Textile in India

8/7/2019 Textile in India

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Indian Textile

Industry [IBoK Report] Members

Arjun Mohan

Magill T K

Devarajan K

Manikandan V


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T e x t i l e S e c t o r Page 1

Quick Facts

.

Indian Textile Industry is the second largest contributor to our foreign exchange Indian Textile Industry is second largest employment generator Indian Textile Industry contributes 14% of our industrial production Indian Textile Industry contributes 4% of our GDP, 9% of excise duty, 18% of

employment in industrial sector, 16% of countrys export Indian Textile Industry contributes 25% share of world trade of cotton yarn Indian Textile Industry is the 2 nd largest producer of cotton yarn

Indian Textile Industry is the 3rd

largest producer of cotton Indian Textile Industry contributes 12% of worlds textile fibres and yarn Indian Textile Industry has 23% of worlds spin dle capacity Indian Textile Industry has the highest loom capacity in world 61% of all looms One of the 6 households in India derives benefits out of this industry


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IntroductionTextile is one of the biggest manufacturing industries in India. It contributes 3% of our GDP and 14%

of the industrial output. Both the consolidated and non-consolidated segments of the industry togetheremploy the second largest group of people in the economy making textiles an extremely importantcontributor to our economy, GDP and employment

HistoryHistorically India enjoyed a prominent position in the world market of cloth and garments. Europeansvied to reach the Indian lands because of the silk and spices available here. Indian handlooms used tobe a major contributor of cotton textiles all over the world till as late as 1930s. The British ruleensured that our industry remained handloom and hence was plagued by inefficiencies. Till as late as1990s, the textile sector in India was predominantly labour intensive in nature.

Textile got a shot in its arm with liberalisation and since then has grown into a huge exporter of garments and clothing. Although Indian textile is costlier than Chinese, the quota regimes has greatlyhelped India become the 2 nd largest textile exporter in the world. Today, it earns 21% of our foreignexchange through the exports.

Lately with the abolition of quota regime, various analysts all over the world predicted the demise of Indian textile industry. But against all odds, this industry has survived and fought back with all its firepower. Now it looks well in track to meet the 100 billion export target for 2010 11 from a currentsize of $86 billion.


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Present Outlook

OutlookTextiles are one the biggest earners of foreign exchange for our country. Although no longer theleading earner, textiles still contribute around 21% of all the foreign exchange we earn.

Along with the huge foreign exchange, the industry also provide livelihood to millions of textileworks and other related auxiliary occupations. The number is expected to touch 40 million in 2010.

Textiles in India have seen varying prospects. Since 2006, there has been growth in this area with thehelp of a slew of government sops. The outlook of the industry looks positive with the present state of affairs. The project figures for different components of the industry is as follows -

Parameter 2006 size 2012 size (projection)

Exports $52 billion $115 billion

Domestic demand $34.6 billion $60 billion

Garment exports $19.14 billion $22.13 billion

Share of garment exports 4% 7%

Source Ministry of Textiles

ClassificationEntire textile industry falls under the organised or unorganised sectors. Although organised sectors arethe ones which drive the industry forward with gigantic production output and economies of scale, alarge portion of the textile industry is still unorganised. Handloom based cottage industries,handcrafted textile works like Kancheepuram silks come under this category.

Based on the process specialisation, textiles can be classified as

1. Yarn production from synthetic fibre or through natural cotton processing2. Garment and readymade wear production from yarn3. Wool based textiles4. Jute based textiles5. Silk based textiles6. Handloom Industry7. Handicrafts industry

1. Yarn production is the largest sub division of Indian textiles. Presently, India has around2000 mills working in this sector with a production establishment of 40 million spindlesand factory output is in the range of 4000 million kg of yarn.

2. Garment and readymade wear production is the industry which value adds to yarnconverting it to readymade garments and cloths. China is almost a monopoly in this sectordue to its superb manufacturing skill. When China exports almost 40% of the garments inthis sector, India is a distant second with 3% share in exports. If one thinks about it, one


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comes to realise that Indias position in the world of exports is still as an exporter of rawmaterials thus pointing very clearly to the weak manufacturing industry we have. Anotherbig problem this industry face is the fluctuating production of cotton.As these 2 industries are the major contributors to textiles in India, the report and analysisare done with respect to these industries.

Yarn productionThe yarn production industry which actually contributes to most of the industrial output in our countrycan be sub-classified into cotton yarn production and synthetic yarn production.

