Global economy: Current Scenario
In 2022, the global economy, advancing toward the 2030 SDGs, faced severe shocks
intensified by COVID-19. The Ukraine conflict exacerbated the crisis, disrupting food and
energy markets, escalating food insecurity. High inflation eroded real incomes, spiking
living costs. Persistent climate emergencies caused widespread economic losses and
humanitarian crises due to extreme weather events. In 2023, the global economy is
cautiously rebounding from COVID-19 and Ukraine-related challenges. Positive signs include
the pandemics official end, restored supply chains, and resilient Q1 2023 economic
activity, especially in labor markets. Lower energy and food prices post-conflict have
eased global inflation. Swift containment of financial instability after Marchs banking
turmoil is attributed to proactive US and Swiss interventions.
Global economy: Near-term
Outlook
Global economic growth is projected to decline from 3.5% in 2022 to 3.0% in 2023 and
2024, despite signs of recovery. This shift is attributed to factors in advanced
economies, including weakened manufacturing and other variables, offsetting strong
performance in the services sector. The growth rates for 2023-2024 are notably below the
historical average of 3.8% from 2000 to 2019. However, emerging markets and developing
economies are expected to maintain steady growth during this period.
Indian Economy Overview
In FY23, despite global challenges such as geopolitical tensions, energy crises, and
inflationary spikes, the Indian economy achieved sustainable growth and macroeconomic
stability. It withstood triple shocks from the pandemic, the Russian-Ukraine conflict, and
global policy rate hikes, showcasing exceptional resilience. Indias current account
deficit reduction marked a significant trade achievement, underscoring its economic
strength.
Private consumption and capital formation were key drivers of Indias economic growth
in FY23. The central governments capital expenditure surged by 63.4% in the initial eight
months. Lower international commodity prices, proactive government policies, and strategic
monetary tightening by the RBI contributed to controlling domestic inflation. The National
Statistics Office estimated a 7% GDP growth rate for FY23, slightly lower than the
previous years 9.1% but outpacing other major economies. The IMF projects India as the
fastest-growing economy in FY24. Despite global uncertainties, both the Economic Survey
2022-23 and the RBI forecast a 6.5% growth rate for India in FY24. This progress
underlines Indias economic potential and resilience.
Outlook
In FY23, the Indian economy demonstrated remarkable resilience and successful policy
implementation amid global challenges. Factors like private consumption, capital
formation, and effective government interventions contributed to its strong performance.
Despite uncertainties, the governments fiscal responsibility and targeted actions
position India well for the coming year, with flexibility in policies to adapt to global
trends.
The expected decline in inflation and increased public capital expenditure are
anticipated to drive domestic growth. This aligns with the governments focus on
infrastructure development, fostering job creation and economic activity. Moving into
FY24, India anticipates accelerated growth propelled by robust credit allocation and
increased capital investments. Strengthened balance sheets in both the corporate and
banking sectors provide a solid base for this expansion.
The expansion of public digital platforms and transformative initiatives like PM
GatiShakti, the National Logistics Policy, and Production-Linked Incentive schemes are set
to revolutionize manufacturing, offering an extra boost to economic growth. As India looks
ahead to FY24, strategic investments and forward-thinking initiatives have paved the way
for sustained growth, reshaping sectors and propelling the economy to new heights.
Global Textile Market
The global textile market has demonstrated substantial growth, expanding from $573.22
billion in 2022 to $610.91 billion in 2023, with a 6.6% Compound Annual Growth Rate
(CAGR). This expansion is projected to continue, reaching $755.38 billion by 2027, with an
anticipated CAGR of 5.5%. In 2022, Asia Pacific claimed the largest market share, followed
by Western Europe.
Concurrently, the global fashion e-commerce market is experiencing significant growth,
set to increase from $744.4 billion in 2022 to $821.19 billion in 2023, with a CAGR of
10.3%. This trend is expected to persist, with the market projected to reach $1,222.32
billion in 2027, supported by a CAGR of 10.5%. The proliferation of internet and
smartphone usage is driving this growth by facilitating fashion e-commerce expansion.
