Indian Textiles Industry Report - Textiles Sector Research & Analysis in India - Equitymaster
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Textiles Sector Analysis Report 

[Key Points | Financial Year '17 | Prospects | Sector Do's and dont's]

  • The Indian textile sector had all the tailwinds the businesses needed, over the last two to three years, to grow and become more profitable. Right from higher export demand to lower cotton prices to falling interest rates to favourable exchange rates, the companies had everything going in their favour. The industry employs about 40 million workers directly and 60 million indirectly. India's targeted textile exports for financial year 2017-18 is US$ 45 billion. However, this target is likely to be missed by a huge margin.
  • As per the Ministry of Textiles, the Indian textile industry contributed about 14% to industrial production, 4% to the country's GDP and 13% to the country's export earnings in 2017.
  • According to the Ministry of Textiles, the domestic textile and apparel industry in India is estimated to reach US$ 223 bn by 2021 from US$ 108 bn in 2015. India enjoys a significant lead in terms of labour cost per hour over developed countries like US and newly industrialised economies like Hong Kong, Taiwan, South Korea and China.
  • As per data from National Bureau of Statistics, due to steep wage inflation, the average monthly wage cost in China stood at US$ 230 per month in 2013 as against US$ 80 per month in India. Also, India is rich in traditional workers adept at value-adding tasks, which could give Indian companies significant margin advantage. However, India's inflexible labor laws have been a hindrance to investments in this segment. Unlike in home textiles, garment capacities are highly fragmented and leading Indian textile companies have been slow to ramp up their apparel capacities, despite strong order flows from overseas buyers who are trying to diversify out of China.
  • The textile industry aims to double its workforce over the next 3 years. As a thumb rule, for every Rs 1 lac invested in the industry, an average of 7 additional jobs is created.

How to Research the Textiles Sector (Key Points)

  • Supply
  • Despite some pick-up in demand from both global and domestic markets, most new capacities in the apparel and home textile segments are not operating at full capacities.
  • Demand
  • High for premium and branded products due to increasing per capita disposable income.
  • Barriers to entry
  • Superior technology, skilled and unskilled labour, distribution network, access to global customers.
  • Bargaining power of suppliers
  • Because of over supply in the unorganised market like that of denim, suppliers have little bargaining power. However, premium products and branded players continue to garner higher margins.
  • Bargaining power of customers
  • Domestic customers - Low for premium and branded product segments. Global customers- High due to presence of alternate low cost sourcing destinations.
  • Competition
  • High. Very fragmented industry. Competition from other low cost producing nations is likely to intensify.

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Financial Year '17

  • Operating profit margins of textiles exporters were under pressure on account of lower export realisations. A shift in the dynamics of US retail, and a reduction in incentives after the implementation of the Goods and Services Tax (GST) led to the pricing pressure.
  • In FY18, the textile export sector was undergoing a sea-change. Many brick & mortal retailers in the US have pruned inventories and downsized stores to offset profitability pressures caused by the e-tail boom. To cushion the consequent fall in utilisation levels, Indian exporters have been enhancing their share of the business with US e-retailers, but at lower realisations.
  • Domestic home textile firms have had a good run since FY12, with India's share of US imports of cotton bed sheets and terry towels increasing from 34% to about 40% in FY17 because of cost competitiveness compared with peers in China and Pakistan. US accounts for a third of global home textiles market worth US$ 16 billion. Almost 47% of India's home textile exports of US$ 5.3 billion last fiscal was to the US. Additionally, competitiveness continues to be impacted in Europe - an equally large consumer of home textiles as the US – with levies up to 10% duty on Indian products compared with free access to Bangladesh and Pakistan firms.

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Prospects:

  • Debt being raised for capacity expansion (net of repayments) and lower operating margins (due to higher raw material costs) are expected to result in lower profitability for the sector in the near term.
  • The demand for Indian home textiles will continue to grow at 8% seen in the recent past, helped by exports to traditional markets and better penetration in non-traditional markets such as Asia, Australia, South America and Canada.
  • The Trans-Pacific-Partnership (TPP) a duty-free trade agreement between 12 nations may impact the Indian textile and garment export sector negatively and put Indian textile exports of around US$ 40 bn at risk over the medium term. The TPP member nations led by the US account for 40% of world trade and the deal gives them duty free access to each other, and makes imports from other countries uncompetitive.

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Related Links for Textiles Sector
Quarterly Results | Sector Quote | Over The Years

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