Indian Textile Trade -Golden Period- March 2012

1 Indian Textile Industry - The Golden Decade 2011-2020

Presented by: Alok Industries Limited March 2012

2

Contents

• Growing Global Textile Trade and trend

• China Domination - Whether sustainable ? • Overview of Indian Textile Industry

• Golden Decade for Indian Textile Industry – 2011-2020

• Yes India

• Conclusion

Growing Global Textile Trade and Trend

4

Global Textile Trade Has Grown Significantly Over The Years …And Expected To Grow Further

Quota Phase Out

Regime

Post Quota

CAGR : 5.6%

CAGR : 8.6%

Global

Slowdown &

Recovery

-1.2% Growth

CAGR : 5%

The Way Ahead….

In USD Billion

CAGR: 6%

E: Figures of 2010 have been estimated based on US & EU imports for 2010

P: Projections

Source: WTO, OTEXA, Eurostat, Technopak Analysis

CAGR : 5.5%

5

Major production hubs Major consumption hubs

Textile Production Has Gradually Shifted From Developed / Western Countries to Developing / Asian Countries… rapidly in the Last 10 Years

Asian countries like China and India apart from being production hubs have also emerged as strong consuming base in the last 5 years

6

Source: WTO

Top Exporters & Importers of Textiles and Clothing

Top Exporters

1990

1995

2000

2005

2010

Value % Value % Value % Value % Value % China 28.3 13.3% 49.3 15.9% 78 22.0% 132.8 27.5% 216 35.9%

EU - 27 91.6 43.2% 110.7 35.7% 101 28.3% 148.3 30.7% 166 27.6% India 4.7 2.2% 8.5 2.7% 10.2 2.9% 16.1 3.3% 24 4.0%

Turkey 4.8 2.3% 8.7 2.8% 10.2 2.9% 18.9 3.9% 22 3.7% USA 7.6 3.6% 14 4.5% 19.6 5.5% 17.4 3.6% 17 2.8%

Others 75 35.4% 118.9 38.4% 137 38.5% 149.5 31.0% 157 26.1% Total 212 100.0% 310 100.0% 355 100.0% 483 100.0% 602 100.0%

Top Importers

1990

1995

2000

2005

2010

Value % Value % Value % Value % Value % EU - 27 107 50.6% 131 42.4% 129 36.3% 195 40.3% 237 39.4% USA 33.7 15.9% 51.8 16.7% 82.1 23.1% 103 21.2% 105 17.4% Japan 12.8 6.0% 24.7 8.0% 24.7 7.0% 28.4 5.9% 34 5.6% China 5.3 2.5% 11.9 3.8% 16 4.5% 17.7 3.7% 20 3.3% Canada 4.7 2.2% 5.9 1.9% 7.8 2.2% 10.3 2.1% 12 2.0% Russia - - 1.4 0.5% 3.9 1.1% 10.5 2.2% 11 1.8% Others 48.2 22.7% 82.9 26.7% 91.6 25.8% 119 24.6% 183 30.4% Total 212 100.0% 310 100.0% 355 100.0% 483 100.0% 602 100.0%

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Source: WTO

Top Exporters and Importers of Textiles and Clothing - 2010

Top 5 Exporters 2010 Textiles Clothing Total Amount Total %

China 87 129 216 35.9%

European Union 67 99 166 27.6%

India 13 11 24 4.0%

Turkey 9 13 22 3.7%

United States 12 5 17 2.8%

Others 63 94 157 26.0%

Total 251 351 602 100.0% Top 5 Importers 2010 Textiles Clothing Total Amount Total %

European Union 73 164 237 39.4%

United States 23 82 105 17.5%

Japan 7 27 34 5.7%

China 18 3 21 3.3%

Canada 4 8 12 2.1%

Others 126 67 193 32.0%

Total 251 351 602 100.0%

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World Cotton Scenario

• World Cotton Production is about 24870 mn. Tonnes and world consumption of cotton is about 24460 mn. Tonnes

• Major Producer and consumption centre are as under

Country Production Consumption Exports Imports

China 6400 9600 30 2610

India 5770 4550 1170 85

USA 3940 850 3130 -

Pakistan 1910 2200 130 310

Brazil 1960 990 435 150

Turkey 450 1250 - 750

Sub-total 20430 19440 4895 3905

World 24870 24460 7600 7600

% of top 6 countries

82.2% 79.5% 64.4% 51.4%

Mn. tonnes

9

World per capita consumption of fibre

• World all fibre per capita consumption in 2011 is estimated at 11 kg. of which cotton is about 3.5 kg representing about 32% of the total consumption

• Per capita consumption of North America is about 31 kg., West Europe is about 22 kg., China is at 17 kg. and India is about 7.5 kg.