Cotton yarn production

India is the second largest producer of cotton in the world and produces the cheapest cotton inthe world. As a result, India was able to produce cotton yarn in the most competitive way tillas early as 3 years ago. A series of government regulations, increase in minimum supportprice for cotton, decrease in cotton cultivation attributed to various factors has resulted in thedip in cotton yarn production. Today, China can produce cotton yarn in slightly morecompetitive fashion than India. Cotton yarn production in India has been very uneven as itstill dependent heavily on the production of cotton in our country.

Cotton productionOf these, our cotton textiles and readymade garments are well known for their designs and quality allover the world. The area under cotton cultivation -

Year Area (lakhhectares)

Production(lakh bales of 170 kg)

Value(Rs/Crores)

Yield(kg/hectare)

Quantity(lac bales of 170 kg)

Value(Rs/Crores)

2000-01 85.76 140.00 51.43 278 22.13 2029.182001-02 87.30 158.00 44.40 308 25.26 2150.012002-03 76.67 136.00 66.31 302 17.67 1789.922003-04 76.30 179.00 1089.15 399 7.21 880.102004-05 87.86 243.00 657.34 470 12.17 1338.042005-06 86.77 244.00 3951.35 478 5.00 695.772006-07 91.44 280.00 5267.08 521 5.53 752.292007-08 94.39 315.00 8365.98 567 6.50 986.332008-09 93.73 290.00 N.A. 526 7.00 N.A.

Source: Ministry of Textiles

Although we are the 2 nd largest producer of cotton in the world, our production is interspersed withmultiple problems associated with every agricultural crop in India high unpredictability due to highdependency of monsoons. The price paid to cotton in India is sometime so low that the producers goahead and export the raw cotton for low prices rather than value adding it into textiles.

The production of cotton in India is so irregular that at times, Indian manufacturers rely onimported cotton also to meet immediate demand or due to price considerations.

Cotton is the most important cash crops produced in India. With the dip in global production of cotton, the price of raw cotton has seen an upward trend. Although Indian production of cotton alsodipped, we still maintain a huge deficit in production usage which can be exported. Hence India

emerged as a favorite destination form export of raw cotton to China and Bangladesh. Although priceof cotton went up globally, Indian farmers had some legal problems exporting it.


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Cotton Producing countries

Country Share in the global production

China 32%

India 23%

US 12%

Pakistan 9.5%

Others 23.5%

Cotton Consuming countries

Country Share in the global consumption of raw cotton

China 41%

India 17%

Pakistan 10%

Others 32%

The Government had to impose restrictions on export of raw cotton. This is a relief to the local textileproducers who are already struggling to cope up with the intense global competition and rupeeappreciation.

Production share of cotton

Punjab

Haryana

Rajasthan

Gujarat

Maharashtra

Madhya Pradesh

Andhra Pradesh

Karnataka

Tamil Nadu


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Synthetic yarn productionThis industry has been a consistent performer all through especially because almost the entireproduction here is organised and done by Reliance Industries which uses cutting edge technology toget the best utilization. It has been seen that in last 10 years, the capacity utilization in this sector hasgrown consistently from 80% to 96%. The production improvement has been sluggish till 2006 whenit started clocking at a consistent 16% per annum after that. Since then, this industry has grown byleaps and bounds and is the biggest contributor to our textile outputs and exports. The industry growthhas shown a trickling effect trend of following the same pattern as the growth of the economy. Wheneconomy grew at nearly 10%, the industry was growing at a brisk 16% and when economy sloweddown during recession, the industry slowed down. So on a average, the industry has grown at 9% yearon year in last 10 years.

Distribution of yarn production across various segments

Source: Ministry of Textiles, Government of India

Quantityin Million kgs

Financial Year


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Cloth and garment manufactureOnce upon a time, the glory of Indian industry, the cloth manufacturing has taken a back seatprimarily because of 2 reasons

1. Most of the production happens in the unorganised sector which is still dependent uponextremely backward technology

2. A series of draconian laws reserving high volume cloth segments to handlooms, impositionof quota regimes on power looms, delinking of spinning and weaving sectors.

The industry has been growing at an extremely sluggish pace in the last decade and by 2006 we haveseen an absolute reduction in production by around a 100 million square meters from 2000. Latelywith the taking of textile ministry by Dayanindhi Maran and after government identified this industryas major one which should be protected, it has provided the industry with a slew of perks which hasresulted in some improvement in production. But major improvements can only come about by a totaloverhaul of the industry segment especially change in some of the old and out dated laws protectinginefficient industries.

