Comprehensive Pack

Readymade Garments

1
• Industry Overview :3

• Industry Characteristics :8

• Business Models : 15

• Distribution Channels : 22

• Domestic Market : 30

• Exports : 44

• Growth Outlook : 75
Industry Overview
Domestic RMG sales were ~2.9 times the exports in 2017
• The Indian readymade garments (RMG) industry can be classified into domestic and
exports segments.
• The total size of the domestic RMG market was estimated to be Rs. 3417 billion in
2017, while the turnover of the industry from garment exports stood at Rs. 1185 billion
during the year.
• The corresponding figures for 2016 were Rs. 3201 billion for the domestic market and
Rs.1173 billion for the exports market.
RMG market size - 2017

Source: Ministry of Textiles, Crisil Research

RMG market size - 2017
• RMG exports increased in 2017 (5.9% in dollar terms), largely due to a increase in
exports to non-traditional markets.
• Exports to the United States (US) grew by ~1% while fell marginally to the European
Union (EU) flat.
• However, in rupee terms, exports increased moderately by 4% due to appreciation in
rupee during the year (~1.5%). Domestic market revenue grew 8.4% in 2017 (in rupee
terms) supported by rally in consumer spends post demonetisation, whose debilitating
effects extended into the early months of 2017.
Growth of RMG industry in past five years

Source: Ministry of Textiles, Crisil Research

Industry Characteristics
Industry is highly fragmented
• Garmenting, which is the last link in the textiles value chain, is the most fragmented
segment in the value chain.
• This is partly because manufacturing of garments was reserved for the small-scale
sector till December 2000, whereas the knitwear segment was reserved for the small-
scale sector up to March 2005.
• Moreover, exports to the US and the EU were governed by quota restrictions till
January 2005.
• Post the removal of export quota restrictions, the number of export houses has increased
exponentially.
Low capital intensity in the industry has lead to high fragmentation
• Readymade garments (RMG) include shirts, trousers, T-shirts and jeans. RMG also
comprises ethnic wear such as kurtas, salwarkameez and sarees.
• The term 'garment' is used interchangeably with 'apparel' in this report.
Textiles value chain
• The textiles value chain, in which processed fabrics are converted into ready-to-wear
apparel, begins with 'spinning', in which fibre is converted into yarn.
• The yarn spun through the process of spinning is called spun yarn. Yarn that does not
require spinning is called filament yarn.
• The yarn is then converted into fabric through 'weaving' or 'knitting'.
• The fabric undergoes various processes (commonly clubbed under the term
'processing') like scouring, bleaching, dyeing, washing, finishing, etc.
• The fabric produced after this stage is known as processed fabric and it is suitable for
manufacturing RMG.
Textiles value chain
• The final stage of 'garmenting' involves a series of sub-stages such as laying,
measuring, cutting, stitching, etc before the processed fabric is converted into a
readymade garment.
• The garments are finally marketed through a range of distribution channels in the
domestic market or are exported.
 Reservation for small scale industries: Until December 31,
2000, the manufacturing of woven garments was reserved for
the small-scale

