Author: Malini Bhupta
Publication: India Today
Date: August 21, 2006
Introduction: As Indian firms go shopping,
prominent home textile players in the UK and the US feel the heat of competition
in a quota-free world
Next time you go shopping for your home at
Christy in London, stop a while and take pride in the fact that one of the
oldest home linen brands in the UK-and official supplier to Wimbledon Championship-is
now the subsidiary of Welspun India.
India has been widely regarded as the back
office of the world. But with recent acquisitions, Indian companies are poised
to jump to the forefront with ownership of some of the top brands in developed
nations. According to financial and business advisory firm Grant Thornton,
2005 saw a total of 467 deals, of which 343 were mergers and acquisitions
and 124 private equity deals. The total net value of these deals was $18.2
billion (Rs 84,800 crore approximately). The textile and apparel sector alone
reported 14 deals from January to June 2006 at a total value of $126 million
(Rs 586 crore approximately).
India is no novice in the textile sector.
The country exports textiles and apparel worth $14 billion (Rs 65,121 crore
approximately) and the Government has set a target of $50 billion (Rs 2,32,576
crore approximately) by 2010. Today, the world textile trade is valued at
$365 billion (Rs 16,97,852 crore approximately) and India has a 3 per cent
share in this. By 2010, the world market is set to balloon to $565 billion
(Rs 26,28,219 crore approximately). Till December 2004, the industry was handcuffed
by a quota system under the Multi-Fibre Agreement (MFA), wherein each country
could export limited quantities. With the end of the MFA in December 2004,
the textile industry has found its wings.
The dismantling of the quota system may have
unshackled exports from India, but the punch was felt by the developed nations.
Denied the protective shield, their markets were flooded with cheaper goods
from India, China and Pakistan. Alerted to the opportunity in the unfolding
scenario, Indian companies began acquiring distressed companies to carve out
retail presence and broaden their distribution networks.
Leading the charge in buying out brands and
distribution companies are Gujarat Heavy Chemicals Ltd (GHCL) and Welspun,
besides other smaller players like Sarju International and Creative Group.
B.K. Goenka-led Welspun India in July acquired 85 per cent stake in CHT Holdings,
the holding company of UK's leading and oldest linen brand, Christy, for Rs
100 crore. "This acquisition will give Welspun a retail network and entry
into Europe," says Goenka. Christy is a 150-year-old brand with 22 stores.
Acquisitions provide Indian manufacturers, who have increased capacity in
recent times, ready overseas markets for their goods, an opportunity experts
say will exist only so long as China is under the quota system, which restricts
it from flooding markets in the US and the UK with cheaper products. Meanwhile,
the current favourable climate has attracted new players like GHCL headed
by Sanjay Dalmiya. A domestic soda ash major with no significant presence
in textiles, the company announced two acquisitions in the last six months
for about $140 million (Rs 650 crore approximately).
In December 2005, GHCL bought Dan River-the
third largest home textile distributor in the US-for $100 million (Rs 465
crore approximately). Subsequently, it added Rosebys, the UK's largest home
textile retailer, to its kitty. So far, GHCL only had a finger in the spinning
business, but it now seeks to be an integrated player. "India is weak
in home textile, which is where we saw an opportunity. But we didn't want
to be a manufacturer alone. Retail and distribution is what gives you pricing
muscle power," says Dalmiya.
The company is pinning its hopes on Dan River-which
has a turnover of about $240 million (Rs 1,125 crore approximately) and a
strong distribution network-to make inroads into the US textile market. The
American firm caters to retailers like JC Penny, Linen & Things, Wal-Mart
and Bed, Bath & Beyond. Similarly, Tirupur-based Sarju International has
acquired Gordon Ferguson, a large brand licensor with a strong distribution
network in North America. "It's critical to own a distribution network
so that companies can feed their other products through this pipeline,"
says Dhanraj Bhagat, practice director of Grant Thornton India. Post acquisition,
Indian parent companies plan to shut down nonviable manufacturing operations
in the West and make India a sourcing hub. The big players believe vertical
integration holds the key to enhancing competencies.
Toeing that line, apparel and textile exporter,
Creative Group, is also close to announcing its acquisition of Home Expressions,
a small US-based trading company, for $20 million (Rs 100 crore approximately).
Creative Group, franchisee of New York's Portico, maintains it does not wish
to focus on retail abroad since India is booming. "Running a retail company
in the developed markets poses a big challenge. Expenses are very high and
if sales dip, the company is in trouble," says Chairman Vijay Agarwal.
Creative Group, like Alok Industries-both with revenues above Rs 300 crore-is
instead looking at inking more strategic partnerships that will lend it muscle
power to emerge as a big supplier.
Laurels earned overseas notwithstanding, India's
textile industry falls way behind that of Pakistan, China and Turkey. According
to the US Department of Trade's 2006 figures, India with a 22 per cent stake
in the terry towels segment has been displaced by Pakistan which has a 30
per cent hold. Jolted, the industry has put forth its wishlist before the
textile ministry seeking certain sops like Special Economic Zone (SEZ) advantages
for home textile manufacturers, exemption of service tax, non-levy of excise
duty and vat on raw materials, duty-free import of capital goods, reduction
in power tariff and continuation of the Duty Entitlement Pass Book scheme.
In an environment of easy liquidity, Indian
textile companies may be on a shopping spree abroad, but the jury is still
out on these handful of players. Since most of the textile firms are reeling
under the impact of a quota-free world, where developing nations are scoring
over the developed in terms of pricing, Indian companies will face an uphill
task turning around the fortunes of the foreign businesses they have acquired.
Also, since the home textile market is growing at 5 to 6 per cent, the cost
of acquisition has to justify the potential gains which Indian companies are
anticipating, pitching their hopes on an increase in demand for their products.