Policies regulating textiles

Both the government and international policies are curbing the improvement of production in textiles.Out dated laws like Reservation of Articles for production curbs power looms into getting into highvolume export articles like bed spread and mats while international regulations like Multi-fibreagreement curbs us from exporting to developed markets. Although the quota abolition has been amove consistent with the capitalist philosophy by WTO, the fruit of this regime was reaped by Chinadue to our pathetic production capacity.

Lately there has been an improvement in the perspective of the government in the right direction bythe introduction of National textile policy which clearly specified increase in production andefficiency as its biggest aims.

70.6

70.8

71

71.2

71.4

71.671.8

72

72.2

Staple Fibre Filament Yarn

Manmade Yarn -Capacity Utilization % in 2009-10

Capacity Utilization %


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Policy Initiatives by GOI:Lately, Government of India has focused on giving a fillip to the textile industry through a slew of policy initiatives. Some of the include -

Development of SEZ and apparel park are put on fast track with special consideration by thePMO

Capital subsidy for fabric processing Reduction in import duty of textile machinery Availability of credit to textile at lower interest rate Interest reimbursement at 5% p.a Stamp duty reimbursement scheme Duty Entitlement pass book scheme

Most of these initiatives has been implemented through schemes which has given the breather of capital and tax concessions to the extremely competitive textile industry -

Technology Upgradation Fund Scheme (TUFS): Gives 10% capital subsidy on machinery and 5% reimbursement for technical textiles like

agrotech, clothtech, meditech, sportech and conducts workshops for them.

Focus on value added textiles rather than export of raw fibers

Technology Mission on Cotton: Government of India initiative to increase the productivity, to improve quality at reduced cost

of production. Since launched in 2000, it has helped the industry to be more competitive andprovide better returns to the farmers.

National Fiber Policy: The share of manmade fiber consumption (43%) is lower in India compared to world average

of 60%. The need for a policy which ensures steady availability of fiber was prevalent.

Aims to achieve 7-8% growth for the textiles industry

Development of SEZ and apparel parks are put on fast track with special consideration by the prime Ministers Office

Scheme for Growth and Development of Technical Textiles: Set up centers of excellence, surveys on technical textiles and awareness programs

Focus on Information and Communication Technology (ICT) Helps the industries to set up E-marketing portals, enhancing the websites and putting the e-

governance implementation on fast track


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Global Scenario

India's Textile Exports - Top Ten Countries during April-March 2008-09and April-March 2009-10

Country % share 2008-09% share 2009-10

1 USA 20.39 18.042 UAE 7.75 7.363 UK 8.11 7.3

4 Germany 7.68 6.775 China 2.1 5.986 France 4.46 3.787 Italy 3.74 3.118 Pakistan 1.41 3.059 Spain 3.08 2.9710 Bangladesh 2.43 2.6211 Others 38.86 39.02

Source: Ministry of Textiles

The share of export to USA and European nations is coming down. The export to China is increasingat a brisk pace, a result of better trading between these Asian giants which together occupied morethan 40% of the world economy 200 years ago. Exports to China increased by 212% and to Pakistanby 137% in the last year which helped wither the lack of demand from the West. During this period,the total textiles export grew from $20940.42 million to $22313.76 million, an increase of 6.56% indollar terms and 9.92% in rupee terms, despite the global recession. These top 10 countries accountfor 61% of Indian textile exports.

The growth was severely affected by the global recession in 2008-09. The revival in demand is clearlyvisible from the increase in production during 2009-10 across product lines.

Total spun yarn grew by 7% in 2009-10 as against 2% decline in the year 2008-09. Cotton yarn,which accounts for 74% of total spun yarn, grew by 6%. Blended yarn and 100% Non-cotton yarngrew by 8% and 13% respectively, recording a smart recovery.

Improvement in production across product lines has been supported by revival in the demand as wellas significant capacity additions/modernization initiatives undertaken by the industry during last fewyears aided by Technology upgradation Fund Scheme (TUFS) of the Ministry of Textiles. Withsignificant improvement in the production of textile products, there are clear symptoms of recovery in2010.

The domestic market experienced a fall in demand after the global economic turmoil, but had a smartrecovery on account of the stimulus packages announced by the Government and the improvedliquidity in the economy. The domestic demand is expected to be stronger in the coming years, rising


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disposable incomes and aspirations will lead to the surge in consumption by the young population of the country. The growth in the organized retail will also be a boost to the domestic demand.

