Section B: Welspun India
Industry Analysis – Textile Industry on Global Scale

The global apparel and fashion trade is expected to grow to USD1 trillion by 2020. However with growth slowing down in developed markets, the dynamics of the global fashion market are expected to change dramatically. Emerging economies will fuel most of the growth in the fashion market. Brazil, Russian, India & China (BRIC) along with few other South-East Asian countries are seen as the major growth drivers.

In addition to this, global apparel markets in the recent past have shown a paradigm shift, moving towards increased product differentiation, and catering to a diverse, aware, and demanding customer base. Retailers have thus gravitated toward demographic shifts, societal influences, economic influence, and environmental concerns.
With growth in developed economics cooling, retailers are facing pressure due to restricted consumer spending. Under such conditions the global apparel value chain has shown a distinct shift both at the front- and supply-end.

Recent Global Trends in Textile Sector * Increase in textiles and clothing global trade from US$ 355 billion in 2000 to US$ 602 billion in 2010 * Expected to reach US$ 1 trillion by 2020, CAGR of 5% pa. * China, India, Pakistan, Bangladesh, Thailand, Indonesia are leading suppliers and further expanding their capacities. * Established markets (North America, Western Europe) continue to show traction * Emerging markets in Asia and Middle East shall provide strong growth opportunities.

Emerging Economies developing as Low-Cost Manufacturing Hubs
China enjoyed a dominant position in apparel and household textiles manufacturing for several years, as makers of these items located in developed nations such as the U.S. and Canada suffered a long period of decline. However, recent increases in the value of the Chinese currency, combined with rapidly rising labour costs, have put Chinese manufacturers in a much less competitive position. Competition from low-cost nations like Bangladesh, as well as Vietnam, Sri Lanka, Indonesia, Cambodia, India, Pakistan and elsewhere is intense, and a large portion of apparel manufacturing formerly done in China is moving to these areas at a rapid pace.
While China continues to have a robust apparel manufacturing industry, it is moving up the industrial chain by fostering manufacturing that requires greater skills, better technology and more investment in advanced equipment. Such rapidly-evolving segments in China include Information Technology, automobiles, trains, aerospace, medical equipment and telecommunications gear. Low-cost countries such as Bangladesh have emerged as the largest gainer in the lower-value assembly segments of the value chain. At the same time, countries such as Sri Lanka, Turkey and even India are upgrading to higher-value segments, such as branding and design, which rely on higher-quality human capital to maintain their competitiveness. As a result, workforce skills will become increasingly important elements for developing countries to maintain and upgrade their position in the global apparel value chain. Some of the African countries and maybe Myanmar have the potential of increasing capacities of apparel manufacturing.

India – Textile Industry Perspective

India is the world's second largest producer of textiles and garments. Indian textile industry accounts for about 24 per cent of the world’s spindle capacity and eight per cent of global rotor capacity.
Abundant availability of raw materials such as cotton, wool, silk and jute and skilled workforce have made India a sourcing hub. The size of Indian textile and apparel market stood at US$ 89 billion in 2011 and is expected to touch US$ 223 billion by 2021.
Textile plays major role in the Indian economy. It accounts for 27 per cent of foreign exchange inflows and contributes 14 per cent to industrial production and 4 per cent to the gross domestic product (GDP). With over 45 million people, the industry is one of the largest sources of employment generation in the country, and also accounts for nearly 11 per cent of total exports. Exports grew to US$ 33.3 billion in FY12 from US$ 17.6 billion in FY06, registering a compound annual growth rate (CAGR) of 11.2 per cent.
The Government of India is taking initiatives to attract foreign investments in the textile sector through promotional visits to countries such as Japan, Germany, Italy and France. The government has allowed 100 per cent foreign direct investment (FDI) in the sector through the automatic route. It has also allocated US$ 10.4 million for apparel parks under Scheme for Integrated Textile Parks (SITP).

Textile Industry At A Glance In India * Estimated size of US$ 89 billion in 2011 (domestic + exports), projected to reach US$ 223 billion by 2021, CAGR of ~10% * Second largest producer of cotton, textiles & garments and only major textile exporting country with a net cotton surplus * 12% of India’s exports and 4% of India’s GDP attained through Textile industry * Third largest exporter of textiles, with a share of ~4% * US and EU account for about two-third of India’s textile exports

Breakup of Exports in Textile Industry in India Source: IBEF.org
Market Size
The Indian textiles industry is set for strong growth, buoyed by strong domestic consumption as well as export demand.
Cotton yarn production increased by about 10 per cent during February 2014 and by about 10 per cent during April 2013–February 2014. Blended and 100 per cent non-cotton yarn production increased by 6 per cent during February 2014 and by 8 per cent during the period April 2013–February 2014.
Cloth production by mill sector registered a growth of 9 per cent in the month of February 2014 and of 6 per cent during April 2013–February 2014.
Cloth production by power loom and hosiery increased by 2 per cent and 9 per cent, respectively, during February 2014. The total cloth production grew by 4 per cent during February 2014 and by 3 per cent during the period April 2013–February 2014.
Textiles exports stood at US$ 28.53 billion during April 2013–January 2014 as compared to US$ 24.90 billion during the corresponding period of the previous year, registering a growth of 14.58 per cent. Garment exports from India is expected to touch US$ 60 billion over the next three years, with the help of government support, said Dr A Sakthivel, Chairman, Apparel Export Promotion Council (AEPC).
The size of India’s textile market is expected to expand at a CAGR of 10.1 per cent over 2009–21.

