Around 20 per cent of the units, with revenues between Rs 1 crore and Rs 10 crore, have shut down due to rising cost of raw materials and other inputs.
The rising cost of raw materials and other inputs has resulted in the closure of a large number of small and medium and enterprises (SMEs) in Tirupur, India’s largest knitwear export hub.
According to industry estimates around 20 per cent of the units, with revenues in the range of Rs 1-10 crore, have closed down. The resulting job losses are estimated at 25,000.
A Sakthivel, president of the Tirupur Exporters Association (TEA), said that the town is directly exporting around Rs 12,000 crore every year. Apart from this, around 600 small units in Tirupur are doing job work for exporters based in Delhi, Mumbai and Bangalore, the value of which is Rs 1,000 crore a year.
The tiny town houses around 675 units. This includes 150 units with sales revenues of Rs 1-5 crore, 350 units with revenues of Rs 5-10 crore, 100 units earning revenues of Rs 10-50 crore, 50 units with revenues of Rs 50-100 crore and 25 units with revenues of more than Rs 100 crore.
“Around 20 per cent of the units, which are in the first two categories, have closed down due to the increase in the price of cotton yarn and the non-availability of yarn – the raw material – in the domestic market. This ultimately led to job losses of about 25,000 workers,” Sakthivel said.
According to his estimate, the knitwear industry is likely to report a loss of round Rs 200 crore due to the increase in yarn price. The units say they have stopped taking new orders from customers, since yarn prices are not stable and neither is yarn available.
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C Nataraj, director of Stencil Apparels, said, “Most of the units have stopped taking orders, since raw material is not available. This year our company alone will report at least 15 per cent negative growth.” He said his company has received Rs 5 crore worth of enquiries from overseas customers, but he is unable to convert it into an order.
The other challenges for small units are conducting research and development and adapting to frequent changes in customer requirements. “Earlier, there used to be only two seasons and now this has become 12 seasons,” – so frequently do designs change – said C Sekhar, who heads a unit with revenues in the Rs 5-10 crore category.
The other factors that are eroding margins are the costs of power, labour and dyeing. Industry representatives note that dyeing charges account for 8-10 per cent of total costs, compared to 3-4 per cent in competing countries. Pollution norms have also become stringent, and require companies to invest in effluent plants; this adds to costs.
Describing the current situation as “crazy”, D Prem, chairman and managing director of Prem Durai Exports Pvt Ltd, one of the largest exporters in Tirupur, said that to partially compensate for losses, the knitwear industry had increased prices by 15 per cent, adding that this would not be enough. “We have to increase the price by at least 30 per cent, but customers are not willing to absorb this.”
Sakthivel noted that the price of yarn today is Rs 250 per kg, an increase of 80 per cent from Rs 139 per kg in August 2009. However, “the concern is that despite the increase in yarn price, non-availability of cotton yarn is a problem,” he said.
In March 2010, the price of yarn was Rs 165 a kg, but when exporters started booking orders, textile mills stopped delivery of yarn for 15 days and increased the price to Rs 182 a kg, exporters complained. Exporters then began booking garment orders on the basis of this price, only to find that in mid-May 2010, mills had again stopped deliveries and increased the yarn price to Rs 202 a kg, they said.