Online platforms for textile-based goods are gaining traction, boosted by a rising demand
for apparel across various age groups.
In 2022, global market demand dynamics, particularly in the United States and Europe,
presented a complex scenario with both encouraging and challenging trends. Consumer
deferment of nonessential purchases led to demand contraction. Factors like higher-
than-target inflation, Russian- Ukraine conflicts, European energy crisis, and Chinas
reopening influenced this cautious approach. As a result, global brands and retailers
adopted careful strategies, preferring smaller purchases and procurement closer to
secondary demand triggers.
Outlook
The initial two quarters of the period also witnessed substantial inventory build-up
within supply chains, primarily driven by key buyers who advanced their purchasing to
preempt potential shipping delays. Towards the close of the fiscal year, there were signs
of improvement, with export markets showing a slower-than-expected slowdown.
Furthermore, raw material prices have undergone a substantial correction from their
peak levels. The macroeconomic environment in the US and European markets began to display
some positive shifts in outlook, though an air of caution still prevailed. While the
global textile market is expected to experience an improvement starting from the second
half of 2023, it is likely to be marginal.
The Indian textile and apparel industry
The textile and apparel sector in India holds a significant position in the countrys
economy, contributing 2.3% to the GDP and serving as the second-largest employer. With a
strong influence, it makes up 14.0% of manufacturing output and 10.5% of export earnings.
Globally, India ranks as the third-largest exporter of textiles and apparel, with a
combined share of 11.4% of exports in 202021. The sector employs around 35 million people,
showcasing its role as a livelihood provider. Indias textile and apparel industry covers
the entire value chain from fiber to clothing, encompassing diverse segments including
handloom, handicrafts, and modern textile production. The organized sector employs
capitalintensive technologies for large- scale production. Indias apparel market ranks
fourth globally, and its projected to reach around 38.9 billion pieces by 2027.
The Indian textile and apparel market was valued at $172.3 billion in 2022, benefiting
from increased demand for premium-quality clothing and footwear. The governments support
through production- linked incentive (PLI) schemes and access to various raw materials
like cotton, wool, and silk are driving growth. Sustainability practices, such as adopting
vegan materials, are gaining traction. E-commerce platforms are expanding distribution
channels for premium fabrics and apparel, and the growing awareness of the environmental
impact of fast fashion is driving demand for more durable products. The Indian textile and
apparel market is projected to reach $387.3 billion by 2028, with an impressive CAGR of
14.6% from 2023 to 2028, according to the IMARC Groups projections.
Global Yarn, Fiber, and Thread market
The global yarn, fiber, and thread market is poised for growth, projected to increase
from $103.0 billion in 2022 to $110.2 billion in 2023. This growth is driven by factors
like emerging markets, urbanization, demand for man-made fibers, government initiatives,
rising disposable incomes, and technological advancements. However, the Russia-Ukraine
conflict has disrupted global economic recovery from COVID-19, causing economicsanctions,
commodityprice spikes, and supply chain disruptions, leading to inflationary pressures
worldwide. Despite challenges, the market is anticipated to reach $138.9 billion by 2027,
with a 6.0% CAGR. Population growth, urbanization, e-commerce, sportswear demand,
organized retail expansion, and social media influence will fuel this growth. However,
constraints on free trade, competition, and cotton shortages could hinder progress.
Asia Pacific dominates the market, with a 71.5% share in 2020, while North America and
other regions follow. South America and the Middle East are expected to experience the
fastest growth, with impressive CAGRs of 20.7% and 18.4% respectively. Africa and Asia-
Pacific also show promising growth with CAGRs of 14.2% and 13.5%. India plays a
significant role in the global cotton yarn market, holding the second-largest yarn
spinning capacity. The countrys production of over 4,700 million kilograms of spun yarn
includes more than 3,400 million kilograms of cotton yarn, constituting 73% of total yarn
production.
Indian yarn market
Indias yarn industry is highly versatile and efficient, catering to a wide range of
applications. The country produces various types of yarn, including combed, non-spun,
carded, compact, fancy, and melange yarn. With more than 1,943 yarn spinning mills,
Indias production covers a broad spectrum, offering yarn counts from fine 200 to coarse
2, depending on the material.
