Strong Rupee Dampens India Exports
June 18, 2007-- Home Textiles Today,
Having managed the transition out of quotas in 2005, some manufacturers saw large gains — while India's home textile exports to the United States overall increased marginally in 2006. But in the early months of 2007 they have faced increased pressure on margins caused by a rapidly appreciating rupee.
India's non-apparel textile exports to the United States grew by just under 6% in 2006 to a total of $1.8 billion and now accounts for just over 6% of the U.S. market. Year-to-date 2007 sales were up almost 10% at the end of April, and there was a 47% increase in exports of cotton sheets, alongside a 28% jump in pillowcases, according to Texprocil (The Cotton Textiles Export Promotion Council of India).
However, in the first months of 2007 declines showed up in bedspreads and towels and by June, with a dollar worth 13% less against the rupee than a year earlier, exporters were complaining that they face difficulties maintaining a competitive advantage. Currencies have declined marginally in neighboring Pakistan and Bangladesh and appreciated only by about 5% in China, where the export price on finished goods can be lower than the production costs of many Indian producers.
"Right now the currency is so strong that is difficult to export," said Murali Dhar, director of Texprocil. "One is proud that the currency is getting strong but, profitability-wise, margins are getting thin."
Sunil Duggal, svp for marketing at Hanung Toys and Textiles, adds, "For a few months we are taking the hit, but the business is all about stamina and we are honoring our commitments to our customers." Duggal, whose company is a leader in toy exports, said Hanung's five-year-old diversification into sheets and top-of-the-bed, dec pillows and curtains grew by "30% to 50%" last year, with exports increasingly going directly to big retailers rather than importers.
Hanung is investing $40 million into a plant outside of Delhi and sees its future growth coming from home textiles both to international buyers and to a growing domestic market.
Alok Industries, a shirting giant that launched a home textiles business in 2004, increased its U.S. sales to $89 million last year from $50 million in 2005, accounting for 75% of its total home textile business. Alok Jiwrajka, the company's head of home furnishings, said Indian manufacturers need to anticipate future currency shifts: "The new contracts are beginning to be made and the question is where do we draw the line" on contract prices, which are set in dollars.
In response to softness in the home business at major retailers in the United States, Jiwrajka said most of Alok Industries' big retail accounts have paused for product testing but will shortly "know what will sell and what won't."
Alok has expanded to meet anticipated demand — projecting growth from the current 35,000 sheet sets per day to 50,000. The company postponed entry into the towel business that it had planned for 2006, because of rising global towel capacity, but construction continues on a new plant and it will probably enter the business next year.
Earlier this year, Alok bought Czech manufacturer Mileta, a shirting fabric company that also makes table linens, and hopes to debut a table linen line next January at Heimtextil. A showroom on 34th Street in Manhattan is slated to open in August and Alok plans to keep a permanent design team in New York.
Gujarat Heavy Chemicals Limited (GHCL), which bought U.S. mill Dan River out of bankruptcy last year, reports "aggressive" progress on the turnaround, which is expected to exploit the Virginia manufacturer's existing marketing arrangements with JCPenney, Wal-Mart, Bed, Bath & Beyond and others.
The company has a large spinning operation and with the March 2007 opening of a production facility at Vapi, in Gujarat, it now claims to be fully integrated, from raw material to retail, in home textiles. Exports to the U.S. totaled $350 million last year, represented roughly 55% of its business, according to Nikhil Sen, head of strategy and international business at GHCL.
The company sells a broad range of products, with particular strength in cotton and blended fiber sheets as well as quilts, comforter sets, and window treatments. About 30% of its U.S. business goes to big-box discounters, while another 20% feeds into higher-end stores, said Sen. Another 50% comes from a growing business supplying institutions and hotel chains.
Beyond exporting its own products, GHCL is reaching out to other manufacturers to feed its growing distribution in world markets, projecting worldwide home textiles sales this year of $1 billion, up from $650 million in 2006. "Our key differentiator is that we are not only a global sourcer or supplier of our products, but are also a leading international retailer that covers the entire spectrum of soft home furnishings," Sen noted.
