Textile firms scaling up. And how!

Business Standard starts a series on the investment boom in the country.

Described as a sunset sector some years ago, India's textile industry is riding the crest of renewed business optimism. Every textile company worth its salt is drawing up investment plans to expand capacity.

A report by the Mumbai-based Centre for Monitoring Indian Economy says Rs 8,623 crore (Rs 86.23 bilion) in investment had already been committed in the industry up to April 30. Industry sources estimate another couple of thousand crore (Rs 20 bilion) worth of investments are in the pipeline.

Carmakers bet Rs 25,000 cr on demand overdrive

Leading the capacity expansion charge is the Ahmedabad-based Welspun India. Others that have invested in capacity expansion include the Ludhiana-based Abhishek Industries, the Punjab-based Vardhman group, Rajasthan Spinning & Weaving Mills, the Gujarat-based Arvind Mills and Raymond.

What is more, foreign institutional investors (FIIs) like Arisaig Partners (Asia) Emerging Markets Management, Emsaf-Mauritius, GMO Emerging Markets Fund, Goldman Sachs Investment (Mauritius), T Rowe Price International, GMO Erisa Pool and Oppenheimer Funds have started picking up a sizeable chunk of equity in almost all the leading textile companies. The FII holding in the textile majors is between 15 and 20 per cent.

The rush to invest in expanding capacity is prompted by the coming abolishment of the textile quota regime in international trade.

A textile sector analyst at a domestic brokerage points out that after the Agreement on Textiles and Clothing is abolished with effect from January 1, 2005, 47 per cent of the restricted market or 35 per cent of the world's textile and apparel market will open up for free trade. The global textile and clothing market is worth $360 billion and is growing by 5 per cent annually.

An official at a textile export promotion council says the opportunities for the domestic players are 'great'.

He cites a Confederation of Indian Industry study, which predicts the domestic textile and apparel industry will grow at a compound annual growth rate of 6-8 per cent. Consultancy firm KSA Technopak reckons the market will grow from Rs 7,200 crore (Rs 72 bilion) in 2002-03 to around Rs 12,000 crore (Rs 120 bilion) by 2010.

In a recent report, Dun & Bradstreet said India was well placed in the overall US market, adding, however, that Indian companies should adopt innovative price-product strategies to fight their Chinese rivals. India has a 7.4 per cent share of the $77 billion US import market for textiles and clothing.