Indian yarn spinners have embraced advanced technologies such as compact spinning and
integrated tools like splicers, auto-coners, and electric cleaners. This strategic
adoption gives them a competitive edge, making Indian yarn popular in foreign markets.
China is a primary importer of Indian yarn. Yarn pricing depends on key raw material costs
like mono-ethylene glycol, fibers, and purified terephthalic acid, which significantly
influence the final yarn price.
The Indian yarn industry has significant untapped potential. With proactive government
support, including reduced import duties, central excise duty cuts, tax adjustments, and
strategic investments, the industry is poised to lead the global market. This support
positions India to become a major player in the international yarn market.
Man Made Fiber (MMF) Overview and Outlook
The global textile sector is undergoing a significant transformation driven by changing
fashion trends and limitations in natural fiber growth. As of 2022, the market for ManMade
Fibers (MMFs) was valued at approximately $63.93 billion, with projections indicating
potential growth to around $93.03 billion by 2030. MMFs are categorized as synthetic and
cellulosic fibers. Synthetic fibers are derived from crude oil, while cellulosic fibers
originate from wood pulp. Currently, MMFs account for 75% of global fiber consumption,
with a strong focus on polyester, a leading and expanding synthetic fiber. Nylon is also
emerging as a contender due to its strength and flexibility.
The industry relies on MMFs due to their adaptability and performance characteristics.
This expansion is driven by demand across sectors like automotive, construction, apparel,
industry, and medicine. Technological advancements enhance MMFs durability and
versatility, making them applicable in various industries. Their usage is rising in
textiles and apparel due to features like wrinkle resistance, colorfastness, durability,
and easy maintenance.
India Man Made Fiber Industry:
The Man-Made Fiber (MMF) sector in India is experiencing rapid growth, positioning
itself as the second- largest global producer of cellulose fiber/yarn and synthetic fiber.
Polyester dominates with around 77.5%, while viscose makes up about 16.5%. This sector
contributes 17% to Indias textile exports, making India the sixth-largest MMF textiles
exporter. The rise in MMF demand is driven by nonwovens, technical textiles, health
consciousness, brand awareness, and fashion trends, especially in technical and medical
textiles.
Government policies like the Production Linked Incentive (PLI) and the Remission of
Duties and Taxes on Exported Products (RoDTEP) schemes are driving forces. 100% foreign
direct investment (FDI) and Free Trade Agreements (FTAs) contribute to sustained growth. A
significant sustainability trend is using recycled bottles in polyester production,
addressing environmental concerns and meeting eco-friendly demand. With government
support, strategic initiatives, and sustainability practices, Indias MMF market is
promising. Multifaceted growth drivers, responsiveness to trends, and sustainable
innovations position the sector for positive and enduring growth.
Government Initiatives:
The Indian governments commitment to promoting and bolstering the growth of the
textile industry in the country. The initiatives cover a wide range of areas, from trade
agreements and foreign direct investment to incentives for manufacturing and exporting
specific textile products, as well as schemes aimed at improving technical textiles,
infrastructure, and energy efficiency. Heres a summary of the key points:
Production-Linked Incentive (PLI) Program: The government is providing incentives for
the production and export of specific textile products made from synthetic fibers, with a
dedicated fund of INR 10,683 crore (USD 1.44 billion) to enhance competitiveness and
scale.
Rebate of State and Central Taxes and Levies (RoSCTL): The scheme offers rebates on
Central and State taxes for exporters of garments and made-up products, aiming to enhance
the international competitiveness of the textile sector. It has been extended until March
31, 2024. Free Trade Agreements: India is actively engaged in bilateral trade negotiations
with partner countries to improve export capacity, with tariff-free access to Japan and
agreements with Australia. Negotiations for FTAs are ongoing with the EU, UK, Canada,
Israel, and others.
Foreign Direct Investment (FDI) Policy: The liberalized FDI policy allows up to 100%
FDI through the automatic route, resulting in significant investments of USD 1522.23
million between 2017 and 2022.
