Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis-II - Question Paper

Textile and fashion

After Italy and Spain, India with its large base of youth and English speaking population could become the fashion hub for the world. Industry is in a need for more design intervention in the making of the fabric. With a sourcing split inevitable, Indian textiles companies will have to position themselves on the lines of either ‘cost’ or ‘speed to market’. Sources also feel that Indian companies will now have to adopt the ‘lean’ model to work more efficiently and focus more on the bottom-line growth. The need of the hour is to focus on areas such as delivery, quality, price and corporate compliance. If India wants to double its capacity in the textiles sector in the next 5 years, it requires investments to the tune of Rs.1,40,000 crore in garments, spinning, weaving and knitweares industry.

Impact of taxes on the industry

The Budget has extended special additional duty to all imported goods. This will apply to both agricultural and non-agricultural imports. Though certain items have been excluded, cotton now attracts a 4% additional duty, industry players and officials stated. The 10% duty has also been retained. Many leading garment makers prefer yarn made out of imported cotton because it ensures better quality. The additional duty will have an impact on those importing cotton for producing yarn mainly for the local market.

Merger waves on the industry

The Indian textile industry is on a consolidation spree from the last couple of years. While the sector has been in the thick of M&A and fund raising activity in FY06, the deal sizes total to a little under Rs.800 crore. Analysts point out that this is because most of the textile companies are midsize, with very few clocking a turnover of over Rs.500 crore. The broad patterns that emerged in the last year were cross border acquisitions and joint ventures to gain better access to developed markets, mergers and acquisitions in the domestic market to achieve globally competitive size, equity fund raising through private equity investors and debt fund raising under the technology upgradation fund scheme to support expansions. A large fibre base, with a rapidly growing garment sector, low cost skilled labour, a large domestic market and a stable economy is keeping the sector in the radar of the investors.

Arvind Mills

The Arvind Mills was set up with the pioneering effort of the Lalbhai brothers in 1931. With the best of technology and business acumen, Arvind has become a actual Indian multinational, having chosen to invest strategically, where demand has been high and quality needed has been superlative. Today, the Arvind Mills Limited is the flagship company of Rs.20 billion (US$ 500 million) Lalbhai Group.

Earning:   Approval pending.