Home Textile Investments On The Rise, Amidst Global Challenges

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Indian home textile manufacturers and exporters have reported higher profits for the second quarter of the 2016-17 financial year. Indo Count, has reported net profit of Rs 627.2 million during July-September 2016, compared to Rs 601.5 million in the previous quarter. Indo Count had reported a net profit of Rs 513.5 million in the 2nd quarter of 2015-16.

Himatsingka Group, a Rs 3 billion  home textile group, has reported a profit of Rs 460.9 million during Q2 2017, 51.7% higher than in Q2 2016.

Trident, another important player in home textiles, reported a profit of Rs 1.02 billion during the Q2 2017. This is slightly lower than the profit of Rs 1.05 billion during the first quarter of the current financial year. In Q2 2016, the company's profits from its textile business was Rs 704.18 million.

Siyaram Silk Mills, a recent entrant in the home textiles segment, has reported profits of Rs 267.9 million during the second quarter of 2016, compared to a profit of Rs 100.3 million in the first quarter. In Q2 2016, the company had reported profits of Rs 252.6 million.

Welspun's performance has not been impacted significantly from the Egyptian cotton fiasco. The company reported profits of Rs 1999 million in Q2 2017, compared to profits of Rs 1794 million in Q2 2016.

Bombay Dyeing, among the oldest Indian home textile brands in the domestic market, has  however, increased its losses to Rs 712.1 million in Q2 2017, from Rs 474.5 million in the previous quarter. In Q2 2016, the company suffered losses of Rs 656.4 million.

Investments in home textiles set to go up

The domestic home textiles market is expected to grow at a CAGR of 8% from 2011 till 2021 and reach a market value of Rs 408 billion driven by the growing working class, increasing affluence of the average Indian and growing trend towards nuclearisation.

The government, realising the growth potential in home textiles, has extended the Rs 60 billion apparel package to the home textile industry too.

Under the package, the home textile sector will enjoy an additional 10% subsidy under the Technology Upgradation Fund Scheme, additional contribution under the Pradhan Mantri Rozgar Protsahan Yojana and Rebate of State Levies. The made-ups segment generates jobs for women and in rural areas, and the government has recognised this potential while announcing the measures. Permissible overtime has also been increased up to 100 hours a quarter and employees' provident fund contribution has been made optional for those earning less than Rs 15,000 a month. The government has also extended a 5% duty drawback benefit to the made-ups  sector.

Welspun India to invest Rs 6 billion in flooring solutions facility in Gujarat

Welspun India has announced plans of investing Rs 6 billion for setting up a facility for manufacturing carpets, area rugs and carpet tiles, marking the leading global home textile firm's foray into flooring solutions segment. "We are expanding our product portfolio by foraying into flooring solutions with a Rs 600 crore carpet plant at Anjar. We will invest Rs180 crore in Phase I," Welspun group chairman B K Goenka said.

The facility will have an annual capacity of approximately 7 million square metres. The company plans to export 50% of the products from the unit and the remaining will be sold in the domestic market.  Speaking at the foundation stone laying ceremony, Gujarat chief minister Vijay Rupani said, "Welspun Group has reinforced its commitment to 'Make in India' with this new carpet project. I appreciate Welspun's commitment to Gujarat for creating employment opportunities in the state and contributing to its overall economic development."

Keeping sustainability at the core and in line with the clean environment campaign of the government, Welspun has also set up a Rs100 crore worth 30 MLD (million litres per day) waste water treatment facility at Welspun City, Anjar in Kutch district. The unit will recycle and treat the waste water generated in Anjar and the Gandhidham-Adipur belt. Welspun will reuse the water obtained after biological treatment, ultra filtration and RO processes for its production activities. This will reduce the company's dependence on the Narmada River, resulting in increase of fresh water availability for domestic use in the area. The company is part of the US$ 2.3 billion Welspun Group, one of the world's largest home textile manufacturers. With a distribution network in more than 50 countries and world class manufacturing facilities in India, it is the largest exporter of home textile products from India.

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In the current financial year, the company has planned a total capital expenditure of Rs 8 billion. Of this, Rs 4.5 billion has invested in the first half of the year, towards capacity expansion. By the end of the year, the company's annual capacity is expected to reach 72,000 MT in towels (from 60,000 MT, at the end of FY2016), 90 million metres in bed linen (from 72 million metres), and 10 million square metres in rugs and carpets.