Mega Integrated Textile Region and Apparel (MITRA) Parks Scheme: The government is
establishing Pradhan Mantri
MITRA Parks to enhance global competitiveness, attract investments, and generate
employment.
Scheme for Integrated Textiles Parks (SITP): This initiative is designed to facilitate
the creation of state-of-the-art infrastructure facilities for the establishment of
textile units.
National Technical Textiles Mission: A mission for four years (FY 2021 to FY 2024)
focuses on integrating technical textiles across various sectors with an allocation of INR
14.8 billion.
Textiles Technology Development Scheme (TTDS): Planned to replace TUFS, this scheme
aims to develop comprehensive manufacturing capabilities and advanced technology adoption
with an investment of INR 16,635 crore over five years.
SAATHI Initiative: A collaborative effort with the Ministry of Power to provide
energy-efficient equipment to power loom units, supported by a fund of INR 1,000 crore for
technical textiles research and development.
Budget Allocation: The FY 202324 budget reflects a substantial increase in support for
the textile industry, totaling INR 4,389.2 crore (USD 536.4 million), demonstrating a
22.6% rise from the previous years budget.
Core Competencies and Growth Strategies
Harnessing Robust Manufacturing Facilities and Advanced Capabilities:
Sarla operates advanced manufacturing facilities in Silvassa, Vapi, and Dadra, with a
legacy spanning three decades. Their expertise in manufacturing various man-made yarns is
evident in their diverse product portfolio. This includes polyester and nylon textured
yarns, twisted yarns, dyed yarns, covered yarns, high-tenacity yarns, and specialized
sewing threads for specific applications. Notably, Sarla is unique as one of the few
companies producing pure nylon and the sole Indian manufacturer of Nylon 66. In the
polyester market largely dominated by major corporations, Sarla stands out as a distinct
organized entity with a robust customer base and vertically integrated nylon
manufacturing. They focus on customization, processing orders from hundreds to thousands
of kilograms. The company has invested around INR 100 crore over five years in modernizing
equipment, resulting in a significant portion being new and supporting infrastructure
improvements.
Implementing SAP has enhanced overall efficiency, offering meaningful insights from
business data in a user- friendly format. Detailed information about machine breakdowns,
spare parts, and replacements is captured, allowing for machine- level profitability
evaluation. This strategic approach has led to minimized yarn breakage, increased machine
speed, consistent quality, higher productivity, and improved uptime. Sarlas prudent
expansion strategy aligns with substantial order book visibility, ensuring operational
efficiency and strategic growth. Sarlas commitment to innovation, efficiency, and
strategic growth underscores its position as a prominent player in the textile industry.
Driving Business Transformation by Expanding Share of Value- Added Products
Sarlas journey began in the commoditized yarn manufacturing sector, primarily serving
the clothing industry. However, the company strategically shifted its business focus over
time towards producing value-added products. This transformation involves emphasizing high
tenacity nylon and polyester yarns and other specialty yarns that cater to specific
industries such as sportswear, military gear, and sewing threads. Around 50% of the
product portfolio now consists of these value-added offerings, reflecting the companys
commitment to meeting evolving industry needs with high- performance and durable yarn
solutions.
In the current fiscal year, the company successfully launched operations for the
production ofhigh tenacity nylon (6 and 66) flat and twisted yarns. This strategic move is
expected to shift revenue composition towards value-added products and enhance overall
profit margins. While initial operational utilization is projected at -50% for FY2024, the
full impact is anticipated in FY2025. Increased capacities for nylon 66 and nylon 6
underscore the commitment to meeting growing demand for these products.
Currently, nylon yarn accounts for about 42% of the companys production volume.
Projections indicate a potential increase to around 60% within a couple of years, leading
to improved efficiency. Leveraging the companys strong brand reputation, Sarla
anticipates a swift transition to full capacity utilization, contributing to increased
sales volumes, higher realizations, and improved margins. Sarlas strategic shift towards
value-added products positions it for growth, profitability, and continued success in
catering to diverse industry demands.
