Chief Financial Officer Home Textiles & Furnishings: Does India stand adequately invested to tap the opportunity? Sunil O. Khandelwal Chief Financial Officer

Source: - UN Comtrade, OTEXA, Eurostat & Technopak Analysis BIG Picture - Global Textile Industry 2009 Global trade in textiles and clothing increased to US$ 510 bn from US$ 355 bn. in 2000 - CAGR of 4.63% 2020 Global trade expected to grow to US$ 1000 bn from US$ 510 bn in 2009 - CAGR of 6.3% USD bn. Top Exporters Amount US$ BN. % Europe 162 31.76% China 189 37.06% India 23 4.51% Others 136 26.67% Total 510 100.00% CAGR 5% 1000 800 612 586 529 510 Source: - UN Comtrade, OTEXA, Eurostat & Technopak Analysis 2 2

BIG Picture - Indian Textile Industry 220 134 CAGR 11 % 78 70 46 Projections The domestic textile market in India is projected to grow from USD 52 bn. in 2010 to USD 140 bn. by 2020 at a CAGR of 10.5% The export market in textiles is projected to grow from USD 26 bn. in 2010 to USD 80 bn. by 2020 at a CAGR of 12% The total Indian Textile Industry is projected to grow from USD 78 bn. in 2010 to USD 220 bn. by 2020 at a CAGR of 11% In order to meet the additional estimated demand (US$ 150 bn) created for Textile and Apparel by 2020,investments to the tune of Rs.320,000 Crores (US$ 68 bn) across the Textile supply chain will be required. India has the potential to increase its export share in world trade from the current 4.50% to 8.00% by 2020. The high growth for Indian exports is possible due to increased sourcing shift from developed countries to Asia and India’s strengths as a suitable alternative to China for global buyers. Source: - Technopak

Source: -Company Estimates and Technopak Analysis BIG Picture - Global Home Textile Industry CAGR 7% Year 2006 2007 2008 2009 2015(E) 2020(E) China 34.28% 35.88% 36.52% 39.21% 45.31% 44.45% India 6.55% 6.07% 6.28% 6.94% 10.00% Pakistan 9.12% 8.44% 8.04% 9.05% 7.81% 8.89% Going forward India’s share expected to rise from 7% to 10% . Expected to be biggest beneficiary as Chinese Industry reaching its peak % Growth in Exports 2000 to 2007   Home Textiles China 250% Pakistan 200% India 72% Germany 48% Turkey 38% Source: -Company Estimates and Technopak Analysis

Source: -Company Estimates and Technopak Analysis BIG Picture - Indian Home Textile Industry 18.0 CAGR 11% 12.40 6.00 6.3 5.3 4.3 Source: -Company Estimates and Technopak Analysis

What's happening in the Industry US and EU which are the main consumption centers are gradually but steadily coming out of a recessionary phase. Buyers are back in stores. Apparel and Home Textile consumption picking up Shifting of production capacities from the West to the Asian continent. China, India and Pakistan make up 70% of total home textiles imports by US- the largest market. Chinese industry touching its peak as buyers looking at diversifying their sourcing. Strong domestic demand outstripping supply leaving lesser export surplus. Rising wages and environmental concerns restricting further investment in textiles in China. Global price rise in cotton has been fuelled by a combination of factors including stronger than anticipated demand in major emerging economies such as China and India, and lower than expected cotton crop yields in some countries. Currency fluctuations affecting export competitiveness of the industry thereby compelling industry to work on product development and sustain margins.

Home Textile Opportunity The global textile and apparel industry is reviving after the recent global recession with increasing consumer demand. With the positive outlook the global home textile trade has the potential to grow up to USD 64 bn. by 2015 and USD 90 by 2020 The Indian home textile industry is expected to grow to USD 12.4 bn. by 2015 and to USD 18 bn. by 2020 from present size of USD 6.3 bn. The Ministry of Textiles is also encouraging investments through increasing focus on schemes like, TUF scheme. cluster development activities etc. Ministry is also looking to attract foreign investments through promotional visits to countries like Japan, Germany, Italy, France, etc. Chinese announcement to allow more flexibility to its currency Yuan vis-a-vis USD shall most likely appreciate the Yuan from their current levels thereby giving better level playing field and benefitting the Indian Textile Exporters China has become fourth largest importer of textiles after Europe, USA and Japan Indian Home Textile players have to invest in R&D and develop special finishes to create their own niche. Institutional branding of products will differentiate players to capture market share. Eg Wrinkle free bed sheets became an overnight hit with the US consumer and emerged as the largest selling bedsheet 7 7