Textrade, a Mumbai-based exporter of bedspreads, window panels, and cushions, pointed to level or slightly lower exports in 2006 (the company exported $10 million in 2004), and managing director Anish Doshi questioned whether "the market is able to accept a new price, because the currency situation is just country-specific."
Textrade is ramping up its capacity for computer-assisted design and other systems to better integrate with retailers. "You come a step closer to consumers by supplying to retailers," said Doshi. "The main thing is understanding the retailer's products and price points."
In the meantime, Textrade is entering the domestic Indian market with a launch planned later this year of a chain of branded stores serving middle- to high-end Indian consumers at shopping malls in India's big "metros" — New Delhi, Mumbai, Chennai, and Kolkata. "There is a growing market in India and by distributing part of the business domestically, valleys become less deep," said Doshi. U.S. exports account for about one third of Textrade's business.
Welspun, one of the largest towel manufacturers in the world, did $277 million in U.S. sales last year, up 52% from 2005. Rajesh Mandelwewala, the company's executive director, said that despite the currency situation, India's supply of cotton, which has increased with the recent introduction of genetically modified crops, gives India a "sustainable advantage over time." He added that Welspun will begin producing top-of-bed in the last quarter of this year and aims to produce "virtually everything for the better and best qualities," including jacquards, pieced constructions, and embroideries.
Following the acquisition of U.K. towel manufacturer Christy last year, the company has been frank about seeking acquisitions in the United States. But Mandelwewala asserts that valuation of U.S. companies have overshot the market. "When the trend started a couple of years ago, buying firms were willing to pay higher prices," he said. "But now the market has a better fix on the financial benefits of these types of deals, and buying firms are more scrupulous about what an acquisition target is actually worth."
Nevertheless, he conceded that the U.S. market knowledge, design and marketing capabilities, and retail relationships of companies here are difficult to replicate from abroad: "You can have a good factory, but at the end of the day if you can't make stuff that is selling there is no point."
Joseph Shafran, the newly hired vp for U.S. accounts for Mumbai-based Faze 3, said sales of the company's rugs and blankets topped $45 million in 2006, against $36 million in 2005, with the U.S. accounting for 55% of its business.
Faze 3, the largest rubber-backed textile producer in India, sees growth particularly in organic cotton products. Along with a 2005 acquisition of a rubber-backed plant in Silvassa increasing both machine-made yardage bath rugs and handmade table top production, Shafran forecasts strong sales this year. He added that, in visiting with the retailers and select importers who are his clients in the U.S., Shafran perceives that an earlier migration to China has now begun to come back "because there is an easier way of doing business in India" and due to higher quality of products and cotton produced in India.
For India's smaller-scale home textile exporters, whose 400-stand turnout was second only to Germany's at Heimtextil this year, the currency crunch may be harder to manage. These businesses, which range from small factories to cottage industries, specialize in hand finished and highly ornamented products involving embroidery, sequins and surface work, and have less ability to hedge-out currency risk. They face pressures from consolidation and competition on price.
"It was much better when the quotas had opened up," said the partner in a New Delhi export business that has recently begun to concentrate on foil printing and other fabric production. "Margins are not as good as earlier; there are too many people in the same game. In garments it has already started happening, with exporters becoming jobbers for retail stores. We are becoming jobbers for other exporters."
TOP MANUFACTURERS: INDIA
|Company Name||2006 U.S. Sales* (millions)||Company exports to U.S.|
|Source: HTT research
|1. Gujarat Heavy Chemicals Limited||$350||55%|
|Products: Integrated, from fiber to the showroom floor|
|Products: Towels, sheets headed into top-of-the bed|
|3. Alok Industries||89||75%|
|Products: Sheets, with plans to enter towels and table linens|
|4. Abhishek Industries/Trident||82||68%|
|Products: Terry towels|
|5. Faze 3||45||55%|
|Floor coverings and blankets, with growth in organic cotton|
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