The scenario is not very appealing in the export front. As per the data released by the Ministry of textiles, export of textile products from India fell by 5.4% during Apr-Dec2009 compared to the same

one year ago. The signs of recovery in the US economy, the biggest importer of textiles from India,are positive but the sovereign debt crisis in some of the European countries reduces the hope of aspeedy recovery.


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Analysis

SWOT analysis

Strengths

Proved managerial and entrepreneurial skills Although concentrated and available in low quantity, we have efficient multi-fibre

manufacturing capacity Large capacity of production Large pool of cheap and skilled man power

Weaknesses

Out-dated manufacturing technology Inefficient supply chains Most of the sector is unorganized and decentralized which as a whole is inefficient High manufacturing cost when compared to our Asian neighbours Out dated labour laws Draconian laws protecting inefficient systems

Opportunities

Low and cheap imports Availability of flexible textile manufacturing set ups

Large home grown market Enormous export potential Almost 70% of world fiber processing takes place in Asia. China, India and Pakistan together

account for 60% of fiber consumption. Though Bangladesh and Vietnam have been emerging as competing players, they rely heavily

on textile import inputs. Global retailers prefer single point service, helping integration of suppliers of textile and

clothing.

India s textile & clothing export was lower than China, which had 23% growth between 2002and 2007. China exported $171bn compared to $22bn from India. This illustrates missedopportunities as well as scope for future growth.


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Threats

Post 2005 relaxation of quota regimes has made the industry extremely competitive Competition from imports from Brazil, Korea, Sri Lanka which are able to produce at

much lower cost Appreciation of rupee, affecting the competitiveness of domestic exporters vis a vis China,

Bangladesh etc, whose currency didnt appreciate as much as Indian rupee did Significant rise in cotton prices to affect profitability

4 P Analysis

ProductIndian textiles is highly regarded for its quality and workmanship all over the world, may it be thetraditional handloom industry, high tech rayon fibres or our garments and clothing. We haveconsistently built a brand for India which reflects quality and endurance. An interesting thing to noteis that most of our exports are basic goods which are not differentiated. For example, almost all ourgarments are ones which come under the low cost category. India was never able to differentiate itsgoods based on any parameters.

PricePricing is the single most important area where we fail miserably. Over the years, garments haveevolved into a segment which is differentiated only based on price, especially the segment India isoperating in. Hence with Chinese and South East Asians stealing all the price advantage, we are attrouble. When we talked to a few garment exporters based in Kannur (one of the earliest clothexporters from India), they lamented that nowadays all their orders are getting siphoned off by China,Korea and Vietnam. Even Pakistan is emerging as heavy competitors with them quoting unbelievablylow prices. So they are now focusing on the low quantity orders. One of the biggest players in Kerala,Mascot industries told us that to survive; they even have to take orders of 10m fabric.

PlaceAlmost all the exports are done in a B2B format where the exporters sent out their goods to agents of

the buyers in foreign countries. For domestic market, big players like MAX, Lifestyle, Pantaloons buydirectly from the mills while others rely on distributors.


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PromotionAs the industry is business to business format, almost no promotion happens. The exports happen viaagent route. The mills directly sell to the agents who are representatives of buyers in other countriesthrough a bidding process.

While big domestic players like Pantaloon retail, MAX garments etc buy directly from the mills,small players rely on distributors for their share of products.


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Porters Five Forces Textile is an industry where all of the 5 forces of Porter are clearly in action.

Bargaining power of the suppliersThe farmers supplying cotton are an extremely strong cartel in India. Most of them are concentrated inthe Deccan belt of Maharashtra, Karnataka, AP and TN and has the power to significantly influencethe policy making decisions of the government and hence create trouble for the textile industry. Mostof these wealthy landlords are people who are responsible at bringing up the Minimum Support Priceof cotton.

The decreasing production of cotton and the increased pressure from exports to neighbouringcountries are another aspect given a huge bargaining power to the suppliers.

Bargaining power of the consumers

Due to the large number of organisations and countries involved in textiles, the buyers are presentedhuge number of options out of which they can make choices easily. As a result, the bargaining powerof the consumers in this industry is high. There is always another supplier who will take up their orderat lower price.

Barriers to EntryIndian textiles are still a heavily regulated industry. GOI has reserved certain products to bemanufactured only by handlooms and there are elaborate quota restrictions in place which preventsthe industry from increasing their production.

Threat of substitutesAs India is into almost every form of cloth and garment production; threat of substitutes are not reallyprevalent in the industry.