• The growth in per capita consumption of cotton fibre is more or less stagnant

• With growth in world population and increase in consumption of textiles in the emerging economies, the polyester fibre is likely to be the most cosuming fibre

China Domination – Whether sustainable ?

11

China Dominates

• China is the leading sourcing base for textile and apparel with a majority share of about 35% of global exports

China36%

EU27%

Turkey4%

India4%

US3%

Others26%

Source : UN Comtrade

Country-wise Break up Global Textile and

Apparel Export Market Share (2010)

Source : Technopak Analysis

Pe

rce

nta

ge

4

13 16

22

28

36

-

5

10

15

20

25

30

35

40

1980 1990 1995 2000 2005 2010

China's % Share Increase

12

• China is the world’s 2nd largest economy with a GDP of USD 5.8 trillion and growing at a CAGR of 10%+

• As a natural transition to developed economy, China concentration on high end industries is increasing and textile is not as focused industry as it was 20 years back

• Textile is a energy consuming industry. China has started facing problems for generation of power due to environmental concerns. China is a major contributor to CO2 emissions. According to CDIAC (Carbon Dioxide Information Analysis Centre), China’s CO2 emissions reached 8.2 mn. tonnes almost 25% of world wide emissions. This has seriously impaired China’s ability to grow further in textiles

• With rising per capital income, China is becoming self consuming economy. Huge Domestic consumption growing at a CAGR of about 13% likely to impact Chinese ability to export

China – Transformation to Developed Economy

13

China - Present Challenges – Labour Cost

Rising Labour Cost Increase in Labor cost – Chinese average wage cost is about USD 450 pm vis-à-vis India which is about USD 200 pm

Higher Ageing Population As per World Bank study over 23% of China’s population is expected to be over 65 years of age by 2020. A fast ageing population and one child policy would cause wage inflation to rise at an even brisker pace which is averaging about 18% p.a.

14

Chinese Yuan appreciated about 3.6% in the current fiscal as compared to rupee which depreciated 10.7% - making Indian textile products more competitive

China - Present Challenges – Yuan Appreciation

15

China’s Exports May Be Constrained In Future…Creating Opportunities For Others

USD Billion China will remain

the biggest exporter but with rising costs and rising domestic

demand, it may cede some export

opportunity

China T&A Industry Size – Some Projections

China will add ~USD 315 Billion to its domestic

apparel demand by 2020

50 China’s

Constraints

Source: National Bureau of Statistics ,

China, Technopak Analysis

Overview of Indian Textile Industry

17

Importance of Textile Industry…to Indian economy

• Second largest producer of textiles and garments after China

• Second largest producer of cotton in the world

• Second largest employer in India after agriculture – Direct Employment to 35 mn. people

• Constitutes about 12% of India’s exports

• Contributes about 14% to Industrial production

• Contributes about 4% to GDP

• Investment made in Textile sector since launch of TUFs scheme is Rs. 208000 crores till June 2010

Indian Textile Industry Size - 2010

Source: Ministry of Textiles – India/Technopack

USD bn.

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India’s Strength & Weaknesses in Textiles

• Strength • Long textile tradition • Large pool of skilled and cheap work force • Entrepreneurial skills • Efficient multi-fiber raw material manufacturing capacity • Large domestic market • Enormous export potential • Very low import content • Flexible textile manufacturing systems

• Weaknesses • Use of outdated manufacturing technology • Huge unorganized and decentralized sector • Poor supply chain management • Power and other infrastructure constraints • Lack of Effective Labour Policies

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Source: Ministry of Textiles

The fabric production has steadily improved in the last decade. The fabric production has grown at a CAGR of 5% over the last 10 years. Cotton fabric is constituting about 50% of total fabric production

India’s Fabric Production

20

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995-1996 1999-2000 2004-2005 2010-2011

Cotton Yarn

Blended

100% Non Cotton

Total

Sector Wise Production of Yarn (Qty. in Mn. Kgs)

