Textile Industry: Guidance Note
(MAY 2009)
1. Recent Government Policy Initiatives
The recent Government policy initiatives to improve the Textile industry and
restore exports to competitive levels by introduction of various schemes are
given in the Table below.
Announcement
2% duty credit scrip for Garment
Exporters on value of exports.
Applicable only to exports made to US
and EU and valid for a period of 6
months with effect from 1st April,
2009.
Reduction in customs duty under
EPCG Scheme from 5% to 3%.
5% Duty Credit Scrip for Raw Cotton
Export w.e.f April 1, 2008 till July 1,
2009
Interest subvention of two percent on
pre-shipment and post-shipment export
credit extended till September 2009.
Restoration of Duty Entitlement
Passbook Scheme (DEPB) rates for all
items at rates prevailing prior to
November, 2008 and DEPB scheme
extended till 31st December,2009
Guidance Note: Textile Industry May 2009
Credit risk Management Department
Impact
Duty credit scrip is in the form of a credit and can
be traded in the secondary market. This move will
benefit Garment Exporters marginally.
EPCG (Export Promotion Capital Goods Scheme)
enables the manufacturer to import capital goods for
export production at concessional rate of duty
against certain level of export obligation over a
period of time. This may not be great benefit in the
near term.
Duty Credit Scrip is in the form of a credit and can
be traded in the secondary market.
Cotton exports that were impacted on account of
high domestic cotton price will now be competitive.
However, 50% of the cotton stock is with CCI and
NAFED and hence this benefit will largely accrue
to these agencies.
Interest Subvention on Pre-Shipment and Post-
Shipment Credit till September 2009 will benefit
Exporters through lower interest costs on working
capital loans (interest cost after subvention will be
in the range of 7-8%)
Most exporters avail of Duty Drawback which is an
option to DEPB as under Duty Drawback Exporter
receives refund of duties in cash as is not in the case
under DEPB. Also, Duty Drawback involves less
paper work in comparison to DEPB. However, the
benefits will accrue to only those exporters who
avail of DEPB.
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The Drawback rates have been Negligible: Knitted Fabric Exports account for only
enhanced in respect of the following 1% of the Total Knit Fabric production
items: (w.e.f. Sept 1, 2008)
a. On cotton knitted fabrics, from 4.5%
to 5%;
b. On man-made knitted fabrics, from
8.7% to 8.9%;
c. On wool knitted fabrics, from 5.7%
to 5.8%;
The Duty Drawback value cap on Cotton yarn exports form 18% of the total cotton
Cotton Yarn and Grey has been yarn demand. This incentive will benefit yarn
increased from Rs.8.00 per kg. to exporters by providing them with more drawback.
Rs.12.00 per kg

2. Key Concern area:

2.1 Low Degree of Modernisation: The share of Shuttle Less looms in the Indian
Textile Industry is only 2-3% as against a world average of 16.9%, thereby
indicating a low degree of modernisation in the India Weaving Industry. The
extent of improvement in the level of modernisation would be a key
determinant of long term performance of the industry and its exports.
3. BLR Ratings
The following Table gives the changes in External ratings and Bank’s internal
ratings.
Company Long Term/ Rating Rating Agency CRA
Short Term From To
Arvind Products Ltd. Long Term BBB- D
Crisil SB4
Short Term P3 P5
Arvind Ltd. Long Term BBB+ D
Crisil SB3
Short Term P2 P5
Ganga Acrowools Ltd. Long Term C D
Crisil SB4
Short Term P4 P5
Nahar Spinning Mills Long Term A+ A
Crisil SB2
Short Term P1+ P1
Soma Textile & Industries
Long Term BBB- D Crisil NPA
Ltd
Sri Balambika Textile
Long Term BB B Crisil SB2
Mills Pvt Ltd.

