Ripples from the recession in Europe and the US continue to rock Gujarat’s textile and chemical sectors. The clouds of job losses are looming over these labour-intensive industries.
A bad debt cycle triggered by low demand, shrinking working capital, high input costs and stretched payment cycles has forced companies to cut costs.
The textile industry prov ides direct and indirect employment to about 70 lakh people in Gujarat, while the chemical industry directly employs five lakh and provides indirect employment to seven lakh people. Industry experts say while more conventional units are seeing a crisis, innovative categories are doing well.
Due to a drop in demand from international markets coupled with a decline in domestic demand due to cautious discretionary spending because of inflation, the apparel and textiles industry has taken a hit.
This has had knock on effects right thr ough the textile value chain. Gujarat also has large clusters of dyes and intermediates manufacturers. The textile industry slowdown has lowered demand for dyes and chemicals.
Thei r expor t demand has also gone down with Europe’s textile industries downsizing production as gas prices spike and demand remains muted.
Dire cost cutting the new normal for textile units
The textile industry — spinners, wea vers and processors — is turning to dire measures to keep businesses afloat. Ahmedabadbased Ve nus Denim has cut production to 20-22 days a month.
Kumar Aggarwal, the founder of the company, said, “With demand low, revenues have been hit hard. We have no choice but to resort to production cuts. We’re currently working fiveday weeks. As we’ve hired our workers th rough a labour contractor, we are paying them on a pro rata basis in accordance with their attendance.”
Naresh Sharma, who owns a processing unit in Narol, said his factory operates for 15 days a month with one shift. “With demand muted and the high costs of raw materials, units are facing a liquidity crunch. We have been forced to reduce shifts and cut labour costs. We are curr ently operating with 60% of our actual workforce,” Sharma said.
Industry estimates show textile manufacturers are downsizing or alternating at least 30% of their workforce. At a mid-sized textile unit that would employ 100 labourers , a quarter are now out of work.
Many units are also giving factory workers leave without pay. “At least 10% of our administrative staff at the factory have been put on leave. We may not call them back depending on the situation,” a manufacturer said.
Fluctuations in cotton prices, which are now declining, is another jolt. “As prices are falling, manufacturers procure limited quantities of raw material and avoid placing future orders. The entire value chain thus suffers because of inventory piling up,” said an industry p layer. This situation is not just seen in small and medium businesses but also large-scale manufacturers.
“The cost of holding inventory has also increased. Inventory and stock levels are thus i n the lower band for manufacturers,” said Rahul Shah, co-chairman of the textile taskforce of the Gujarat Chamber of Commerce and Industry (GCCI).
“With production cut and low demand, companies have stopped entire shifts. Companies are moving towards variable cost structures. Many managerial and supervisor-level employees are given leave without pay when the plant is shut. The industry is currently operating at about 65-70% of its actual workforce,” Shah added.
Interestingly, technical textiles players in some categories are seeing their businesses grow.
Anshul Nanavaty, director of Urja Products Pvt Ltd, a technical textiles manufacturing company, said, “The entire value chain of traditional textiles is suffering but some categories in technical tex tiles have performed well. Indian exports of technical textiles in segments such as protech and meditech have registered 50% growth in exports from April to January. Segme nts such as mobiltech, agrotech and sportstech have seen exports increase by about 20%.”
Dyes pale, specialty chemicals effervescent
Ahmedabad headquartered Kiri Industries Ltd is one of the biggest dyes and intermediate chemicals manufacturers of the country and has been adversely affected b y low demand.
It has plants in Vatva in Ahmedabad and in Padra in Vadodara, but capacity utilization has been below 50% for more than six months. Manish Kiri, the company’s MD, said, “Global and domestic demand have been low and capacity utilization is much lower than average. Unfortunately, we have had to lay off 300 people in the last few months. Our worker strength is now around 2,500.”
Kiri Industries is not alone. Many dyes and intermediate manufacturers have laid off workers and executives because of the recession in the chemical industry ever since the Russia-Ukraine war began.
Shailesh Patwari, former president of the Gujarat Chamber of Commerce and Industry (GCCI) said, “The dyes and intermediates industry is witnessing its most difficult phase ever. Average capacity utilization is only about 40%. The industry had invested heavily in expansion in good years and with demand low now, the problem of oversupply can be seen. On the other hand, specialty chemicals companies are doing well.”
Specialty chemicals company Anupam Rasayan Ltd saw its revenues grow by 19% to Rs 398 c rore and its profit after tax rise by 25% to Rs 52.30 crore in the first quarter of FY24. Anand Desai, its MD and former chairman of CII Gujarat, said, “In today’s era of increasing complexity in chemical products and growing demand for specialized materials, our expertise, innovation, and strategic investments in cutting-edge technologies put specialty chemical players in a superior position compared to traditional chemical manufacturers.”
Ahmedabad alone has at least 800 dyes and intermediates manufacturers. Of these, at least 10% are operating only three or four days a week, and at low capacity. Industry players say the Russia Ukraine war has had grave implications for them because of its effect on European textile manufacturers.