Year Cotton Yarn Blended 100% Non

Cotton Total

1995-1996 1788 395 195 2378

1999-2000 2204 621 221 3046

2004-2005 2272 585 366 3223

2010-2011 3491 796 427 4714

74.06%

16.89%

9.06%

2010-2011

Cotton Yarn

Blended

100% Non Cotton

India’s Yarn Production

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Government Incentives

• Government policies have largely been favorable to the textiles industry. The policies aim to ensure that the industry is internationally competitive in terms of manufacturing and exports

• Besides providing various schemes, there are various other statutes, including fiscal policies (governing customs, excise, sales tax, etc.), rules, initiatives, incentives, etc through which government extends support to the industry

• Various government schemes for textiles • Technology Fund Upgradation Scheme (TUFS). • Scheme for integrated Textile Parks (SITP). • Group Workshed Scheme (GWS). • Group Insurance Scheme for development of Powerloom sector. • Integrated Scheme for Powerloom Cluster Development. • Marketing Development Programme for Powerloom Sector etc.

22

57,354

46,198

41,457

33,567 35,575

39,463 39,188 37,546

34,701 36,614 35,880

0

10000

20000

30000

40000

50000

60000

70000

Shankar 6 rate from April 2011 to Feb 2012 Rs./candy

Raw Material Price Chart - Cotton

This year the cotton crop is likely to be at record level of 356 mn. bales (325 mn. bales in previous season) due to the increase in the area under cultivation and better farm yield. Also, the world production is likely to increase by about 8% to 26,879 mn. tons (24,879 mn. tons in previous season). Hence, the prices of cotton are likely to be on a lower side during this season

23

Raw Material Price Chart – PTA & MEG

900.00

1,000.00

1,100.00

1,200.00

1,300.00

1,400.00

1,500.00

1,600.00

PTA (US$ Per Metric Ton)

MEG (US$ Per Metric Ton)

Raw material prices of PTA and MEG were hovering around USD 1,400 and USD 1,200 per metric tons respectively during April 2011. PTA and MEG prices started to taper down from May 2011 and reached a low of USD 1,100 per metric tons for both PTA & MEG in November 2011. PTA prices have since then moved to USD 1200 per ton

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• The Indian textile industry is largely small and fragmented and organized players constitutes only 5% of the industry

• The smaller players (SME’s)have been badly impacted in the current scenario on account of the following • Sudden drop in prices of cotton, for example Shankar 6 variety of cotton came down

from about Rs. 57,000 per candy to Rs. 33,000 per candy • Sudden depreciation of Indian Rupee vis-à-vis US$ from about Rs. 44.62 levels in

April 2011 to Rs. 53.62 levels in December 2011, thereby representing a fall of 20.17%

• Slow down in India’s major export market viz. USA & Europe, resulting into consolidation of sourcing; thereby affecting the smaller players in terms of loss of business

• In Coimbatore / Tirupur and other southern belt, the power supply from the grid is erratic and most of the time the units have to run on DG sets; resulting in power cost of Rs. 8 – Rs. 9 per unit; making them unviable

• Higher interest cost regime; thereby smaller units already impacted by the other factors are not able to sustain such increase

Impact of Current Global Economic Scenario

Golden Decade for Indian Textile Industry 2011-2020

26 26

Indian Textiles- Major Domestic Growth Drivers

• Increasing retail penetration – Textiles and clothing retail comprise 40% of organised retailing in India. Share of organised retailing to increase from about 5% currently to about 24% by FY 2020

• Higher disposable income – The per capita income of the masses has been increasing regularly and is estimated at USD 1200 p.a leading to consumption of Textiles increasing at 11% CAGR

• Higher level of working women-Propensity to spend in the case of working women is higher by around 1.3 times as compared to a house wife. It is estimated that the population of working women has increased to around 32% in FY 2010 from 26% in FY 2001

• Increase in nuclear families –average hose hold size has decreased to about 5.0 in FY 2010 from 5.36 in 2001. As a result, per house hold consumption is increasing

• Favorable demographic profile-The percentage of earning population (15-60 years) in the total population is rising. This group is about 60% of the total population

27 27

Indian Textiles- Major Domestic Growth Drivers…

• Higher growth in urban population-The urban population is growing gradually. The favorable demography coupled with rising urban population and income levels will act as a key growth factor for the Indian textile and apparel Industry

• Increased usage of credit cards

• Sustainable real GDP growth outlook of around 8% p.a., increasing industrial output, rising disposable income, vibrant construction activity etc., to drive demand for home textiles

