Makers are now spending higher on research and development to move the business to the next level
Mumbai: Top textile manufacturers are filing for patents as they focus on innovations to seal their growing positions overseas and are projecting higher revenue notwithstanding the weak global markets.
In the last decade, a handful of new textile companies got a toehold overseas, particularly in the home textiles segment, and now they are spending higher on research and development (R&D) to move the business to the next level.
“Textile companies have reached a critical mass and now they need to spend on R&D as the only way they can keep their markets is to come out with newer products," said Alok Agarwal, an independent stocks analyst. “Patents help to give their innovations longevity as replicas don’t get created and the innovations give the companies high- margin products."
Welspun India Ltd, manufacturer of towels for Wimbledon, has applied for six patents in Europe, the US, Brazil, China, Korea and Australia for its creations such as natural finish fabric, ergonomics mattress pad and eco-dry towels that use little water during washing.
Two patents have already come to Welspun for Hygrocotton that has a hollow core for fluffiness, temperature control and moisture wicking from the UK and the US in the past two years. Likewise, Indo Count Industries Ltd has applied for a handful of patents mostly in the US and one patent was received last year.
“USA constitutes about one-third of the global market…here we have a level playing field and India is best placed to serve this market," said Dipali Goenka, executive director at Welspun India. “We have been able to continuously increase our market share, especially in cotton home textiles and we have a bigger market share than China or Pakistan in key products like towels and sheets."
“We have the potential to increase penetration in key categories. Europe also constitutes about one-third of the global market and India stands in a competitive position in spite of our duty disadvantage," she said.
On Thursday, shares of Welspun India stood at ₹ 847.85 apiece, up 270% from a year ago, while those of Indo Count Industries were at ₹ 941 each, up 518% from a year ago. Arvind Ltd shares stood at ₹ 273.90 apiece, up 8.8% from a year ago. The benchmark Sensex closed at 27,607.82 points, up 5% from a year ago.
Innovate or fade
Focus on innovation by the new textile companies coincided with the abolishment of the global textile quotas in 2005 as well as the government’s technology upgradation fund scheme (TUFS), which gave them a boost, say analysts.
TUFS, which ensured cheap loans for revamp by the textile companies, was designed to make them capable for exports and also create employment.
“While owners of the old stalwarts moved focus to other high- revenue businesses such as petroleum and real estate, a void was created, which was filled by the new companies that continued to invest in technology, upgradation and product innovation," said analyst Agarwal.
Budgets for R&D run high in these companies—Welspun spent 5.4% of its latest net profit on R&D, while RSWM Ltd—a supplier to some of the old established brands such as Raymond, Siyaram, Bombay Rayon, Arvind, Raymond UCO Denim— spent 12% of its latest net profit into R&D.
“We expect our revenues to grow at a CAGR (compounded annual growth rate) of 20% for the next two-three years. In towels, we expect a revenue growth of 25% CAGR in the next two-three years," said a spokesperson of Trident India. “There is now a shift in the focus of the Indian textile industry to innovation. There are towels which provide high water absorbency, some are anti-microbial which prevents odour-causing bacteria and microbes, benzoyl peroxide- proof (which prevents discoloring), fade-resistant towels which do not fade even after several washing, and aroma towels."
The home textiles market is estimated to be at $45 billion, in which India has about 11% share, according to trade data estimates, and analysts see the share doubling by 2020 based on the growth of exports.
Companies have also tapped overseas talent for their innovation. “We have a full-fledged product development and design team here in India and overseas," said K.K. Lalpuria, executive director at Indo Count. “Normally the patents are for 20 years, so we have a long tenure to use these licences."