Dwarfed by the dragon

THE TEXTILE OPPORTUNITY - II

Indian firms find their Chinese rivals have a key advantage in terms of size.

India's nine leading textile companies have invested over Rs 2,500 crore ($550 million) in creating fresh capacities in the past year, as per the government's estimate.

Overall, the textile industry has seen investments to the tune of Rs 50,000 crore ($11 billion) in the past four years.

The amount may look big but pales into insignificance when compared with the $50 billion China has invested in the last ten years "" 70 per cent of it between 2000 and 2004 "" on upgrading its textile infrastructure.

It is also substantially short of the Rs 1,40,000 crore ($31 billion) investment the government has said is required for textile exports to rise from $14 billion at present to $50 billion by 2010.

Indian textile barons admit investments done by them were too little and too late. "Equalling China in exports is simply out of the question. Even the $50 billion target is ambitious," said SP Oswal, chairman and managing director, Vardhman Spinning and General Mills.

Oswal, mind you, is one of the biggest investors in the Indian textile industry. He is pumping over Rs 350 crore ($78 million) during the current financial year in adding 20,000 spindles, 200 airjet looms and increasing his processing capacity from 25 million metres to 40 million metres.

But this may not be enough to take on competition from China in the quota-free world. Consider this: Weiqiao Textiles, China's largest private sector producer of cotton yarn, grey fabric and denim, is investing $500 million in doubling its capacity during 2004-2005.

The expansion budgets of others are even smaller than Oswal. Rajasthan Spinning & Weaving Mills of the LNJ Bhilwara Group, for instance, has invested Rs 130 crore ($29 million) in adding 63,000 spindles to its capacity. "We have been late by three years," said Joint Managing Director Riju Jhunjhunwala.

The investments in garments too are small. Raymond is putting Rs 100 crore ($22 million) into three units for readymade garments in Bangalore.

Arvind Mills, one of the largest integrated textile companies in the world, is investing Rs 45-50 crore ($10-11 million) to set up a denim unit in Bangalore with a capacity of 4 million pieces per annum and a trouser unit to produce 1.5 million pieces per annum.

Again, the numbers seem small when compared with China's. Luen Thai, a Hong Kong-based garment manufacturer, has invested $50 million in the past year, raising capacity by at least 40 per cent.

The bottomline is clear: while China has created large companies capable of executing large orders, Indian companies are still small.

While the average turnover of China's top 10 textile firms is $600 million, that of the top 10 firms in India is between Rs 1,200 crore ($267 million) and Rs 1,500 crore ($333 million), according to KSA Technopak.

Size is turning out to be of crucial importance in the business. Large buyers in the West have indicated they want to place orders with only those companies that have the capacity to execute large orders. In other words, small companies with small capacities, will find it difficult to bag large orders.

The size factor is working to the disadvantage of Indian firms in another way. While only two Indian companies --- Arvind Mills and Vardhman --- have a market capitalisation in excess of $200 million, there are at least two Chinese companies listed on the Hong Kong Stock Exchange, Texwinca and Weiqiao, which are valued at over $1 billion and another half a dozen at over $500 million.

Thus, Chinese textile companies are in a position to raise more funds than Indian companies. "Indian companies are trading very cheap vis-a-vis their Chinese counterparts," an SSKI report on Indian textiles notes.

Size does matter

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• While China has created large companies capable of executing large orders, Indian companies are still small
• The average turnover of China's top 10 textile firms is $600 million; for Indian firms it is less than half
• Large buyers in the West have indicated they want to place orders with only those companies that have the capacity to execute large orders
• Chinese textile companies are in a position to raise more funds than Indian companies