Textile firms scaling up

The value of new investments in the industry is up by 35% to Rs 8,623 cr as on April 30.

As the Indian textiles industry readies itself to face the dismantling of quotas worldwide from January 1, 2005, big has suddenly become beautiful.

Every textile company worth its salt has hit the capacity expansion trail. Others, meanwhile, are leaping into new business arenas.

Testifying to the point, the value of new investments in the industry is up by 35 per cent to Rs 8,623 crore as on April 30, according to the Mumbai-based Centre for Monitoring Indian Economy.

Leading the capacity expansion charge is the Gujarat-based Welspun India. It is expanding its towel and terry towel capacity from 10,300 tonnes to 21,000 tonnes.

The Ludhiana-based Abhishek Industries, meanwhile, is almost tripling terry towel production capacity from 7,000 tonnes to 20,000 tonnes at a cost of Rs 230 crore.

Welspun is also leaping into the bed linen market and setting up a 32 million tonne bed linen capacity at a cost of Rs 400 crore.

The Punjab-based Vardhaman group too is evaluating the wisdom of entering the bedsheet market.

Rajasthan Spinning & Weaving Mills is shifting focus from exporting yarn and fabrics to fabrics and garments and investing about Rs 150 crore during the current year to upgrade technology and build further capacity.

Garment firms too are either setting up new production facilities or expanding existing ones. Raymond, for example, is setting up a new suit and formal trouser manufacturing facility in Bangalore.

This will have an annual capacity of 5 lakh suits and 10 lakh trousers, in two phases, and will cost Rs 40 crore. Raymond is also setting up a three million garments a year denimwear manufacturing facility in Bangalore at a cost of Rs 44 crore.

The Gujarat-based Arvind Mills has set up plants to manufacture shirts and knitted garments in India and a jeans unit in Mauritius through a subsidiary company. It is in the process of setting up a cotton trouser unit and a jeans plant in Bangalore.

By the end of the current financial year, the Lalbhai company expects to produce 8.4 million pieces of garments, using these capacities. Its garment production is expected to increase to 28.8 million pieces on a double shift basis by the end of 2007-2008.

If everyone's in expansion mode, it is because from January 1, 2005, the Agreement on Textiles and Clothing (ATC) ceases to exist. As a result, 47 per cent of the restricted markets, or 35 per cent of the world textile and apparel market, will be opened up for free trade. The global textile and clothing trade is worth $360 billion and is growing by around 5 per cent annually.

What is more, a lot of capacities in the US are being shut and the work will be outsourced to India and China. Says Nitin Parekh, executive director at Ashima, "The Indian textile industry is increasing capacities of processed fabrics and garments to reap the benefits offered by the post World Trade Organisation period. In fact, our group caters to discerning customers like Gap, Marks and Spencer, Levis, PVH and Polo Ralph Lauren. Some of these brands are already getting their garmenting work done in India."

Adds BK Goenka, vice chairman & managing director of Welspun, "Indian textile companies have a competitive advantage in terms of raw material and labour costs. We need to rework our capabilities with the phasing out of the Multi Fibre Agreement."

Every textile baron is, in fact, citing the outsourcing story. Says Riju Jhunjhunwala, joint managing director, Rajasthan Spinning & Weaving Mills, "The phasing out of quotas will boost the fortunes of the Indian textiles industry as the US, the EU and Canada will look at outsourcing garments from countries like India and China."

An industry report by a stockbroking firm points out that fashion cycles around the world are shrinking, that retail chains worldwide are, therefore, looking for one-stop solutions and that vertically integrated textile companies will therefore benefit.

Jayesh Shah,CFO at Arvind Mills agrees. He says that the apparel segment will boom and that vertically integrated companies will gain, which is why many of India's textile companies are trying to integrate vertically.

But in a report, consultant KSA-Technopakwarns, "sourcing will be extremely competitive and companies would need to focus on retaining their competitiveness."

Life after quotas

• From January 1, 2005, 47% of restricted markets will open up for free trade
• So, textile companies are expanding
• The value of new investments in the industry is up by 35% to Rs 8,623 cr as on April 30