The company is also investing in its supply chain to ensure the authenticity of Egyptian cotton, at a time when the production of this premium cotton fibre is quite low. The slew of steps to be initiated include deployment of a dedicated resource in Egypt for sourcing of Egyptian cotton, increasing third party assurances such as Gold Seal from Cotton Egypt Association, vendor audit and DNA tests.

Welspun is working on a cutting edge RFID based technology to track manufacturing process and thus reduce human intervention. "We hope to raise the bar for the industry," said Goenka.

Welspun has filed 27 global patents of which nine have already been granted. Its best-selling innovation Hygrocotton® has done well and the latest one Nanocore™ has received Asthma and Allergy Free Certification for bedding products in the US. A third innovation Drylon® has achieved good traction with the launch of new varieties.

Himatsingka Seide's Rs 13 billion capex plans

Over the next three years, Himatsingka company will invest Rs 13 billion in strengthening and augmenting its manufacturing capacities and capabilities. In addition to increasing its installed sheeting capacity, the group is backward integrating into ultra-fine-count spinning by setting up the world's largest cotton spinning plant under one roof. Further, the company also envisages setting up a green field terry towel plant to complement its current home textile portfolio.

Himatsingka Seide recently doubled its sheeting capacity to 46 million metres per annum. The company plans to set up a terry toweling plant with a capacity of 25000 metric tons per annum. Its spinning plant will be equipped with 211000 spindles.

The sheeting project was commissioned by the end of July 2016, with the company envisaging placing approximately 40-50% of the fresh sheeting capacity by end of FY 17. Construction of the spinning facility started in September. The expansion of sheeting capacity will enable the company to make printed products, which will enhance its fashion bedding shares in the market, and also help the company to enter into the basic bedding segments where it is currently not present.

Bombay Dyeing makeover

Bombay Dyeing has planned a makeover to boost the fortunes of its home textiles business. The company plans to outsource its entire manufacturing. From now till 2020, the Wadia group owned company plans to invest more than Rs 1 billion in the brand, double its multibrand outlets to 10,000, more than double its franchise stores to 500 and introduce three to four new products every year, said company sources. These measures are expected to help the segment more than treble its revenue to Rs 10 billion by fiscal 2020 from Rs 3.05 billion in 2016. The retail or textile segment currently contributes 17% to the company's overall revenue, and will go up to 33% by fiscal 2020.

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To rebuild its textile business, the company recently went on an aggressive hiring spree.

Analysts believe opportunities in the branded bed and bath segment in India is poised to grow. What will work for Bombay Dyeing is the limited competition in the organised market, which has just a few players – Welspun, Trident and Portico.

However, competition for organised players like Bombay Dyeing comes not from the other brands, but from the unorganised sector. The organised industry in this business is worth Rs 10 billion but the unorganised players are worth more than Rs 450 billion.

Bombay Dyeing will hedge its bets by being present in all price categories, to try and convert customers of the unorganized market. So, the company will have products from Rs 799 onwards in the bed linen category and Rs 199 in the bath linen segment. Analysts however are skeptical of Bombay Dyeing's plans, as earlier attempts to turn around the business have not been quite successful.

D'Décor plans capex

Mumbai-based home furnishing company D'Décor is eyeing a 10-12% growth in its annual sales in this fiscal, from annual sales of Rs 15 billion in 2015-16. And is planning a capex of 10%, with an investment of Rs 100 billion.

The domestic market contributes 40% to the company's income. The rest comes from exports. Nationally, the market for curtains and upholsteries is poised at Rs 100 billion, which is growing at 15-20%. Of this, the company's share is about 6%.

The company manufactures its products at its plant at Tarapur, near Mumbai. The unit has a capacity to produce 120,000 metres of fabric a day. The 17-year old company is present in eight verticals, including curtains, upholsteries, cushions and bedding sets.

The company launched its D'Assist technology solution (app and website) where customers can browse through the products, though they will have to buy from stores. The company invested Rs 2.5 million to roll out the digital platform. The brand expects to get about 10% of its revenues from the online segment in the next few years, but expects to influence at least 25% of its customers online.