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Guidance Note: Textile Industry May 2009
Credit risk Management Department
 4. Industry Financials
For the quarter ending December 2008
Income Sales PBDIT PAT PBDIT/Income PAT/Income
(Rs. (Rs. (Rs.
In (Rs. In In In Dec'07 Dec'08 Dec'07 Dec'08
Crs.) (G%) Crs.) (G%) Crs.) (G%) Crs.) (G%) (%) (%) (%) (%)
Alok
Industries* 816.9 48.1 816.4 48.2 214.9 58.5 49.8 15.5 24.6 26.3 7.8 6.1
Vardhman
Textile* 667 7.7 650.5 5.1 107.8 10.7 9.2 -74.5 15.7 16.2 5.8 1.4
Arvind mills* 632.8 16.8 613.4 14.8 55 -19.6 -33.2 12.6 8.7 0.9 -5.2
Bombay
Rayon
Fashions* 345.9 41 344.9 44.5 85.3 43.4 41.7 20.6 24.3 24.7 14.1 12
Abhishek
Industries* 339.6 21.2 339.6 27 39.5 -22.8 -12.2 18.3 11.6 5.2 -3.6
Bombay
Dyeing* 328.2 6.1 324.3 5.3 2.8 -57.8 -0.2 0.9 -13.2 -17.6
RSWM* 306.2 1.7 306.2 2.3 11.9 -59.4 -21.8 9.7 3.9 -0.01 -7.1
Nahar
Spinning
Mills* 226.7 -2.9 226.5 -2.8 7.9 -69.8 -23 11.2 3.5 0.2 -10.1
KSL&
Industries 210.8 28.1 210.5 28.2 36.4 6.8 1.2 -91.5 20.7 17.3 8.8 0.6
Eskay
Internationals
(India) 182.3 0.8 182.2 0.8 31 8.4 2.1 -68.6 15.8 17 3.8 1.2
Sangam
(India)* 178.6 8.3 178.5 8.3 16.1 -30.1 -12.2 13.9 9 0.2 -6.8
K P R Mills 162.4 2.6 161.9 5.4 16.1 -56.5 -9.5 23.4 9.9 9.3 -5.9
Spentex
Industries* 155.3 -22.6 152.6 -21.9 -3.1 -31 6.8 -2 -6.6 -20
Siyaram Silk
Mills* 144.2 10.7 141.8 10.1 14.2 46.2 3.7 9.8 7.5 9.9 2.6 2.6
SEL
Manufacturin
g Co.* 142.2 32.4 138.3 38.5 26.1 9.2 6.3 -53.4 22.3 18.4 12.7 4.5
J CT* 138.7 6 137.9 5.5 12.1 -20.5 -11.2 11.6 8.7 0.3 -8.1
Malwa Cotton
Spg. Mills* 114.1 -1 113.6 -1.4 -0.6 -10.6 7 -0.5 -0.6 -9.3
Indus* 104 -17.5 100.8 -18.8 8.7 -65 -5.2 19.7 8.4 9.6 -5
Vardhman
Polytex* 100 5.6 98.9 8.4 3.6 -61.9 -16 10.1 3.6 1.6 -16
Ginni
Filaments* 99.8 27.8 97.7 28.9 -9.9 -25.6 8.7 -9.9 -2.8 -25.7
Loyal Textile
Mills* 98.4 -8.7 98.2 -8.8 9.1 -40.4 -5.6 14.2 9.3 0.3 -5.7
(* Banking with us)
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Guidance Note: Textile Industry May 2009
Credit risk Management Department
 Amongst the top ten companies by sales, only five companies reported profits
as on 31st Dec, 2008 and of these, only two companies viz. Alok Industries and
Bombay Rayon Fashions belonging to the weaving segment reported a growth
of 15.5% and 20.6% in PAT respectively.
 Spinning majors viz. Vardhaman Textiles and Abhishek Industries reported
losses at the net level. Abhishek Industries reported losses despite of a healthy
sales growth of 21.2%. The losses were on account of higher raw material costs
and foreign exchange losses.
 Among the other large weaving companies, Arvind Ltd. and Bombay Dyeing
reported losses of Rs.33.2 crs. and Rs.57.8 crs., respectively.
5. Outlook
5.1 Cotton Textile:
 Cotton prices in the global markets have touched a four-year low. However, in
India, prices have gone up, due to increase in Minimum Support Price (MSP).
 Due to the price disparity in the Domestic and International Markets, Indian
Textile Mills have started importing sizeable quantities from overseas markets,
including the US and Pakistan. The two Government-owned procurement
agencies, Cotton Corporation of India (CCI) and Nafed, are holding stock of 29
million bales of Quality Cotton which to some extent has also contributed to the
increase in Cotton prices.
 Spindle capacity doubled to 2.12 lakh spindles in 2008-09. However, nearly
40% of the capacity is lying idle due to global recession and power shortage.
High cotton prices, power shortage and minimum wage revision have added to
the woes of the spinning mills.
 While the country produced 4003 million kg of Cotton in 2007-08 it has
subsequently dropped to 3239 million kg in 2008-09. The last fiscal also saw
the closing down of 392 Textile Mills, rendering 2.54 lakh workers jobless.
 The Cotton Textiles Sector recorded a dismal performance during the
December 2008 quarter with muted sales growth of just 2.8 %. The Sector
reported losses at the net level for the third consecutive quarter.
 About 175 Textile and Clothing (T&C) firms listed showed a 250% dip in
profitability in quarter ending March’09 against a 125% and 91% year-on-year
reduction in the preceding two quarters. The cumulative losses of these firms
were estimated at around Rs. 540 crs. for the quarter ending Dec’08, as against
a profit of Rs.365 crs. in the corresponding period of 2007-08.
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Guidance Note: Textile Industry May 2009
Credit risk Management Department
5.2 Ready Made Garments
This sector posted reduction in production of over Rs.12,000 crs. per month caused
by the ongoing slowdown in the local and global markets and uncompetitive cost
profile including rising cost of power.
5.3 Export Oriented units
The outlook for Exports continues to be dismal as demand prospects do not appear
to be very encouraging and the current scenario of slower demand is expected to
continue in the medium term especially in America and Europe which contribute
more than 75% of Indian Exports. The major impact is now being felt by the Small
and Medium export firms as large export houses have managed to retain some
orders due to their shift in focus to other countries like Australia, Brazil, Japan,
South Africa.
5.4 Technical Textile
Technical Textile Industry has become an “Emerging Industry” with the Indian
market size likely to increase to Rs.62,300 crs. by 2010. The Government has
designed Centres of Excellence for Agrotech, Buildtech, Meditech and Geotech
Group of Technical Textile at an outlay of Rs.44 crs. and is also set to launch a
Rs.600 crs. Technology Mission.
5.5 Manmade Fibre (MMF):
Over the short term, the prices of fibre intermediaries are likely to remain stable or
decline because of lower petrochemical margins and lower crude oil prices. The
price of MMF would remain linked with cotton prices as also average operating
rates of MMF industry both at the Regional and Global level. With significant
capacity being commissioned, the Polyester Industry in India is likely to witness
over capacity in the medium term till such time demand from exports pick up.
Overall, margins of MMF producers will remain under pressure in the medium
term.
5.6 Overall Outlook
The revival prospects of the Textile Industry in the near term looks discouraging as
production is bound to decline and operating and net margins in negative territory.
India’s exports to its largest market, the US, continue to take a hit, even as other
Asian countries have managed to register an increase in their exports, despite the
ongoing recession
The overall outlook for Textile Industry is not very favourable with many Textile
Mills facing closure. Some of them are however operating at very low capacities
and have had to cut production by up to 75%. Daily wage labour and temporary
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Guidance Note: Textile Industry May 2009
Credit risk Management Department
workers have been laid off. The industry has sought a liberal rescheduling of term
loans by deferment of eight quarterly installments of principal dues.