Competition in the industryHuge rivalry and competition among players are norms of this industry. There are nearly hundredplayers in India targeting the exports to various American and European countries. The competition iscut throat and only the best survives in this industry.

Above the domestic competition, the intense competition from cheap manufacturers in ourneighbourhood intensifies the competitive frame of reference.


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Segment Analysis

Financial Analysis

In this section, we have tried analyse the financials of various sectors of the textile industry. The ratioswe derived out of the analysis were -

Cotton OESpg

2009 2008 2007 2006Net Sales 1,781.94 2,590.93 2,809.25 2,748.56

Gross Profit -12.37 114.85 417.77 255.53Operating Profit 156.5 263.73 541.15 382.06Reported Net

Profit-167.31 -64.38 175.96 63.55

Current Assets 1,159.32 1,455.49 1,657.38 1,354.77Current Liabilities 417.39 441.35 562.32 512.87Total Assets 2,763.52 3,073.92 3,454.50 2,724.83Total laibilities

Gross Margin -0.69419 4.432771 14.87123 9.296868Operating Margin 0.087826 0.10179 0.192631 0.139004Profit Margin -0.09389 -0.02485 0.062636 0.023121Current Ratio 2.777546 3.297814 2.947397 2.641547Asset Turnover 0.644808 0.842875 0.813215 1.008709ROCE (%) 7.58 8.14 10.37 8.17

Cotton 1002009 2008 2007 2006

Net Sales 3,513.08 3,385.65 3,192.79 2,495.09Gross Profit -175.42 44.4 212.51 239.88Operating Profit 136.66 295.27 388.55 357.54Reported Net

Profit-345.68 -162.99 29.6 50.33

Current Assets 1,633.14 1,799.44 1,736.23 1,329.24Current Liabilities 587.91 638.75 443.43 363.66Total Assets 4,232.68 4,359.59 4,034.03 2,927.59Total Liabilities

Gross Margin -4.99334 1.311417 6.655934 9.614082Operating Margin 0.0389 0.087212 0.121696 0.143297


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Profit Margin -0.0984 -0.04814 0.009271 0.020172Current Ratio 2.777874 2.817127 3.915455 3.655172Asset Turnover 0.82999 0.776598 0.791464 0.852268ROCE (%) 0 0 4.97 5.93

When one compare these margins and ratios with the other major sectors in textiles like silk andrayon, the status of cotton textiles and its contribution to the total textiles in India comes out.

Gross Margins

Operating Margin

-20

-10

0

10

20

30

4050

60

70

80

90

2006 2007 2008 2009

Rayon

NylonSilk

Jute

Cotton 100

Cotton OE SPg

0

0.2

0.4

0.6

0.8

1

1.2

2006 2007 2008 2009

Rayon

Nylon

Silk

Jute

Cotton 100Cotton OE SPg


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Profit Margin

Current Ratio

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

2006 2007 2008 2009

Rayon

Nylon

Silk

Jute

Cotton 100

Cotton OE SPg

0

2

4

6

8

10

12

14

16

18

2006 2007 2008 2009

Rayon

Nylon

Silk

Jute

Cotton 100

Cotton OE SPg


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Assert Turnover

ROCE(%)

As it can be clearly seen, although in terms of volume and quantity the contribution of cotton andrelated products are quiet high, the cotton textile industry in itself is bleeding and working with razor

thin margins and turnover ratios.

0

1

2

3

4

5

6

7

8

2006 2007 2008 2009

Rayon

Nylon

Silk

Jute

Cotton 100

Cotton OE SPg

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009

Rayon

Nylon

Silk

Jute

Cotton 100

Cotton OE SPg


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Players in the Textile SectorThe textile industry is a highly fragmented industry with no single player having a sizable market

share. The highest market share is held by Alok industries with 4.63%. This causes the sector to behighly competitive with no players being able to dictate the price of the goods. Hence the profitmargins are not too high and some players also made losses during the recession years. Alsocompanies like Arvind Mills had to undergo debt restructuring to stay out of bankruptcy.