Indo Count strengthens its domestic presence

The 130 billion domestic bedlinen market is expected to be more than Rs 190 billion market by 2021, and this is attracting a number of home textile manufacturers into the domestic market.

Indo Count Retail Ventures P. Ltd (ICRVL), a subsidiary of Indo Count Industries Limited (ICIL), is aspiring to make its bedlinen brand Boutique Living a Rs 5 billion entity by 2020.

This is the first domestic brand from the company that has been primarily exporting bed linen to retail, hospitality chains and fashion brands across US, UK and Australia.

The vertically integrated company has committed Rs 2.5 million for strengthening its domestic sales, marketing networks and logistics. "We are targeting to capture about 25% share of the bed linen market in the next five years, company sources said”.

Indian luxury market grows 25%

A report by CII-Kantar IMRB on India's luxury market states that the market, in the last one year, has grown by a phenomenal 25%. This is certainly a market where competition is sparse for the Indian home textile and furnishings makers.

As per the report, aspirational and younger middle class, rising Internet penetration leading to greater exposure to available products and services, increase in choices and greater awareness of global luxury brands have contributed in the growth of the sector.

A growing middle class, greater awareness of global brands, better internet access, has helped the luxury market in India to grow by 25% to US$ 18.5 billion, between 2015 and 2016, according to the CII-Kantar IMRB 2016 report on Luxury. As per the report, aspirational and younger middle class, rising internet penetration leading to greater exposure to available products and services, increase in choices and greater awareness of global luxury brands have contributed to the growth of the sector.

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"Future forecasts foretell fragrances, watches and jewellery to be the major growth areas followed by skin care and apparel," the report added.

About 40% of the luxury products and services business comes from northern states of India, with Delhi NCR followed by Punjab and Haryana. Southern and western regions account for 25% share each. Eastern India still lags the market with just 10% share in the luxury pie, it added.

The report further points out that tier-II and III cities are steadily emerging as luxury catchment areas and the trend will continue. E-commerce boom in India has also helped increase penetration of luxury products.

However, key challenges faced by luxury brands in India are high taxes and availability of retail space. "Luxury products are, on an average, priced higher – to the tune of 20% – to their global counterparts, due to import duties (around 30-40% for luxury products) and taxes. This pushes up the price unrealistically," the report said.

It further said, "Limited availability of retail infrastructure which is both affordable and upmarket, physical infrastructure, limits on cash transactions, low penetration of cashless economy are some critical barriers which may hamper the growth in the market."

Global outlook

India has been gradually increasing its share in the global home textiles markets. The US bed linen market, and particularly the bed sheets retail market is valued at US$ 4.5 billion.

India's share in this market is approximately 48% and expected to increase further, going ahead. The other new categories like fashion, utility and institutional bedding have a large market size of US$ 10 billion where India's presence is negligible. China dominates in these categories, but with increasing costs in China, India will become an emerging force over the years.

Other countries like UK, Europe and Australia are shaping up well.

The EU has a larger home textiles market than the US, valued at around US$ 16 billion. However, EU's trade preferences to Bangladesh and Pakistan in terms of duty-free access, are hurting Indian exporters, as we have to pay around 10-15% duty for exporting to the EU. The India-EU FTA will certainly help.

The UK, which ranks among the top 10 home textile markets for India, has till recently been pro-blends, but is now showing a distinct preference for cotton textiles. This could help India grow exports to the UK, however, the Brexit uncertainty will keep things slow. Other emerging markets for Indian home textile are South Africa, Latin America, and also the Middle East.

Housing sales will impact home textiles market

Sales of houses will impact sales of home textiles. The US housing market is showing signs of improvement. Sales of new single-family houses in the United States jumped 5.2% to a seasonally adjusted annual rate of 592,000 in November of 2016, beating market expectations of a 2.1% increase. It is the highest figure in four months.

The housing sector in the UK has slowed down perceptibly, and will remain so in 2017. In the rest of Europe too, housing sales have slowed down.

In India too, housing sales are at their lowest for over a year, and will remain so at least till the first half of 2017. And the demonitisation drive has impacted retail sales. Normalcy is expected to return to retail counters over the next 4-6 months.       

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