Companies with integrated facilities whose expansion programmes have been

completed are to some extent protected from point specific pressures in the value
chain. The Companies at the lower end of the value chain, such as small and mid–
sized spinners, have been the hardest hit in this environment, and most of them are
facing considerable strain on the short-term liquidity and lengthening cash cycles.
6. Banks Approach
Taking into account the future outlook, attendant risk factors, the following
approach is proposed for taking exposure on the industry.
Qualitative Approach

Segment Earlier Outlook Approved Outlook

Cotton Textiles* Neutral
(Hold Continue Selectively)
Polyester Neutral
(Hold Continue Selectively)
Man Made Viscose Neutral
Fibres (Hold Continue Selectively)
Acrylic Moderately Negative
(Hold)
Readymade
Neutral
Garments(Apparels)
(Hold Continue Selectively)
(Domestic market)
Export Oriented Units Moderately Negative
(Hold)
Technical Textile Moderately Positive
(Grow Selectively)
Moderately Negative
(Hold)
Moderately Negative
(Hold)
Moderately Negative
(Hold)
Moderately Negative
(Hold)
Neutral
(Hold Continue Selectively)
Moderately Negative
(Hold)
Moderately Positive
(Grow Selectively)

* Working capital enhancements should be considered in the units in which we

already have the long term fund based exposure.

Previous corresponding Nomenclature has been given in bracket under the

proposed outlook for convenience.

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Guidance Note: Textile Industry May 2009
Credit risk Management Department
Threshold Level
Threshold level
Segment Enhancements New connections
Cotton Textiles SB5 and above SB3 and above
Polyester SB5 and above SB3 and above
Man Made
Viscose SB5 and above SB3 and above
Fibres
Acrylic SB5 and above SB3 and above
Readymade
Garments(Apparels) SB8 and above SB6 and above
(Domestic market)
Export Oriented Units SB5 and above SB3 and above
Technical Textile SB10 and above SB8 and above

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Guidance Note: Textile Industry May 2009
Credit risk Management Department