• Until December 31, 2000, the manufacturing of woven garments was reserved for the
small-scale sector, while manufacturing of knitted garments was reserved for the small-
scale sector until 2004-05.
• This restricted growth of the industry.
• Manufacturing units could not purchase modern machinery on account of the Rs. 30
million investment ceiling on plant and machinery, thereby resulting in fragmentation,
and hence poor economies of scale.
• The government de-reserved the woven garment segment on January 1, 2001.
• On the other hand, the government recognised the need for attracting large investments
and the need to enhance the competitiveness of the Indian knitting segment by exploring
economies of scale.
• Finally, in 2004-05, the knitting segment was de-reserved.
Reservation for small scale industries: Until December 31, 2000, the
manufacturing of woven garments was reserved for the small-scale
• Quota restrictions: Exports to the US and the EU were governed by quota restrictions
till the beginning of 2005.
• Within this overall restriction, there was a specific cap that applied to each company.
• Since no company could increase its exports significantly due to the cap, there was no
incentive for expansion.
Business Models
Several business models exist in Indian RMG industry
• Players in the Indian RMG industry adopt a number of business models.
• They can be differentiated based on the strategy used to manufacture or procure
(purchase or outsource) apparel, and the strategy used to distribute it.
• There is intense competition in the industry among both domestic as well as export
players due to high fragmentation.
• However, competition is not severe in the designer wear and branded garment segments
on account of brand positioning and the niche nature of the market.
• The Indian readymade garments (RMG) industry is highly fragmented.
Several business models exist in Indian RMG industry
• There is intense competition among players, both in the domestic as well as international
(export) markets.
• However, competition is not very intense in the designer wear and branded garment
segments due to brand positioning and the niche nature of the market.
• Thus, the garment industry can be classified into mass market and niche market.
• Competition in the exports market is more intense than in the domestic market.
• Indian exporters face competition from low-cost producing countries such as China,
Pakistan, Vietnam, Bangladesh, etc in the mass market.
• In the niche market, India faces competition from Germany, Italy, France and Turkey,
among other countries.
Several business models exist in Indian RMG industry
• Thus, players with high volumes get the benefit of economies of scale and can sustain
competition in the mass market, while players in the niche market need high-end fashion
designs to sustain.
Business models in Indian RMG industry
• Indian RMG players employ various business models.
• The two key differentiating factors in these models are the strategy used to manufacture
or procure (purchase or outsource) apparel, and the strategy used to distribute it.\
• Business models can be analysed by dividing these into: manufacturing, branding and
distribution stage.
• Companies often operate across segments, depending on their strategy and business
models.
RMG industry - Key business models
Key business models employed by RMG players
Distribution Channels
Distribution channels important for determining profitability of RMG players
• Realisations, costs and therefore net margins of players depend on the distribution channel
selected for marketing apparel.
• The main distribution channels through which players sell apparel in the domestic market
are own stores, retailers, shopping malls or multi-brand outlets, and distributors.
Difference in distribution method affect margins
• A distribution channel is a network of outlets through which a product is sold.
• A company can sell its products through one or more distribution channels.
• The selection of a distribution channel or channels is a key management strategy which
determines a company's costs and revenues
Distribution channel
Own stores
• Own stores are a direct medium of selling apparel to consumers, wherein garments are
sold from owned (or rented or leased) retail shops.
• The main advantage of selling through this channel is higher realisations on the garments
sold (since the middle agency for selling apparel to end-users can be bypassed).
• The other advantage is getting end-user feedback and insights on their preferences, which
can be useful, especially in the case of designer or fashion wear.
• Companies such as Provogue, Raymonds, Kewal Kiran Clothing, Madura Garments
(subsidiary of Aditya Birla Nuvo), Arvind Brands (subsidiary of Arvind Mills), Gini and
Jony, and Zodiac Clothing sell apparel through this channel, apart from employing
various other channels.
Retailers
• In this distribution channel, the ready-made garment (RMG) player sells garments to
retailers, who, in turn, sell these through their stores.
• Thus, the retailer acts as the middleman between the RMG player and the end-user.
• Accordingly, realisations from this channel are lower than those earned by selling RMG
through own stores, as the retailer provides for his cost and profit while purchasing
apparel.
Shopping malls or MBOs
• This distribution channel is gaining momentum in India. In this channel, apparel is sold
by a RMG player to multi-brand outlets (MBOs) that sell apparel of several brands
through large retail spaces, located in prime locations of cities and towns.
• Usually, the MBOs are shopping mall chains with presence in more than one location,
e.g., Shoppers Stop, Pantaloon Retail, Westside (Trent), Globus, Lifestyle and Pyramid.
• Realisations from this channel are lower than those earned by selling to retailers, since
MBOs keep higher margins than retailers while purchasing garments, their costs being
higher.
Distributors
• In this channel, the RMG player sells garments to distributors, who, in turn, sell it either
to retailers or MBOs.
• The retailers or MBOs sell the apparel to end-users. Since two middle agencies figure
between the seller and end-users, realisations from this channel are lower than those
earned by selling through retailers, as in this case, both the distributor and retailer or
MBO provide for their costs and profits while purchasing an apparel.
Exports
• Garments are exported either directly to companies or through overseas buying offices.
• In the case of overseas buying offices, export orders are forwarded to domestic textile
manufacturing units. These units manage the manufacturing part and strictly adhere to
buyers' requirements.
 Domestic Market

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 Domestic Men’s wear
segment

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Men’s wear segment
Casual and active wear are high-growth segments
• Men’s wear, the largest segment in the domestic apparel market (~43%), is expected to
grow at ~8-9% CAGR over next five years to Rs ~2,414 billion (~$35 billion) by 2023.
• Shirts are estimated to be the largest category at 30%, owing to the availability of a
variety of sizes and continuing preference for RMGs.

