge fortextile companies.Some prerequisitestobe includedin
the globallycompetingtextileindustryare:
 Imbibingglobal bestpractices
 Adoptingrapidlychangingtechnologiesandefficientprocesses
 Innovation
 Networkingandbettersupplychainmanagement
 Abilitytolinkuptoglobal value chains