Emergence of India as a New Market Fuels Geographical Diversification
A noticeable shift in sales trends has been observed in the Indian market, indicating
the emergence of a new consumer segment characterized by an inclination towards enhanced
lifestyles and a willingness to invest in higher quality products. This shift has led to
substantial results, with the company achieving a significant 48.3% revenue contribution
from the Indian market in the past fiscal year. As the revenue base expands, a projection
of 55%-60% of total revenues originating from India over the next two years strengthens
the outlook for sustained growth in the Indian market.
Indias relatively young demographic, with a median age of around 28, signifies a long
income runway for its economically active population. This demographic advantage is
driving increased demand for premium clothing, athleisure wear, and higher-frequency
wardrobe updates, creating a favorable landscape for consumer products. This consumer
behavior shift is also evident in Indias innerwear sector, with brands recalibrating
towards the premium segment. Sarlas role as a leading manufacturer of elastic, socks, and
sewing threads is recognized as it provides materials for innerwear elastic applications.
The emergence of this new Indian consumer profile is marked by economic autonomy and
reduced sensitivity to pricing fluctuations. This has accelerated growth in premium and
upper mid-priced market segments, aligning domestic and international price realizations.
In response, Sarla plans to direct value-added yarns to the Indian market, aligned with
evolving consumer preferences. As part of its growth strategy, Sarla intends to add 20
sales personnel for its Indian operations within two years to bolster market
representation and penetrate pivotal markets. This proactive approach is expected to
contribute to an annual sales growth of20% in the Indian market and a 10% share of the
overall sales landscape, highlighting the companys commitment to harnessing Indias
consumer potential.
Company Products Find New Horizons Across Industries
The increasing demand for manmade fibers over natural fibers can be attributed to their
versatility, strength, durability, consistency, availability, and ease of care. Manmade
fibers, also known as synthetic fibers, offer unique properties and benefits that make
them popular in various industries and applications.
They can be engineered with specific properties like moisture management, insulation,
and antimicrobial characteristics, making them suitable for specialized uses such as
sportswear, medical textiles, and outdoor gear. Both nylon and polyester have become
essential materials for creating a wide range of products due to their attributes like
stretchability and strength. The integration of specialized treatments and finishes
further enhances their qualities.
Nylon is emerging as a compelling choice due to its superior durability, enhanced
quality, and appealing attributes. With an 8% moisture absorption capacity compared to
polyesters 0.4%, nylon offers advantages in moisture management. It also features
increased crimp rigidity, making maintenance easier and contributing to its growing appeal
as an alternative to polyester. Its benefits extend to color retention, resistance to
ultraviolet light, endurance through commercial laundering, softness, tactile quality, and
shine, making it suitable for various applications including baby wear. High tenacity
polyester yarn contributes to fabric longevity, with applications in automotive seat
belts, airbags, footwear, and more. Polyester stretch yarn is used in sportswear and
running socks due to its softness, warmth, moisture- wicking properties, quick drying,
color retention, affordability, and durability. Sarla is capitalizing on the growth of the
medical industry by leveraging the properties of nylon in medical textiles, implants,
catheters, devices, and orthopedics, contributing to innovative medical solutions and
enhanced patient care.
Despite the potential, the per capita annual consumption of synthetic fibers in India
is lower than the global average, and nylon holds a small market share. However, the
company initiated domestic marketing ofnylon in response to the pandemic, and the positive
reception suggests potential for domestic growth. Factors like rising disposable incomes,
improved living standards, and a growing millennial population are expected to drive
demand for man-made yarns like nylon in India, leading to an increase in the companys
market share and demand.
Global Export Business Set for Sustained Growth as Markets Expand and Trade Flourishes
Despite facing a challenging business environment marked by geopolitical tensions, high
energy costs, inflation, negative consumer sentiment, and inventory build-up in the
textile industry, our company has demonstrated resilience and sustainable performance in
the international market. Even in such complex conditions, our export contributions have
remained strong, accounting for a significant portion of our total sales. Our companys
commitment to expanding export operations is evident through our efforts to venture into
new markets. With a reputation as a reliable supplier of yarns to esteemed global brands,
either directly or through intermediaries, we have maintained a solid revenue stream from
longstanding clients. Our approach involves both direct promotion of our yarns and
collaboration with trade intermediaries.
