Readymade garments: Much potential here, but...

Reshma Krishnan

THE TEXTILE industry is considered all but dead, especially from the investor's point of view.

Mills have been shutting down, production is falling and the industry has lost its creditability with the financial institutions and the stock market. However, the manufacturing sector and the retailing of readymade garments looks set to revive this ailing industry.

With the announcement of the New Textile Policy 2000 and the emphasis on readymades, the potential in the industry may be realised. Investors would be wise not to throw in the towel yet, and watch out for select companies that might have a bright future.

Rough patch

The textile industry has been going through a rough phase for some time now. The last five years have been devastating, with 349 mills closing down _ 43 of them last year alone. The production of fabrics has stagnated, and unemployment rampant. Yet it is crucial to the economy in terms of its contribution to industrial output, employment generation and forex earnings. Textile exports are now the country's largest gross and net foreign exchange earners.

The reasons for this state of affairs are many, ranging from the increasing number of players to productivity. Poor labour productivity is one reason for the lack of competitive advantage in the international market. The advantage of cheap labour is being diluted by low productivity. This means that even if the per unit labour cost is a third that of a worker in Northern Ireland, three workers are needed to do one job, thereby diluting any advantage that initially existed.

Another reason is the lack of technology upgradation. The industry has not kept abreast with technology and modernisation, leaving the country far behind the global market. This has led to stagnation and the inability to meet the international requirements of production and quality.

Players such as Premier Mills and Raymond, which looked into the future and invested in it survived the recession, while those that did not, such as some of the mills in Coimbatore, failed.

The readymade segment is complex. The two markets, domestic and international, have their own nuances and issues. Its products are poorly classified and the distribution systems ill-defined. This makes strategies and data difficult to evaluate.

The readymade garments industry is only a part of a huge textile export market that consists of fabrics, made-ups, yarn, thread, fibre, woolen textiles, silk textiles and readymade garments. The global readymade apparel industry is perhaps among the most advanced, and yet the most fragmented, of all retail sectors. The global market is estimated at $183 billion, with the US having a major share in it.

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A small presence

India's presence in the global market is a measly 3 per cent compared to Hong Kong's 15 per cent market share. India's combined textile exports grew by 5.6 per cent to $112, 60 million (Rs 48,811 crore) in 1999-2000 from exports of ????$106,54 million (Rs 44821.37) in 1998-99. Of this, readymades make up almost 50 per cent of the total exports.

The readymades segment grew 7.7 per cent from Rs 22,208 crore in 1998-99 to Rs 23,983 crore ($5524.5 million) in 1999-2000. While there has been a remarkable growth in value terms, the growth rate has declined steadily. For instance, while exports have been on the increase, the rate of growth year-on-year has fallen. From a growth rate of about 20 per cent in 1992-93, it fell to a 1.04 per cent in 1998-99. It recovered slightly at the end of last year. The rate of growth of readymade garments has fallen in tandem.

A positive feature here is that the share of the readymade garments in the whole textile export volume is steadily increasing. This means that greater value-addition is accruing to our exports, leading to higher margins.

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Home market

The domestic market has a different story to tell. The Indian clothing and textile market is as enormous as it is ambiguous and is being called the second largest retail opportunity for retailers here. However, the exact size of the market in terms of value is unknown. This is because it is highly fragmented and disorganised, and any data can only be considered an estimate.

According to research by McKinsey, the domestic clothing market is estimated at Rs 87,000 crore, of which 22 per cent comprises readymade garments. Of the 22 per cent, only 20 per cent belongs to the branded apparel market. This means that in a market worth Rs 20,000 crore, only Rs 4,000 crore is catered to by branded apparel.

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The men's clothing segment accounts for the largest share, at 70 per cent. The branded apparel market is catered to by a small number of listed players, such as Madura Garments (part of Indian Rayon since January), Raymond, Bombay Dyeing, Arvind Mills, Pantaloons and Zodiac.

Some of the players are fabric manufacturers who have branched into the retail business, for example, Raymond and Bombay Dyeing. These players control the entire value chain, from the production of the fabrics, to making and finishing the end product. Some of the foremost fabric manufactures have ventured into value addition by opening exclusive showrooms. Others are solely readymade garments manufacturers who source fabric domestically and internationally, such as Zodiac. Companies such as Pantaloons cater to a wide market, including women's clothing and retail showrooms. However, the true story in the domestic market may be that it still has a long way to go in terms of realising full potential.