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Men’s wear segment
Break-up of men's wear market (2018 estimates)

Source: Crisil Research

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Men’s wear segment
Break-up of men's wear market (2018 estimates)
• While the shirts segment to dominate the market over next five years, its share is
expected to contract to ~28% by 2023.
• During the period, share of trousers is projected to increase to ~26% from ~24% in 2018,
because of rising preference for readymade trousers over tailored ones.
• The availability of a wide range of brands, designs, colours, sizes, fittings, and fabrics in
the readymade trousers segment will drive the shift.
• However, high-growth categories in men’s wear continue to be casual wear (denim, T-
shirts and casual shirts).
• Acceptance of smart casuals among corporates, global fashion awareness among the
youth, and a favourable young demographic in the country have led to high growth in the
casual-wear
34 segment.
 Break-up of men's wear market
• Meanwhile, the recently evolved high-growth category in the men’s segment is active
wear apparel (growing 13-15% ).
• Though it comprises a negligible share in overall men’s apparel market currently, it has
high growth potential thanks to mounting health awareness and increasing outdoor fitness
activities.
• Affordability and increasing acceptance in Tier-1 and 2 cities also promise good growth
potential for the active wear segment over next five years.

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 Domestic Women’s
Wear Segment

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Women’s wear segment
Western outfits picking up pace though saris still rule
• Women's wear comprised ~39.9% of the RMG market in 2018.
• Within the space, there is an increasing shift to RMG from tailor-made apparel in the case
of traditional dresses, and to western wear from traditional dresses.
• However, traditional wear continues to dominate the segment, with saris comprising
~33% share in 2018 and salwar kameezes, 29%, according to our market interactions.

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Estimated share of apparels in women's wear (2018)

Source: Crisil Research

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Estimated share of apparels in women's wear (2018)
• Over next five years, demand for western outfits is forecast to grow faster than
traditional outfits, because of increase in number of working women, urbanisation, and
penetration of organised retail in rural and semi-urban cities.
• Accordingly, share of saris is expected to reduce to 26% by 2023.
• Demand for western wear (shirts, trousers, jeans and T-shirts) is expected to grow faster,
but its share will remain smaller than traditional wear.

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 Domestic Kid’s Wear
Segment

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Kid’s wear segment
Uniforms dominate, but demand for western wear increasing
• The kid’s wear segment is highly lucrative (30% of India's population is below 15 years).
• It is expected to grow at ~10-11% CAGR over next five years to ~Rs 1,087 billion
(~$15.98 billion) by 2023.
• Within the segment, the boys' category dominates with a ~53% share.
• However, girls' wear is expected to outperform boys' wear, rising at 12-13% CAGR over
next five years.
• Increase in government support and awareness of girl education and girl child protection
will support the girl’s apparel market.
• In the kid's segment, denims and T-shirts are high-growth categories. The segment is
expected to grow at 13-15% CAGR.
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Kid’s wear segment
Uniforms dominate, but demand for western wear increasing
• However, category leaders, uniforms, are expected to retain their dominant market share
of ~32% over next five years because of lower school dropouts, multiple uniforms in
upscale schools (some upscale schools have different uniforms for different seasons/days
of the week) and the fact that uniforms are need-based rather than aspirational buys.

