 "Green shoots in textile and garments sector")
Last month, Sanjay Lalbhai-controlled Arvind Ltd announced the sale of a 10-per cent stake in its brand business subsidiary, Arvind Lifestyles, at a valuation of Rs 7,400 crore. The market capitalisation of Arvind, even after a 19-per cent rally, is around Rs 10,800 crore, and this deal has renewed interest in textile and garment companies.
Arvind, though, could be one of the few exceptions when 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.”
He added, “Our major focus will continue to be investing in change rather than just setting up manufacturing capacities.” Besides the areas mentioned, Arvind will invest in technical textiles and the digital space.
Growing consumption and the government’s announcement on supporting a 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, textile 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 the textile sector immensely, Gupta said.
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, experts say, will work because it has come when the sector is recovering and needs an impetus push. “All these measures have a lead time. So, we are expecting huge growth in exports and further growth from January 2017,” said Gupta.
The financials of textiles and garment companies are improving over the past three quarters till June 2016 (see chart). In the September quarter, Arvind posted a 20 per cent increase in net profit, excluding 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 per cent two years ago to 38 per cent.
The global economic slowdown, coupled with China’s continued dominance through cheaper supply of clothes to world markets, hit the country’s textiles sector 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 per cent year-on-year to $17.3 billion.
Revival of the textile and garments industry is important as it contributes 14 per cent of India’s gross domestic product (GDP), four per cent of industrial production and 13 per cent of merchandise export. 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 the desired speed without addressing other challenges. The government needs to expedite free trade agreements 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 being 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, Cotton Textiles Export Promotion Council (Texprocil).
Meanwhile, an Emkay Global Financial Services study estimates the $45-billion Indian apparel retail market to grow by 11 per cent compounded annual growth rate in the next three years.
