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Future investment opportunities in spinning in Bangladesh


Spinning industry in Bangladesh has reached to a matured stage where mills are looking for consolidation and challenged with eroding margin and increasing cost of power and wages which were the strength a decade ago when SWOT analysis was done. But if we look at the total cost, power cost and labor cost; a decade ago power and labor costs were 7% and 3% while now these have reached to 10% and 6%, respectively. So, we are left with 84% that still we can work on to increase spinning profitability. The question is how?

Raw material is still under managed and unfocused which is roughly 60% of cost of goods sold and then is the productivity of our mills that is still minimum 10% less than the competing countries like India, Pakistan, China, Indonesia or Korea. Raw material and productivity alone can show the light to improve margin of spinning. Of course, in a matured market efficiency is required in all the areas with an overall strategic management plan. I believe interest rate is going to reach two digits soon and local currency is going to be devalued and these challenges should become issues in the near future. Capital market is still not a source of fund and I wish these should be important part of financing plan.

We also need to be prepared for the consequences of the exit from LDC status that is expected beyond 2021. However, I don’t want to demine prospect of spinning in Bangladesh at all but it is always better to do the homework and prepare for the battle earlier than it hits us suddenly. I rather believe that within next five years’ size of spinning industry would increase by 50%. I would like to share my ideas where these investments in spinning may concentrate:

  1. Replacement of inefficient machinery and equipment: This may be the major area of investment, roughly 40%. Technology development in power generation over last 20 years has allowed a generator of 1 mega be replaced with a 1.5 mega generator and it would consume the same amount of fuel (Gas). A card of 1997 that could produce 42 kg per hour can now produce 90 kg almost with the same power and space. Focus would be on replacement of major spinning components like motors, spindles, rings, and systems (Humidification, waste minimization and recycling, SCM, ERP, MIS, PMS, QMS, HRM, SOP, etc.) to make spinning energy efficient, productive and profitable. These replacement decisions are being made gradually and expected to get momentum in future.
  2. New investment and expansion in 100% cotton yarn spinning: Second major investment roughly 30% may be in this section. As the garment export and domestic market is growing investment in spinning is increasing. Bangladesh is predominately a cotton knit garment exporter and requires cotton ring carded and combed yarn. So, ring investment would be focused in mostly carded with auto-doffing and compact attachment. Now average count is Ne 30/s and at least 10% would focus on Ne 40/s+ and 15% in combed compact knitting and weaving yarn. Due to rise of denim investment ring as well as rotor spinning would come in courser counts that would be the rest 5%.
  3. New investment and expansion in blended yarn spinning: About 15% investment may come in this sector. Blended yarn investment would be dominated by air jet spinning or Vortex. Not only Vortex market is expanding, in order to ensure quality, particularly pilling, Vortex yarn is in advantageous position over ring yarn. Also costing of Vortex yarn is advantageous over ring yarn.
  4. Specialty yarn: Rest 15% investment may come in this section. It would be dominated by yarn that has demand but are less available locally like recycled yarn, new and specialty blended yarn, special count yarn, and mélange yarn.

The focus would be to produce efficiently and run with marginal profit and manage unsystematic risks across the spinning process from planning, material, process, system, marketing, finance, currency, interest and capital market, and people. I believe worker and management team would work hand in hand to successfully manage spinning business profitably through the direction and support from our leaders, the entrepreneurs and government would provide the necessary infrastructure and policy guidelines ideal for sustainable growth and business.

More about author: http://www.linkedin.com/in/abdul-wadud-b6560a155

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