Contribution from Cotton to Bed sheet Set – 300 TC Wrinkle Free Particulars Amount (Rs. Per Kg) Cost as % of sales Raw Material Cost – Cotton 132.00 14.04% Conversion Cost 123.00 13.09% Additional Processing Cost for Wrinkle Free Finish 15.00 1.60% Cost 270.00 28.72% Add: Wastage 5% 14.00 1.49% Total Cost per Kg. 284.00 30.21% Conversion (1 Kg = 2.75 mtrs) 103.00 Total Fabric Cost per sheet set (1Sheet set = 5.6 mtrs.) 577.0 61.38% Sticthing and Packing Charges per sheet 70.00 7.45% 647.00 68.83% Add: Wastage about 2.5% 16.00 1.70% Total Cost 663.00 70.53% Average Selling Price USD 21.00 per sheet set – 300 TC 940.00 100.00% Contribution 277.00 29.47% Contribution as a % of Sales

Typical Investment – Integrated Bed Sheet Sets Particulars Production Cost Rs. in Crores Sales 100,000 mtrs. i.e. 18000 sets X 336 days X Rs. 940 per sheet set (300TC) 568.00 Investment – Capacity 100,000 mtrs/day - Spinning – 80000 Spindles (60s cunt) 40000 kgs / day Rs. 30,000 / spindle 240.00 - Weaving – 400 looms 250 mtrs. / day/ loom Rs. 50 lakhs/ loom 200.00 - Processing - 1 continuous line 100,000 mtrs/day Lot 150.00 - Stitching - 1000 machines 18000 sets / day 30.00 Sub-total 620.00 Working Capital (100 days) 155.00 Total 775.00 Sales EBITDA assumed @ 30% 170.0 ROCE (Capex + Working Capital) 21.9% Asset Turnover (Sales / Net Block) 0.92

Contribution from Cotton to Terry Towel Particulars Amount (Rs. Per Kg) Cost as % of sales Raw Material Cost – Cotton 95.00 34.5% Conversion Cost (Cotton to Terry Towel) 115.00 41.9% Total Cost per Kg. 210.00 76.4% Average Selling price 275.00 100.00% Contribution 65.00 23.6% Contribution as a % of Sales

Typical Investment – Terry Towel Particulars Production Capacity Rs. in Crores Sales 40 tons X 336 days X Rs. 275 per kg. 370.00 Investment – Capacity 40 tons per day - Spinning – Open End 15 tons/ day 1632 rotors 45.00 Ring Frame 25 tons/ day 40800 spindles 150.00 - Weaving – 100 looms 400 kgs / day/ loom Rs. 60 lakhs/ loom 60.00 - Processing - 1 continuous line 40 tons/day Lot 100.00 Stitching 30.00 Sub-total 385.00 Working Capital (100 days) Total 485.00 Sales EBITDA assumed @ 23.6% 87.00 ROCE (Capex + Working Capital) 18.00% Asset Turnover (Sales / Net Block) 0.96

Investment Required by Indian Textile Industry Investments Required in Textile Industry Segment Additional Capacities Required Investment Required by Indian Textile Industry In Rs. Crores In US $ Billions Indian Home Textile Spun yarn New Spindles-13.6 Million Modernized Spindles-8 Million 42,000 9 1 Filament Yarn Prod. from modernized capacity-0.5 Bn kg Prod. from Brownfield expansion-4.2 Bn kg Prod. from Greenfield projects-1.1 Bn kg 31,000 7 - Weaving New Shuttleless Looms- 77 thousand Second hand Shuttleless Looms- 65 thousand Automatic looms- 1 Lakhs Semi automatic-2 Lakhs Plain-2.35 Lakhs 37,000 8 1.5 Knitting New Machines- 84 thousand Second hand machines-56 thousand 25,000 5 0.5 Processing 90,000 19 3 Garment and Made-ups Machines required- 21 Lakhs (for 2 shift working) 65,000 14 Technical Textiles 30,000 6 Total 3,20,000 68 7.50 12 12

Concluding Remarks For Indian textiles, an era of unprecedented growth has set in. Its our privilege and responsibility to capitalise on this opportune time by building scale, integration and technology So far the industry has not been able to capitalise on this opportunity and investments made so far is not in proportion to the size of the opportunity available However, now Indian Home Textile Industry is getting ready to grab this immense opportunity and capture at least 10% of global market share Domestic markets are equally promising and offers great opportunity to grow TUF scheme continues till FY 2012 and expected to be continued for the hole of next decade as players take maximum advantage of opportunity offered Investments will be made across the value chain as demand no longer an issue and industry enters a supplier’s market

Happy Investing!!! Indian Textile Industry Ki Picture Abhi Baki Hai ! The Great Indian Textile Story is yet to unfold! Happy Investing!!!