Dalal Street Investment Journal – July 20, 2019

DSIJ.in JULY 22 - AUG 4, 2019 I DALAL STREET INVESTMENT JOURNAL (^111)
under Ministry of Power, will procure energy efficient power
looms, motors and rapier kits in bulk and provide them to
small and medium powerloom units at no upfront cost.
Govt plans 'super premium' segment for Khadi: The
government plans to create a 'super premium' segment for
Khadi in a bid to increase sales of products made using the
hand-woven fabric by tapping the luxury customer base. For
this, the government will first make a list of actual super
premium Khadi products which are already being
manufactured in other parts of country and try to showcase
that in one place so that youngsters who are looking for stylish
clothes can opt for super premium Khadi products.
Textile policy for 2018-23 gets cabinet nod: The Union cabinet
has given its nod to the new textile policy for 2018-2023, which
aims to create over 10 lakh jobs in the next five years and would
double the farmers' income by the year 2023.
Hurdles and Challenges
The financial crisis of NBFCs has hit the Indian textile industry.
The unavailability of working capital has restricted companies
from capacity expansion and made servicing of existing loans
difficult. The MSMEs form a large part of the textile sector
which largely used NBFCs for working capital as the
commercial banks were slow in extending credit.
Another important issue is the rising import from Bangladesh.
CMAI says the cumulative average growth rate of apparel
shipment from that country is 52 per cent. Large retailers are
allegedly importing apparel made of Chinese fabric from
Bangladesh at nil duty, under our free trade agreement with the
latter country. However, the same agreement does not permit
duty-free export from here.
Another serious concern is that 60 per cent of Indian textiles
are cotton-based and cotton cultivation consumes 25 per cent
of the world’s pesticides. The wet processing of textiles
generates a huge quantity of waste sludge and chemically
polluted waters. In addition, textile is the third biggest
contributor of dry waste in most Indian states.
Despite the multiple challenges, the Indian textile industry has
the capacity to produce a wide variety of products suitable for
both domestic and global markets.
Financials
We have taken the top 40 companies as per market cap to study
the sector. In terms of aggregate net sales for FY19, there is 8
per cent expansion. However, the operating profit of the sector
in FY19 has improved significantly and turned around with an
operating profit of 9012.06 crore from an operating loss of 4,543.78 crore. The aggregate PAT has however fallen
significantly by 31 per cent to 909.87 crore in FY19 from 1,315.04 crore in FY18. According to net sales growth, Swan
Energy has registered the highest growth of 157 per cent YoY,
followed by Bombay Dyeing & Manufacturing Company
posting a growth of 64 per cent. In terms of operating profit,
Pearl Global tops the list with a jump of 248 per cent growth,
followed by Swan Energy.
Conclusion
The Indian textile industry is set for strong growth due to both
strong domestic consumption as well as export demand. The
measures taken by the government to increase the import duty
on various textile and apparel items will help in further
reducing the imports in the coming months. The rising per
capita income, favourable demographics and a shift in
preference to branded products are likely to boost demand.
However, there are some challenges the industry faces in terms
of production and technology because a lot of small-scale
players do not have fiscal support. Besides, stiff competition
from other home textile exporting nations such as China,
Vietnam, Pakistan and Turkey is expected to continue.
STRENGTHS
Huge capacity of textile production
Availability of enormous work force
Entrepreneurial Skills
Low import content
Humongous domestic market
Efficient multi-fiber raw material manufacturing capacity
WEAKNESS
Cut throat global competition
Use of obsolete manufacturing technology
Cost of production is much higher relative to other Asian countries
Imports of cheap textiles from Asian countries
Wide existence of unorganized and decentralized sector.
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Looking ahead, budget 2019 grant for textile & apparel is
budgeted at 4,831.48 crore, which is approximately 30.41 per cent lower than the previous year’s revised grant. In terms of percentage change, the maximum change in grant is for the Integrated Wool Development Programme, which has witnessed a jump of about 447 per cent to29 crore. In terms of
value, the maximum grant is for procurement of cotton by
Cotton Corporation of India (CCI) under the Price Support
Scheme, which is 118 per cent higher than the last year, and
stands at 2,017.57 Crore. It also has a maximum share of 42 per cent in overall grant for textiles. For handicraft development programme, the grant has been increased by about 18.9 per cent to286.17 crore, while for silk and jute
industries, the grant has been increased by 23.2 per cent to
740 crore and34.55 crore, respectively. The power loom
sector got an increase of 49.8 per cent to `159.08 crore in the
total grant.