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Share in kid's wear (2018 estimated)

Source: Crisil Research

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Exports - US
India's exports to US to grow at a subdued rate as US economy slows down
• In 2018, estimate exports grew at 3.8-4%, in line with the increase in US import demand.
• The rupee depreciated ~14% in 2018 (January-November); this helped increase India’s
competitiveness.
• Improved demand and competitiveness has aided readymade garment (RMG) exports to
the US.
• In 2018, unemployment in the US has been at the lowest we've seen in decades.
• Take-home wages also saw a growth.
• All of this is reflected in consumers' buying plans. India continued to dominate in a some
major categories such as women and girls' cotton-knit shirts and men and boys' cotton-
knit shirts in the first half of 2018.
India's exports to US to grow at a subdued rate as US economy slows down
• Streamlining of operations post the implementation of the goods and services tax (GST)
and getting timely input tax credit reduced working capital requirement, thus improving
exports to the US.
• In 2019, India’s apparel exports to the US are expected to increase at a subdued 3.1%
vis-a-vis 3.8% seen in 2018, as US economy grows at a slower pace due to trade policy
related uncertainties.
Growth of US apparel imports versus India's exports (value in dollar terms)

Source: Ministry of Textiles, Crisil Research

Growth of US apparel imports versus India's exports (in volume)

Source: Ministry of Textiles, Crisil Research

Withdrawal of US from TPP to aid Indian exporters
• Imports into the US are projected to clock a compound annual growth rate (CAGR) of
1.8% over 2018-23, compared to ~1% during the previous five-year period. India’s
exports during this period are expected to rise 3-3.3%.
• A gradual shift to MMF-based garments and withdrawal of the US from the Trans Pacific
Partnership (TPP) will help Indian exporters in the long run.
• However, the upside would be limited on account of the higher competitiveness and
favourable product mix of China and Vietnam.
• Moreover, the World Trade Organisation's dispute with the US, related to the
Merchandise Export Incentive Scheme (MEIS) incentive will be a key monitorable.
India's exports to the US (value)

Source: Ministry of Textiles, Crisil Research

India's exports to the US (value)
• Vietnam's exports to the US are expected to log a CAGR of ~7% over the next five
years.
• Even without the TPP coming into force, Vietnam is still competitive in the US market
due to its MMF-dominated product mix, low labour cost, and investments made in the
textile space by Chinese companies.
• Largely considered a shadow to Chinese garment units, the country is still in a
competitive position to capture the orders lost by Chinese firms, especially in the MMF
space.
• Due to low labour cost, realisations of garments exported by Bangladesh to remain
competitive.
India's exports to the US (value)
• Bangladesh's exports are projected to see¿ a CAGR of 6-6.4% from 2018 to 2023,
outpacing US imports.
• Meanwhile, China's exports are projected to grow at a slower pace of ~0.1% in the US
market in 2018-23 due to rising labour cost.
• While China is expected to lose market share, the decline would be more gradual
compared with the fall in growth rate.
Market share of various countries in the US RMG import basket

Source: Ministry of Textiles, Crisil Research

Exports - EU
RMG imports by the EU to reduce in 2019 owing to lower expected GDP
growth
• In 2019, exports to the European Union (EU) to remain subdued owing to limited recovery
of the EU.
• The International Monetary Fund (IMF), in its latest update, decreased the GDP forecast
for EU nations by 40 bps to 1.9% in 2019, which is expected to impact clothing demand.
• In 2018, readymade garment (RMG) imports by the EU are projected to increase 4.9% in
volume terms, owing to rebound of the euro and the sterling in the first half of the year,
resulting in lower unit prices for buyers in local currency terms.
• During January- August 2018 exports to the EU increased 0.77% in volume terms,
declined 2.5% in value terms (euro) and increased 2.8% in dollar terms.
RMG imports by the EU to reduce in 2019 owing to lower expected GDP
growth
• The development of Spanish apparel chains such as Zara and Mango led to products being
partly re-shipped to stores in other European markets, helping EU imports in 2018.
• Volume growth is coming from countries such as Cambodia and Myanmar seeing huge
growth, albeit on a low base.
• Imports from Cambodia surged 12% in volume terms in the first half of 2018, whereas
imports from Myanmar rose ~65% during the same period from a much lower base.
• Myanmar's share in total EU's imports is low at 2.6%, but is expected to rise at a higher
pace over the next two to three years.
Indian exporters gradually losing market share
• Indian exports continued to suffer in 2018 because of increasing competition from
Bangladesh.
• India has not been able to take advantage of the sharp decline in China's share, eventually
benefiting Bangladesh and Cambodia.
• The duty-free status offered to both countries has favoured their export sales, whereas
India only benefits from a reduced import tariff under the EU's Generalised Scheme of
Preferences (GSP) regime.
• GSP: The GSP allows vulnerable developing countries to pay fewer or no duties on exports
to the EU, giving them vital access to the EU market and contributing to their growth.
• High raw material prices as well as operational bottlenecks caused by GST also impacted
exports.
Indian exporters gradually losing market share
• India's knit clothing exports to the EU declined 1.3% in euro terms, while overall imports
to the EU increased 4% in the first half of 2018.
• In 2019, overall export growth to remain flat (in value and volume terms) owing to weak
economic scenario in the EU; the economy is expected to grow 1.9% in 2019 versus 2.3%
in 2018.
• Expected value growth in 2019 is also a function of lower base in 2018. However, with
duty-free access enjoyed by Bangladesh to the EU, Indian exporters to continue to lose
market share in 2019 as well.
Growth of EU apparel imports versus India's exports (in value - euro)