India's textile market size Source: IBEF.org

Government Initiatives
The Government of India has promoted a number of export promotion policies for the textiles sector. It has also allowed 100 per cent FDI in the Indian textiles sector under automatic route.
Some of initiatives taken by the government to further promote the industry are as under: * The government has taken a lot of initiatives for the welfare and development of the weavers and the handloom sector. Under revival, reform and restructuring (RRR) package, financial assistance to the tune of Rs 1,019 crore (US$ 169.66 million) has been approved and the Indian government has released Rs 741 crore (US$ 123.42 million). * Encouraged by turnaround in textiles exports, the Government of India plans to set up a US$ 60 billion target for the current financial year, a jump of over 30 per cent from the previous financial year. * The Cabinet Committee on Economic Affairs (CCEA) has approved an Integrated Processing Development Scheme (IPDS) with a corpus of Rs 500 crore (US$ 83.28 million) to make textiles processing units more environment-friendly and globally competitive. * The Government of India plans to set up a Rs 100 crore (US$ 16.62 million) venture capital fund to provide equity support to start-ups in the textiles sector, in order to encourage innovative ideas in this export intensive sector. * The Government of India has allotted Rs 700 crore (US$ 116.60 million) in the 12th Five Year Plan for the development of technical textiles. In 2012–13, the technical textiles industry reached Rs 7.48 trillion (US$ 124.60 billion) at an annual growth rate of 3.5 per cent.

Porter’s Five Forces Analysis of Textile Industry
One of the worst hit sectors during the skyrocketing interest rate scenario in the late 90s and early 2000s, the debt-laden Indian textile industry has spun maany turn-around stories since then. Aided by lower interest rates, restructuring packages from financial institutions and the recent dismantle of quotas, the sector is today well poised to capture growth opportunities. Here we analyse the sector's dynamics through Porter's five-factor model.

Bargaining power of customers (demand scenario)
Global textile & clothing industry is currently pegged at around US$ 440 bn. US and European markets dominate the global textile trade accounting for 64% of clothing and 39% of textile market. With the dismantling of quotas, global textile trade is expected to grow (as per Mc Kinsey estimates) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is likely to become the 'supplier of choice', other low cost producers like India would also benefit as the overseas importers would try to mitigate their risk of sourcing from only one country. The two-fold increase in global textile trade is also likely to drive India's exports growth. India's textile export (at US$ 15 bn in 2005) is expected to grow to US$ 40 bn, capturing a market share of close to 8% by 2010. India, in particular, is likely to benefit from the rising demand in the home textiles and apparels segment, wherein it has competitive edge against its neighbour. Nonetheless, a rapid slowdown in the denim cycle poses risks to fabric players.
Bargaining power of suppliers (supply scenario)
India is the third largest producer of cotton in the world after China and US and has the largest area under cultivation. Cotton, a key raw material in the textile and garment industry, accounts for about 30% of the fabric cost and 13% of the garment cost. India has an abundant supply of locally grown long staple cotton, which lends it a cost advantage in the home textile and apparels segments. Other countries, like China and Pakistan, have relatively lower supply of locally grown long staple cotton. Moreover, low cotton prices due to a bumper cotton crop would enable India to lower its production cost and sustain pricing pressure. Further, efforts on improving the yield per hectare would ensure higher productivity and production, thereby providing the much-needed security of raw-material supply to textile producers.
India also enjoys a significant lead in terms of labour cost per hour (US$ 0.6 in 2004), over developed countries like US (US$ 15.1) and newly industrialised economies like Hong Kong (US$ 5.1), Taiwan (US$ 7.1), South Korea (US$ 5.7) and China (US$ 0.9). Also, India is rich in traditional workers adept at value-adding tasks, which could give Indian companies significant margin advantage.
Threat of new entrants
In the quota free regime, capacity expansion is the name of the game in the textile sector. Resultantly, smaller players who cannot venture into the global markets are flooding the domestic markets with excess supply, thus weakening the pricing scenario. Be it denim (Arvind Mills), home textiles (Welspun and Alok Industries) or branded apparels (Raymond), new capex and consolidation with international players is also not likely to safeguard margins for the larger players, unless they can tap a significant pie of the overseas markets.
Threat of substitutes
Low cost producing countries like Pakistan and Bangladesh (labour cost 50% cheaper) are also posing a threat to India's exports demand. Infact, players like Arvind Mills have already started feeling the pinch as overseas buyers have started shifting to 'alternative sources', thus impacting their incremental volume off-takes.
Competitive rivalry
India's logistic disadvantage due to its geographical location can give it a major thumbs-down in global trade. The country is distant from major markets as compared to its global competitors like Mexico, Turkey and China, which are located in relatively close vicinity to major global markets of US, Europe and Japan. As a result, high cost of shipments and longer lead-time coupled with lack of infrastructure facility may prove to be major hindrances
Welspun India
Welspun India Ltd is a fully integrated home textile manufacturer and one of the top three globally, due to its willingness to embrace new technologies and develop innovative products. With a network across 32 countries, the company offers the entire range of home textile products to consumers from almost every corner of the world. It is one of the trusted suppliers to many of the top retailers in the US and Europe. Welspun India also owns leading brands such as Christy and Hygrocotton, among others.
The company has modern manufacturing facilities at Anjar and Vapi in Gujarat, India, where it produces the entire range of home textiles for bed and bath category.

* Incorporated in January 1985 * Fully integrated home textile manufacturer – from spinning to finishing * Manufacturing facilities at Vapi and Anjar in Gujarat * Ranked 1st among home textile suppliers in the US * Largest vertically integrated manufacturer of towels in Asia
Distribution network in over 32 countries including US, UK, Europe, Canada and Australia