Company Market sharein 2009

Net Revenue[mn INR]

Net Profit[mn INR]

Alok Industries Ltd.(Mar,2009)

4.63% 29 769.3 1 883.7

Vardhman Textiles Ltd.(Mar,2009)

3.82% 24 536.5 1 407.7

Indo Rama Synthetics IndiaLtd.(Mar,2009)

3.81% 24 444.8 -978.3

JBF Industries Ltd.(Mar,2009)

3.73% 23 944.1 762.7

Arvind Ltd.(Mar,2009)

3.65% 23 449.9 -488.2

Alok IndustriesMarket share: 4.63%

Major products: Cotton and Blended yarn, Apparel Fabric, Embroidery, Garmets-Woven and Knitted,Home Textiles

Alok industries was established in 1986 as a private textile manufacturer. Its production base is nowspread over 6 locations in Navi Mumbai in Vapi and Silvassa. It doesnt sells its goods directly to thecustomers and doesnt own any brand of significance. But it sells to a wide range of exporters ,branded apparel retailers, retails chains in foreign countries etc. Alok industries exports its product toover 70 countries. Also operates its embroidery business through its sister concern, Grabal Alok

Impex Ltd.

Financial PerformanceYear End Mar-10 Mar-09 Mar-08 Mar-07 Mar-06Equity 787.79 196.97 187.17 170.37 157.47Networth 2,716.19 1,755.06 1,431.34 1,024.44 807.53Enterprise Value 8,868.31 7,005.51 5,159.50 3,523.42 2,772.81Capital Employed 11,225.87 8,351.42 7,198.65 4,361.20 3,020.03Gross Block 7,276.36 4,534.43 3,371.73 2,345.72 1,403.42Sales 4,290.79 2,945.97 2,190.53 1,859.43 1,453.62

Other Income 169.5 152.96 222.1 109.23 35.92PBIDT 1,285.94 889.03 702.37 497.15 312.71


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PBDT 737.4 518.49 459.55 355.35 234.48PBIT 923.33 655.53 540.41 374.11 232.23PBT 374.79 284.99 297.59 232.31 154RPAT 247.34 188.37 198.66 164.7 109.21APAT 246.06 188.65 196.48 164.6 107.73CP 609.95 421.87 360.62 287.74 189.69Rev. Earnings in FE 1,444.51 974.99 975.95 608.17 365.66Rev. Expenses in FE 672.3 260.43 124.23 61.07 14.01Book Value (Rs) 34.48 81.6 70.59 60.13 51.28EPS (Rs.) 3.1 9.44 10.41 9.38 6.22Dividend (%) 2.5 7.5 12 14 12Payout (%) 8.07 7.95 11.53 14.92 19.3

Source: Capital Line

Key Values of Alok Industries

Ratio Analysis

Debt-Equity3.38 3.88 3.71 2.88 2.22

Current Ratio 2.26 2.19 2.36 2.08 2.19Invtry Turnover 3.55 3.61 3.8 4.52 4.03Debtors Turnover 4.32 3.95 3.8 4.14 3.84Interest Cover 1.68 1.77 2.23 2.64 2.97PBIDTM (%) 29.97 30.18 32.06 26.74 21.51PBDTM (%) 17.19 17.6 20.98 19.11 16.13APATM (%) 5.76 6.39 9.07 8.86 7.51ROCE (%) 9.43 8.43 9.35 10.14 9.25RONW (%) 11.06 11.82 16.18 17.9 14.46

EV/EBIDTA 6.9 7.88 7.35 7.09 8.87Rate of Growth (%)

0.00

1,000.00

2,000.00

3,000.004,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

10,000.00

Networth EnterpriseValue

Sales APAT

Mar-10

Mar-09

Mar-08Mar-07

Mar-06


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Net Worth 54.76 22.62 39.72 26.86 35.02Sales 45.65 34.49 17.81 27.92 13.1PAT 31.31 -5.18 20.62 50.81 22.36M Cap 131.92 -29.25 9.67 -16.31 41.48

Rate of Growth of Alok Industries

Vardhman Textiles LtdMarket Share: 3.82%

History

Vardhman Textiles was established in 1965 in the industrial city of Ludhiana. At that time the fertileMalwa region of Central Punjab was known as the Manchester of India. At the beginning it had aninstalled capacity of 14,000 spindles. In 1982 it expanded its business to the manufacture of sewingthreads. In 1990 it undertook yet another diversification - this time into the weaving business. Itestablished an acrylic fibre manufacture unit in 1999 under a joint venture with Marubeni and Exlan

of Japan.