• Hotel room demand is expected to grow at 10% p.a. for next 5 years necessitating addition of room capacity – driving demand for home textiles

• Health care delivery market to grow at 13% p.a. over next few years, creating demand for more hospitals (– to boost demand for home textiles and work wear

• Rising disposable income in the hands of rural consumers due to rising agriculture income and increased employment generation to drive the demand of basic textile products

28

Therefore India’s Domestic Market Will Grow Substantially…

USD Billion

India’s USD 52 Billion Domestic Textile and Apparel industry has the potential to grow @ 11% CAGR to reach USD 140 Billion by 2020

CAGR 11%

Source: Technopak Analysis E: Estimated

P: Projected

29 29

Total US$ 30 bn

INR cr 1,39,330

Total US$ 47 bn

INR cr 2,18,570

Total US$ 52 bn

INR cr 2,46,000

Total US$ 89 bn

INR cr 4,18,670

Total US$ 140 bn

INR cr 6,56,6000

Apparel

US$ 22bn INR Cr

1,01,000

Apparel US$ 33 bn

INR cr 1,54,000

Home Textile US$ 2 bn

INR Cr 10,000

Home Textile US$ 3.5 bn

INR cr 15,570

Technical Textiles US$ 6

bn INR Cr 28,330

Technical Textiles US$

10.5 bn INR Cr 49,000

Apparel US$ 36 bn

INR cr 1,70,900

Apparel US$ 61bn

INR cr 2,88,,800

Apparel US$ 100bn

INR cr 4,70,,000

Home Textile US$ 4 bn

INR cr 17,000

Technical Textiles US$ 12

bn INR Cr 58,100

2005 2009 2010(E)

Technical Textiles US$ 22

bn INR Cr 1,03,140

Home Textile US$ 6 bn

INR cr 26,650

2015(E) 2020(E)

Home Textile US$ 9 bn

INR cr 40,000

Technical Textiles US$

31 bn INR Cr

1,46,000

Indian Textiles- Domestic Growth

30 30

Indian Textiles- Export Growth Drivers

• Textile manufacturing continues to shift to low cost Asian countries • Increasing cost of labor, scarcity of raw material and other key resources like

power, rising domestic demand is restricting China’s ability to further increase its share in the world trade thereby making it as fourth largest importer of textiles

• Buyers need to diversify sourcing risk • Availability of raw materials, especially cotton, integrated operations and design

skills in India

• Favorable demographics, rising income and population levels, and rising retail penetration in other developing countries (other Asia countries, Latin America etc.)

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Hence…Good Opportunity for India to Increase Exports

4.60 11.40 15.0020.40

24.12

45.00

80.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

1990 2000 2005 2008 2010 2015 (P) 2020 (P)

India Textile &Apparel Export Trend & Future Potential USD Bn

Source: Ministry of Textiles , Technopak Analysis E: Estimated

P: Projected

Yes India

33

Strong Economic Fundamentals

• Politically stable

• Fast paced infrastructure development

• High growing economy – average 8%

• Skilled and qualified manpower

• Increasing technology adoption

34

Integrated Textile Set Up

Garmenting

Knitting

Weaving

Processing

Technical Textiles

Spinning

Converting Unit

Cotton / Man Made Fibre

Fibre Yarn

Manufacturing

Fabric Manufacturing /

Technical Textiles

Garment

Manufacturing

India is amongst the few countries in the World which has presence across the textile value chain

35

Availability Of Raw Material

One of the largest producer of raw cotton

One of the largest producer of cotton yarn

One of the largest producer of cellulosic fibre / yarn

One of the largest producer of silk

One of the largest producer of synthetic fibre / yarn

One of the largest producer of jute

India is amongst the largest producer of fibres …

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Emergence of Large Organised Players

Indian companies are growing and adding scales… Values in USD Mn

2005 (India) 2011 (India) 2010 (China)

Arvind

Vardhman

Alok Ind.

Raymond

RSWM

362

436

329

301

221

Company Turnover

Alok

Vardhman

SKNL

Arvind

Abhishek

1,415

812

612

606

566

Company Turnover*

BRFL 506

Weiqiao

Fountain Set

Texwinca

2,773

480

1,500

Company Turnover

SKNL 199

Gokaldas Ex 195

Abhishek 169

Nahar Ind 155

Welspun

RSWM

Saluja

462

438

352

Nahar 312 Welspun 147

Source: Technopak Analysis * Reported turnover for the financial year 2010-11 considering

37

India’s Exports and Imports vis-à-vis other competing countries

USD bn.