Source: Ministry of Textiles, Crisil Research

Growth of EU apparel imports versus India's exports (in volume)

Source: Ministry of Textiles, Crisil Research

India to grow at a steady pace in the long term
• Imports to the EU are expected to reduce 2.6-3% between 2018 and 2023, lower than
4.3% growth registered in the previous five years.
• As major EU retailers continue to look for low-cost destinations, and with production
efficiency kicking in thanks to automation, long-term growth to be volume-driven.
• The EU economy struggles to revive growth due to high public debt, lack of structural
reforms and higher oil prices impacting EU growth prospects.
• Meanwhile, India’s exports to the EU are expected to grow at a slightly higher pace of
2% CAGR over 2018-23 vis-a-vis 1.4% CAGR during 2013-18, owing to the EU's
decision to possibly downgrade Cambodia because of its poor human rights records.
India to grow at a steady pace in the long term
• Myanmar could also lose its duty-free status for the same reason, whereas Bangladesh is
confronted with a 51% increase in minimum wage as of December 2017.
• Lack of free trade agreements (FTAs) continue to be a major impediment for Indian
exporters.
• However, a possible FTA with the UK (post-Brexit) could help India increase its market
share in the European markets.
India's exports to the EU

Source: Ministry of Textiles, Crisil Research

India's exports to the EU
• Bangladesh's exports are expected to increase at ~11% CAGR in volume terms because of
its cost competitiveness, stemming from low cost of labour and duty-free access to the
European markets.
• Bangladesh continued to gain market share in 2018 and currently has 19.32%.
• Meanwhile, China's market share is estimated to have fallen to 31.43% in 2018 owing to
rising cost of production.
• China continued to under perform in woven and knitted categories in 2018.
• Unit prices increased 9.56% in dollar terms in China, but fell nearly 2% in Bangladesh in
the first half of 2018.
• In comparison, Vietnam's exports are expected to increase at ~11% CAGR in volume terms
between CY 2018 and 2023, benefiting from Chinese companies that have set up units in
the country and an FTA with the EU.
India's exports to the EU
• According to the agreement, the EU will, within seven years, eliminate duties on textile
apparels imported from Vietnam, providing Vietnam duty-free access to the EU.
• This will rapidly bring a decisive advantage to Vietnamese exports to the EU which had
been until now confronted with strong competition from Bangladesh or Cambodia that
enjoyed duty-free access to the EU.
• More importantly, rules of origin could favour Vietnam which will not lose its duty-free
access if using products made in other countries (such as South Korea) that have signed a
duty-free agreement with the EU.
• Foreign investors could further develop the Vietnamese textile industry, being attracted by
the duty-free deal with the EU.
Trend in market shares of key exporting countries in the EU's RMG import
basket

