Hit by Re, textile firms sew a domestic play

Exporters raise prices, diversify

MUMBAI:Alok Industries, the 2,500-crore Mumbai-based textile firm is diversifying and increasing its emphasis on eco-friendly textiles like organic cotton products.

.Sangam India Ltd, the Rs 800-crore polyester-viscose dyed yarn manufacturer has raised prices by 9-10% in the last few months.

.Royal Classic Group (RCG), the Rs 300-crore Tirupur-based textile firm has increased garment prices up to 3% and is focusing on domestic market instead of exports.

Battered by appreciating rupee and businesses operating on single digit margins, the Indian textile industry is increasing prices and diversifying into high-margin specialised products to stay afloat in the competitive global market.

The domestic currency has risen over 12% against the dollar since March, eating away into profits and rendering textile exports uncompetitive. Exporters are now battling up to 50% unutilised capacities as customers switch over to lower-cost alternatives. The inflexible labour laws are not helping either.

The country’s Rs 85,000-crore garment and textile export industry is in the midst of a full-blown crisis.

Underlining the grave situation, Premal Udani, president of Clothing Manufacturing Association of India said that apparel exports have fallen 15-20% in last four months due to rupee appreciation.

Many small players are winding up their businesses in the textile hub of Tirupur (Coimbatore), he said.

Revenues and profits of textile exporters have declined by about 9% due to rupee rise and could go down to 11% over the next six months, a Confederation of Indian Industry survey said.

R Sivaram, executive director of Royal Classic pointed out that his company has lost the export business completely and is now focusing on domestic market.

Earlier, about 50% of Royal Classic revenues were through exports. The profit margin was around 8-10% but rupee appreciation has washed away the total export business. The company has increased its garment pricing by 2-3%, Sivaram said.

Royal Classic is now considering foray into denim wear and increasing its retail outlets to 100 stores by the fiscal end.

Though Alok Industries was hit by rupee but it has a strong treasury department which is negotiating for higher price. Sunil Khandelwal, CFO of Alok Industries said company is diversifying and increasing emphasis on eco-friendly textiles like organic cotton products, which fetch better margins.

Harsh Piramal, executive vice chairman, Morarjee Textiles feels it’s a temporary phase and things will improve if companies can add more value to their products and increase capacities.

Union textiles minister Shankersinh Vaghela said the government has hiked duty drawback rates and offered credit and capital subsidies to tide over the crisis. “The government has announced a Rs 1,400-crore package that includes increased rates of duty drawback with effect from April 1, 2007,” Vaghela said.

Echoing the industry’s call for help, Udani said, the government should revise duty drawback rates to 15% from the current 10%.

The rates have been hiked on most products. The drawback rate for higher quality silk fabrics is being increased from 8.3% with a drawback cap of Rs 250 per kg to 10.8% with a drawback cap of Rs 325 per kg.

The new drawback rate for bed linen, table linen, toilet linen, kitchen linen and curtains of cotton is 9.1% with a cap of Rs 110 per kg as against the existing 6.4% with a cap of Rs 64 per kg. The textiles ministry has estimated a market size of $115 billion by 2012, with the export target fixed at $55 billion and the domestic market likely to grow to $60 billion.

At present the market for the Indian textiles and apparels is about $52 billion, with exports amounting to $19.2 billion in 2006-07. If the 11th Plan export target of $60 billion is achieved by 2012, then India’s market share in world
textiles trade would grow from 3% to 8%.

To solve the labour issue, the textile ministry has recently moved a Cabinet note for limited amendment to the Industrial Disputes Act (IDA) for letting textile export units to conditionally hire labour on a temporary basis. The ministry proposes increasing the working hours from 48 to 60 per week and daily working hours from 9 to 12.

The Apparel Export Promotion Council (AEPC) has welcomed the move and feels that the textile ministry has taken a positive step.

Vijay Agarwal, chairman, AEPC said, “We have been asking for flexibility in the labour laws since years. Rigid labour laws have constrained large scale investment, especially in the garment sector, given its seasonal nature.”

Flexibility in labour laws would also address another critical issue - productivity of workers, which is currently lower than many of our competitors. This has diluted our wage cost advantage, Agarwal said.

Meanwhile, the competition is getting tougher from neighbouring China. Sivaram said that Chinese government controlled their economy and there is no threat of currency appreciation. Also, Chinese companies also enjoy comparatively cheap power and labour rates.

On the other hand, a working group constituted by the textile ministry to look into the problems has predicted that Indian textile sector will face a severe workforce shortage by 2012.

Industry players believe that consolidation would happen in textiles sector, evident from the recent Blackstone Group and Gokaldas Exports deal. A few more private equity deals are waiting to happen.

As conventional textiles have reached a level of saturation, innovation and value-additions is the key to success. Morarjee Textiles is sewing foray to either technical or home textiles. 

Even, the automotive textile consumption India is projected to reach Rs 1,279 crore in 2007-08 from Rs 1,141 crore in 2003-04, according to a concept paper released by the FICCI along with Synthetic and Art Silk Mills Research Association.