Most of the competing countries are importing textiles and exporting clothing. India is the least importer of textiles implying self sufficiency in textiles

38

Segment Additional

Production

Additional Capacities Required Investment required

In Rs, Crores In US$ Bn.

Spun Yarn 3.9 Bn. kg New Spindles – 13.6 million

Modernized Spindles – 8 million

42,000 9

Filament yarn 5.8 Bn. Kg Production from modernized capacity – 0.5 Bn.

Kg

Production from brownfield expansion –4.2 Bn.Kg

Production from greenfield projects – 1.1 Bn.kg

31,000 7

Weaving 50 Sq. m. New Shuttleless Looms – 77 thousand

Second hand Shuttleless Looms – 65 thousand

Semi-automatic – 2 Lakhs

Plain – 2.35 Lakhs

37,000 8

Knitting 76 Bn. Sq.

m.

New Machines – 84 thousand

Second hand Machines – 56 thousand

25,000 5

Processing 95 Bn. Sq. m 90,000 19

Garment and Made-

ups

38 Bn. Pcs Machines required – 21 lakhs (for 2 shift working) 65,000 14

Technical Textiles 30,000 6

Total 3,20,000 68

In order to capture the additional market (US$ 150 Bn) created for Textile and Apparel by 2020, investments to the tune of Rs. 3,20,000 crores (US$ 68 Bn) across the textile supply chain will be required

Investments Required in the Textile Supply Chain by 2020

Source: Technopak

39

Expected Future Trend in Indian Textiles

• Traditionally Indian Textile Industry is mainly cotton textiles due to cotton surplus situation of India and governments attempt to promote cotton textiles to protect farmers and accordingly the government levied heavy duty on polyester

• The government also supported small and medium players in segments such as weaving, garments and knits for creating job opportunities. This led to growth of small and fragmented units

• However, the textiles scenario has changed significantly in the last decade and more after removal of quota from December 2004. Government has liberalized the textiles sector and has taken several measure like TUFs, to promote large and integrated textile units

• The future growth in textiles would be driven by organised players and their share is expected to increase from the present 5-6% to about 15-20% by 2020

• Similarly, the government has softened their stand on polyester and duties in polyester have been brought down to 12%

• In the last two years, cotton prices have increased considerably from about Rs. 17,000 per candy to about Rs. 35,000 per candy. As a result typical cotton yarn of 40s count ( Rs. 215/ kg) is more than twice of typical polyester yarn of 80 denier texturized yarn( Rs. 100/ kg)

40

Expected Future Trend in Indian Textiles

• Moreover, India’s cotton surplus situation is likely to be over in next 3- 4 years with rising domestic consumption and exports

• As a result cotton prices are likely to move further and people by force would move towards blended fabrics

• This would lead to considerable growth in polyester segment

Sector Asset Turnover Net Working Capital days

ROCE

Integrated Cotton Textile Mill 0.4 times 100 days 12.0-13.0%

Integrated Polyester Yarn manufacturer

2.25 times 60 days 27.0-30.0%

• Further in terms of return on investments, polyester is more desirable as indicated below:

0

500

1000

1500

2000

2500

2007-08 2008-09 2009-10 2010-11 (E) 2011-12 (P) 2012-13 (P) 2013-14 (P) 2014-15 (P) 2015-16 (P)

Mil

lio

n K

g

POY demand forecast

Domestic Export

1510 1560

2360

41

Conclusion

• India has unique position in global textile industry due to strong manufacturing base and is now emerging as a strong consumption base as well

• Domestic consumption would be major driving force for textiles backed by strong economic growth prospects and growing per capita income

• India’s inherent strengths like a strong textile infrastructure along with high service capabilities makes it a preferred sourcing destination

• The traditional players like China are getting stagnated and other major player Europe is on a decline. Other competing nations are at a far distance, thus clearly giving India a superior platform to grab additional market share

• The organized sector is all poised to play major role in making India a leading textile hub

• Indian Textile Industry is all set to witness almost 3 times growth in the next decade from USD 78 bn. to USD 220 bn.

• Indeed this decade promises to be the best ever decade for Indian Textile Industry and therefore may be regarded as the golden decade