Source: Ministry of Textiles, Crisil Research

Exports - Challenges
Four factors that hinder India’s export competitiveness
Lack of favorable market-access policies
• Bangladesh enjoys duty-free access to the European Union (EU) under the General
System of Preferences.
• Due to this cost advantage, the share of Bangladesh's RMG products in the EU’s imports
has almost doubled from 9.4% in 2010 to 18.3% in 2017 (in euro terms).
• Similarly, China cornered a lion’s share of exports to Japan and Australia owing to free
trade pacts with them.
• Vietnam has also signed favourable trade pacts with the EU, which will further boost its
market share.
• India does not have any such advantage.
Four factors that hinder India’s export competitiveness
Skew towards cotton in product basket
• Global demand is tilting more towards manmade fibre (MMF)-based garments, whereas
India’s garment exports are skewed towards cotton.
• The share of MMF garments in exports for China and Vietnam stand at 50% each.
• Taken together, they account for 58% of MMF imports globally, with China contributing
~47%.
• High durability, better printing capability, and ability to dry quickly make MMF suitable
for outdoor clothing, propelling demand growth in these garments.
Four factors that hinder India’s export competitiveness
RMG exports basket

Source: Ministry of Textiles, Crisil Research

Labour cost in the textiles sector (2018)

Source: Ministry of Textiles, Crisil Research

Scale of operations
• China’s output per enterprise is two to three times higher than that of other Asian
countries.
• This helps it reduce cost in terms of operations such as procurement of raw materials, etc.,
making its products more price competitive.
Assessment of India’s competitiveness in RMG exports
Assessment of India’s competitiveness in RMG exports
• Thus, India’s export competitiveness is hampered by a lack of market access compared
with key competitors, the nature of its product basket, its small-scale operations, and low
labour and machinery productivity.
• Unless these issues are dealt with on a war footing, does not foresee India's RMG export
market share making much headway.
 Growth Outlook

75
RMG exports to slow down up to 2023
• The domestic RMG market is expected to improve between 2018 and 2023.
• Export growth, though, is expected to slow down as India loses competitiveness versus
Bangladesh and Vietnam.

76
Exports to decelerate over long term due to lower competitiveness
• India's readymade garment (RMG) exports, which rose 6.4% CAGR in US dollar terms
over 2012 to 2017, is forecast to grow at a slower 3.0-3.5% CAGR between 2018 and
2023 because of low competitiveness of India in terms of lower FTAs and higher labour
cost. compared with Bangladesh, China and Vietnam, and expected slower growth in
non-traditional markets, i.e., non-US and non-EU markets
• Also restricting the upside is China and Vietnam's favourable product mix dominating
MMF based apparels.
• The projected deceleration could have been sharper, but for the government's sporadic
interventions in the sector by providing export incentives.

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Exports to decelerate over long term due to lower competitiveness

Source: Ministry of Textiles, Crisil Research

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Exports to decelerate over long term due to lower competitiveness
• In the near term, i.e. 2019, expect an uptick in exports on improvement in demand in non-
traditional markets.
• The UAE, which accounts for 20% share in India's RMG exports, is also expected to see
an improvement as the country's economy grows at 3.04% during the year vis-a-vis
1.96% in 2018, and inflation abates to 2.05% from 4.17%, thus increasing consumer
spending.
• After rising 2.1% on-year in 2017, total RMG exports are estimated to have declined
10.7% on-year in 2018.
• Also, year-to-date exports are reflecting a decline because of weak exports to the UAE ,
only partially offset by growth in the US, the EU and other non-traditional markets

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Domestic sales to be healthy on improved consumer spending
• The pace of growth on the domestic front is projected at 10-12% CAGR between 2018
and 2023 versus 10% CAGR during 2013 to 2018, supported by rising income levels,
higher penetration of organised retail, and growing preference for RMG over tailor-made
garments.
• Also, realisation is expected to rise at ~5% CAGR as compared with 4-5% CAGR in the
previous corresponding period, owing to rising premiumisation of the garment segment
with increase in the number of branded players.

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Domestic market size trajectory

Source: Ministry of Textiles, Crisil Research

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Consequently, share of exports in overall RMG market to shrink
• Faster growth in exports over 2010 to 2017 helped maintain RMG exports share at ~25%.
• Another reason for the market share was depreciation in the rupee (down ~4% during the
period).
• However, over the next five years, with domestic sales surpassing exports, the domestic
market share is forecast to increase to ~83%.

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Consequently, share of exports in overall RMG market to shrink
Break-up of overall market size

Source: Ministry of Textiles, Crisil Research

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