Financial PerformanceYear End Mar-10 Mar-09 Mar-08 Mar-07 Mar-06Equity 57.77 57.77 57.77 57.77 57.77Networth 1,455.85 1,272.75 1,172.14 1,092.02 961.67Enterprise Value 3,935.99 2,410.52 2,927.89 2,700.78 2,852.91Capital Employed 4,076.65 3,766.07 3,563.37 2,816.29 2,063.89Gross Block 3,571.02 3,355.49 3,096.49 2,108.66 1,759.85

Sales 2,767.22 2,495.38 2,346.36 2,159.24 1,957.25Other Income 88.87 200.2 37.19 28.01 51.26

-40

-20

0

20

40

60

80

100

120

140

Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

Net Worth

Sales

PAT

M Cap


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0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00


Sales APAT

Mar-10

Mar-09

Mar-08Mar-07

Mar-06

PBIDT 628.31 537.87 391.56 385.89 394.01PBDT 507.68 410.26 323.35 345.07 351.78PBIT 407.43 330.54 237 266.44 292.67PBT 286.8 202.93 168.79 225.62 250.44RPAT 213.76 140.77 122.55 171.7 196.32APAT 211.09 83.33 122.53 170.74 173.29CP 434.64 348.1 277.11 291.15 297.66Rev. Earnings in FE 704 630.2 461.68 440.78 367.42Rev. Expenses in FE 181.92 154.48 165.96 140.34 133.56Book Value (Rs) 252.01 220.31 202.9 189.03 166.47EPS (Rs.) 36.5 24.03 20.53 29.16 33.42Dividend (%) 30 20 40 40 40Payout (%) 8.22 8.32 19.48 13.72 11.97


Key Values of Vardhman Textiles

Ratio Analysis of the industry players

Debt-Equity 1.87 2 1.82 1.38 1.06Current Ratio 1.95 1.84 1.85 1.98 1.76Invtry Turnover 3.2 3.35 3 3.41 3.57Debtors Turnover 8.22 9.07 8.9 9.1 9.09Interest Cover 3.38 1.92 3.47 6.53 6.22PBIDTM (%) 22.71 18.12 16.69 17.87 18.61

PBDTM (%) 18.35 13.01 13.78 15.98 16.45APATM (%) 7.72 3.34 5.22 7.95 8.85


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ROCE (%) 10.39 6.68 7.43 10.92 14.6RONW (%) 15.67 6.82 10.83 16.72 19.81EV/EBIDTA 6.26 4.48 7.48 7 7.24

Rate of Growth (%)Net Worth 14.39 8.58 7.34 13.55 22.11Sales 10.89 6.35 8.67 10.32 1.34PAT 51.85 14.87 -28.63 -12.54 62.57M Cap 460.21 -54.22 -49.77 -40.99 187.35


Rate of Growth of Vardhman Textiles Ltd

Arvind Mills

Arvind mills established in 1930 is one of the largest players in the textile sector in India with aturnover of $300 million (source: ibef). The major products of Arvind mills are Denim, Shirtings,Khakis, Knitwear and Voiles. Arvind mills sells these products in the domestic market under a slewof brand names namely:

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Own Brands

MainstreamExcalibur, Flying Machine

PopularRuff & Tuff, New PortUniversity

Licensed Brands

Bridge to LuxuryGant, U.S.A. 1949

PremiumUSPA, SansaBelt, Izod, PierCardin Paris, ArrowPopularCherokee

Joint Venture Brands

Bridge to LuxuryTommy Hilfiger, Nautica,

PremiumLee, Wrangler,PopularWrangler Hero, Riders

HistoryArvind Mills was incorporated in 1931 in Ahmedabad to manufacture cotton textiles. In 1962it entered into a technology agreement with Tootal Broadhurst Lee of Manchester for themanufacture of crease resistant fabrics. Brought the brand Arrow to India in the year 1987.

Debt RestructuringArvind Mills took up huge expansion plans during the 1990s. It took huge loans from both domesticand foreign financial institutions to augment its denim production capacity. But the demand for denimdecreased during that time leading to unused capacity and lack of enough sales and profits.Consequently Arvind Mills undertook debt restructuring in 2001 in order to stave of bankruptcy.

PresentArvind Mills owns the maximum number of brands in India and is a Major player in the domestic

market. Some of its brands Like Ruff & Tuff lost most of its brand value mainly because of underinvestment in the brand during the Time Arvind mills went through financial difficulties. But Arvindmills have bought or licensed foreign brands and this has improved its market share in the domesticretail market.

