 "Green shoots in textiles and garments sector")
Last month, Sanjay Lalbhai-controlled Arvind Ltd announced selling a 10% stake in its brand business subsidiary Arvind Lifestyles at a valuation of Rs 7,400 crore for the business. The market capitalisation of Arvind, even after a 19% rally, is around Rs 10,800 crore, and this deal has brought renewed interest in textiles and garment companies.
Arvind, though could be one of the few exceptions - when other industrialists are shying away from making new investments, Lalbhai, Arvind’s chairman said, “We have enormous potential for growth in India’s textiles sector which we are trying to tap through investment in technology, brands, IPR (intellectual property rights) etc.”
“Our major focus will continue to be investing in change rather than just setting up manufacturing capacities,” he added. Besides the areas mentioned, Arvind will invest in technical textiles and digital.
Growing consumerism and the government’s announcement to support revival in the sector are driving the optimism. “The Indian textile sector is looking up. It has seen a major overhaul mainly because of several measures taken by the government for its revival,” said Kavita Gupta, textiles commissioner, Ministry of Textiles. Besides the Amended Technology Upgradation Fund Scheme (ATUFS) the government announced in January this year, a special package on garment units with production and employment-linked benefits announced in June 2016 will aid textiles industry immensely, Gupta added.
ATUFS has an allocation of Rs 5,151 crore for new schemes. The special package in June 2016 allocated Rs 6,000 crore to the textiles and garments sector, which provides tax and production incentives is expected to lead to an increase of exports by $30 billion and attract investments of Rs 74,000 crore in three years. Besides, the government expects that it would create 1 million jobs, and help India compete in global markets.
However, manufacturers haven’t begun increasing hiring and production as they need further clarity, before they make further investments and hire more employees, which the government is addressing.
The subsidy transmission will take a couple of quarters more, the scheme, industry experts say will work because it has come when the sector is recovering and needs an impetus push for rapid growth. “All these measures have a lead time. So, we are expecting huge growth in exports and further growth from January 2017,” said Gupta.
Also Read
Financials of textiles and garments companies are improving over the past three quarters till June 2016 (see table). In the September quarter, Arvind posted a 20% increase in its net profit exceptional items at Rs 78 crore.
These incentives come at a time when China reduced focus on labour and energy-intensive sectors including textiles and saw its global market share reduce from 41% two years ago to 38%.
The global economic slowdown coupled with continued China’s dominance through cheaper supply of clothes to the world markets, hit Indian textiles industry hard. India’s textiles exports fell to $40 billion in FY16 as compared to $41.4 billion in FY15. Even between April and September 2016, textiles exports fell 3.44% year-on-year to $17.3 billion.
The revival of the textiles and garment industry is important as the industry contributes 14% of India’s GDP, 4% of industrial production and 13% of merchandise exports. The textile industry is the second largest employer after agriculture, and employs 45 million people, including unskilled women.
“The growth, however, is unlikely to come at desired speed without addressing other challenges. The government needs to expedite free trade agreements (FTAs) with major importing countries including the European Union, Australia and Canada to remove trade barriers there. Despite the price offered by Indian exporters for their cotton textiles is competitive, the preferential access given to countries such as Bangladesh, Cambodia, Pakistan and Vietnam in major importing nations like the EU is severely affecting shipment from India,” said R K Dalmia, chairman, the Cotton Textiles Export Promotion Council (Texprocil).
Meanwhile, an Emkay Global Financial Services study estimates the $45-bn Indian apparel retail market to grow by 11% of CAGR in the next three years.
AIMING AT GROWTH
AIMING AT GROWTH