Our brand, Sarla, is respected for its reliability, consistent outcomes, and effective
pricing strategies aligned with the value our products offer. International markets have
provided better realizations for our products, and our presence extends to customers in 60
countries, with no single country constituting a dominant portion of our sales. This
distribution highlights our companys global presence and diverse reach. Participation in
international events and exhibitions plays a pivotal role in strengthening our
international presence and enhancing brand visibility. These platforms provide
opportunities to showcase our product innovation and capabilities, contributing to a
stronger brand recognition and a wider reach in the global marketplace. Our product, nylon
66, holds a unique status as a high-value niche product designated exclusively for export.
This distinction underlines its premium positioning in the market and contributes to
higher realizations. Despite the challenges, our companys strategic efforts and
commitment to quality have enabled us to maintain a strong international business
performance and expand our presence across diverse markets.
Cultivating Enduring Customer Relationships through a ClientCentric Approach
Our organization plays a pivotal role in not only providing products but also assisting
our customers in expanding their market presence and integrating into their long-term
supply chain. This collaborative approach has contributed to a steady and robust demand
for our products, especially as many of our customers are making significant investments
to scale up their production capacities. One of our remarkable achievements is retaining
100% of our customer base, a testament to the strong relationships we have built over the
years. The fact that 90% of our current customer base consistently places repeat orders
highlights the value and satisfaction they derive from our products. This high level of
customer loyalty has prompted our management to make the strategic decision to increase
production capacity to meet growing demand.
Our success in maintaining such strong customer relationships is founded on the trust
and loyalty our clients place in our brand. The slogan "Once a Sarla customer, always
a Sarla customer" reflects the enduring partnerships we have established. Our
technology-intensive products seamlessly integrate with our customers operations,
solidifying our position as a reliable supplier. This mutual reliance ensures that our
products continue to meet evolving customer needs, driving our ongoing success. Our
commitment to technical marketing and proactive engagement sets us apart. By focusing on
technical discussions rather than solely commercial ones, we emphasize the value our
products bring to our customers processes. Regular dialogues centered around product
performance, enhancements, and strategies for mutual growth showcase our dedication to
strengthening our customers businesses. This approach goes beyond a mere focus on
pricing; it demonstrates our dedication to being a true partner in our customers success.
By prioritizing our customers enterprises and adding substantial value to their
operations, we have not only earned their trust but also established a reputation as a
reliable and valuable collaborator in their growth journey.
Maintaining Financial Health with Continuous Focus on Maintaining Fiscal Well-being
Our organizations financial management approach in the capital-intensive textile
industry is indeed remarkable. By maintaining a surplus of net cash and achieving a 20%
operating margin, we have positioned ourselves as industry leaders in terms of financial
performance. Our strategic focus on managing debt and equity has ensured incremental
growth while safeguarding financial stability. Our recent transition to eliminate debt,
bolster net worth, and transform our financial landscape is particularly noteworthy. The
reduction in our debt-equity ratio from 0.84 to 0.27 over a short period showcases our
commitment to financial prudence and risk mitigation. This achievement is especially
impressive considering the capital-intensive nature of the textile manufacturing sector.
This transition aligns well with our unique positioning as ‘Untextile and marks a
significant milestone in our organizations evolution. By separating debt and equity for
capital expenditure funding, we have not only strengthened our competitive edge but also
established a low-risk foundation for scalable growth. This strategic shift positions us
well to navigate market cycles and enhance shareholder value. Our approach to working
capital management is equally commendable. The fact that 60% of the working capital
sanctioned by banks remained untapped in FY 2022-23 reflects our cautious and
resource-optimized approach. This commitment to maintaining liquidity and optimizing
resources further contributes to our financial resilience. Our journey from debt reduction
to enhanced net worth is a testament to our dedication to sustainable growth and enduring
shareholder value. By focusing on financial excellence and prudently managing our
financial resources, we have showcased our ability to navigate challenges and position
ourselves for continued success in the textile industry.
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