Financial Performance

Year End Mar-09 Mar-08 Mar-07 Mar-06 Mar-05Equity 218.98 218.98 209.38 209.38 195.38Networth 1,166.89 1,412.83 1,316.31 1,475.85 1,215.90Enterprise Value 2,290.54 2,716.24 2,822.80 3,933.96 3,917.56Capital Employed 3,210.63 3,351.74 3,296.82 3,373.32 2,964.50Gross Block 3,042.92 2,918.47 2,792.69 2,192.24 2,110.33Sales 2,347.50 2,292.06 1,845.01 1,623.39 1,693.75Other Income 99.83 69.96 149.92 26.13 14.67PBIDT 345.14 343.45 434.77 430.42 396.05PBDT 76.04 166.25 265.36 291.48 278.37

PBIT 223.09 206.81 291.41 275.32 246.98PBT -46.01 29.61 122 136.38 129.3


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RPAT -47.87 27.36 119.56 127.16 127.35APAT -76.51 35.84 29.08 118.14 127.72CP 74.18 164 262.92 282.26 276.42Rev. Earnings in FE 921.18 963.88 823.86 727.43 773.46Rev. Expenses in FE 192.57 166.41 173.28 176.53 162.34Book Value (Rs) 52.31 63.55 62.87 70.49 62.19EPS (Rs.) 0 1.12 5.54 5.72 6.14Dividend (%) 0 0 0 10 10Payout (%) 0 0 0 18.66 16.28


Key Values of Arvind Mills

Ratio AnalysisDebt-Equity 1.49 1.37 1.3 1.25 1.23Current Ratio 1.29 1.5 1.76 1.94 1.95Invtry Turnover 4.06 3.76 3.28 3.28 3.8Debtors Turnover 7.66 9.82 6.44 4.72 6.11Interest Cover 0.72 1.22 1.13 1.98 2.1PBIDTM (%) 13.48 15.4 18.14 26.51 23.38PBDTM (%) 2.02 7.67 8.96 17.96 16.44APATM (%) -3.26 1.56 1.58 7.83 7.52ROCE (%) 5.94 6.52 5.74 8.69 8.98RONW (%) -6.06 2.44 1.86 9.17 10.59EV/EBIDTA 6.64 7.91 6.49 9.14 9.89Rate of Growth (%)Net Worth -17.41 7.33 -10.81 21.38 9.36

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Sales 2.42 24.23 13.65 -4.15 14.87PAT -274.96 -77.12 -5.98 -0.15 31.63M Cap -64.5 -9.24 -56.67 -6.48 152.58


Rate of Growth of Arvind Mills Ltd

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Conclusion Improving the status of Indian textiles vis--vis global playersImprovement in Indian textiles can be brought about only through some radical changes in the waywe look at the industry. From our analysis, it is clear that we cannot compete the throw away prices of China and the high volume markets. Hence Indian industry should look at a high value segment whereits value is well rewarded.

The Road Ahead

The (SRTEPC) Synthetic and Rayon Textile Export Promotion Council, has set a target to more thandouble the export of man-made textile from the country. Presently, the global man-made fibre (MMF)trade accounts for 60 per cent of the total trade in textiles. SRTEPC plans to increase exports to US$

6.2 billion by capturing four per cent market share by 2011-12.

Points of ParityIndian textiles possess the points of parity of high quality and reliability which qualifies it to thecategory membership of high cost textiles segment. Still because of our wrong promotion techniques,we keep selling as a cheap and low cost product.

Points of DifferenceIndian textile industry should differentiate itself by utilizing the strong brand equity it possesses. Thiscan be done by branding the textiles we export with our brand rather than being a producer for otherestablished brand. We suggest the usage of brand name Indigo for all exports we do. BrandIndigo should be promoted aggressively in International media tying it up t o our brand image of quality and reliability. This will improve the customer reference price for Indian apparels and hencewill be converted to greater revenues. We should increase the points of difference of Indigo byinvesting on our design capabilities and incorporating design and innovation as one of the key aspectsof production. In a country like India with such skilled man power, this will be the way to go ahead.

The branding exercise suggested here is a unique one as the consortium of all industries exportingalong with the ministry of textiles will be doing this branding. The branding exercise can be done onthe lines of Incredible India or Kerala Gods Own country which will make Indigo a go tobrand for businesses and consumers.


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References1. Ministry of textiles www.texmin.nic.in 2. Annual report on the Indian textiles - texmin.nic.in/annualrep/arep.htm 3. Crisil research & information services - www. crisilresearch .com 4. textiles .indian etzone.com
http://www.texmin.nic.in/http://www.texmin.nic.in/http://www.texmin.nic.in/http://www.crisilresearch.com/http://www.crisilresearch.com/http://www.crisilresearch.com/http://www.crisilresearch.com/http://www.crisilresearch.com/http://www.crisilresearch.com/http://www.texmin.nic.in/

Textile in India

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