Jute Industry Analysis

PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT OF
THE REQUIREMENTS OF THE COURSE ON
INDUSTRY & COMPETETIVE ANALYSIS
Jute Industry Analysis

(Declining Industry)
SUBMITTED TO
Prof. Ranjan Das
BY
Anindita Sampath (120/39)

Anita Kumar (124/39)
Archana Jagannathan (134/39)
Bhavya Nandkishore (148/39)
P.Sinna Krishnan (FP/08/02)
Table of Contents
1. Introduction
2. Jute Industry Definition
3. Industry Structure
4. Geographical location of the mills
5. Jute – Why a declining industry
6. Jute Value Chain
7. Steps in Jute production
8. Jute products
9. Exports of jute goods during 2001 – 2002
10. Research & Development
11. Porter’s Five-Force Analysis
12. Competition analysis
13. Strategic Groups and Mobility Barriers
14. Diversification
15. Jute in Bangladesh
16. Future Strategy
Appendix A – Facts at a glance

Appendix B – Geographical distribution of Jute mills in India
Appendix C – Company Evaluation
IIM Calcutta Page 2 of 32

1. Introduction
Jute: The Golden Fiber
Jute, the 'Golden Fiber' as it is called, is a plant that yields a fiber used for sacking and cordage.
Known as the raw material for sacks the world over, jute is truly one of the most versatile fibers
gifted to man by nature that finds various uses in the form of Handicrafts. Next to cotton, jute is the
cheapest and most important of all textile fibers.
2. Jute Industry Definition
The jute industry includes both raw jute as well as jute products- included in the entire value chain
are processes starting right from harvesting of jute for yarn preparation to processing of raw jute for
preparation of gunny bags, jute handicrafts and other diversified jute products.
3. Industry Structure
The jute industry in India is fragmented and comprises of around 75 mills.
Table 1 bring out the following characteristics of the industry:
 The largest jute mill i.e. Dalhousie accounts for approximately 49% of the capital employed in
the industry. However the remaining 50 of the industry is fragmented.
 The second biggest firm in the industry accounts for only 9% of the capital employed.
 The top5 firms in the industry account for 81% of the capital employed, of which 60% belongs
to Dalhousie alone.
Hence we conclude that apart from one firm, which is dominant in the industry, the industry is
fragmented. This one firm is likely to have a powerful influence on the Indian jute industry as
a whole.

4. Geographical location of the mills
Small jute mills – around 75 mills in India, out of which 59 are in West Bengal alone. It has been
the dominant jute producing state in the country primarily because of the easy availability of raw
material.
State Dec-99 Jun-00 Dec-00 Jun-01 Dec-02 Jun-02

West Bengal 59 59 59 59 59 59
Andhra Pradesh 7 7 7 7 7 7
U.P. 3 3 3 3 3 3
Bihar 3 3 10 3 3 3
Tripura 1 1 1 1 1 1
Orissa 1 1 1 1 1 1
M.P. 1 1 1 1 1 1
Assam 1 1 1 1 1 1
5. Jute - A declining industry
Production
At a first glance, it appears that the production of jute has remained stable over the past 5 years.
However, the following table shows the breakup of the total production, which further helps us in
understanding the pattern of production within the jute industry.
A continuously declining trend has been observed in Hessian, CBC and others. The only area, which
has shown an improvement, is sacking. This, we believe is due to the Jute Packaging Materials
(Compulsory use of packing Commodities) Act, 1987. Under the purview of this act, major
industrial users, like the cement, fertilizer, food grains and sugar industry- were required to use jute

as a packaging material in certain specified ratios. However, this Act will be removed in 2004 and
hence, we expect this segment too to decline after this period.
(APRIL / MARCH) HESSIAN SACKING CBC OTHERS TOTAL
1995 - 96 413.9 676.3 30.5 312.3 1433.0

1996 - 97 368.7 666.6 25.2 340.4 1400.9
1997 - 98 392.4 864.6 19.8 401.6 1678.4
1998 - 99 344.1 903.3 18.5 330.3 1596.2
1999 - 00 344.5 909.2 8.0 328.5 1590.2
2000 - 01 337.9 952.9 6.6 327.5 1624.9
2001 - 02 275.0 1033.7 5.0 286.7 1600.4
Consumption
The consumption patterns too show a similar trend. Consumption of hessain, CBC and others is
reducing gradually. Also, as mentioned earlier the increasing demand for sacking may be due to the
government regulations governing the use of packing material. Decreasing demand combined with
continuing production of jute is resulting in high inventory build-up.
(APRIL / MARCH) HESSIAN SACKING CBC OTHERS TOTAL
1995 – 96 266.9 665.5 2.3 226.6 1161.3

1996 – 97 259.8 652.0 1.7 222.5 1336.0
1997 – 98 285.8 842.4 1.5 257.5 1387.2
1998 – 99 286.2 886.3 1.3 230.5 1404.3
1999 – 00 287.0 907.4 1.4 230.9 1426.7

2000 – 01 269.7 935.2 0.8 229.4 1435.1
2001 – 02 243.0 1021.4 0.9 195.5 1460.8
Exports
Export statistics for the period 1997-98 to 2001-02 are as in the following table (Value: Rs. Million)
Year
Items 1997-98 1998-99 1999-2000 2000-01 2001-02
Value Value Value Value Value
Carpet Backing Cloth 406.98 468.76 206 140.2 98.64
Decorative Fabrics 56.68 49.45 27.96 33.2 25.19
Floor Coverings 345.88 542.31 487.03 652.82 766.26
Food Grade Jute
- - 83.79 251.8 179.56
Products
Gift Articles 34.85 86.89 78.74 102.16 92.41
Hand And Shopping
161.24 190.84 286.19 466.44 399.71
Bags
Hessian 2942.42 1993.86 1920.07 2058.4 1873.59
Jute Geo-textiles 38.18 40.18 62.49 59.7 61.14
Sacking 405.79 204.49 92.4 90.4 73.55
Wall Hangings 38.95 55.79 73.59 55.58 63.84
Yarn 2319.68 1854 1917.13 2651.8 2212.36
Jute Diversified
637.6 925.28 953.51 1310.2 1347.41
Products
Total 6750.65 5486.57 5235.39 6562.5 5846.25
Imports
Import of jute from various countries are given for the period 2001-02 in the following table:
(Value: Rs. Million)
Country Value
USA 1236.03
Belgium 818.71
UK 418.69
Egypt A RP 326.08
Turkey 239.68
Saudi Arab 230.45
Japan 202.41
Italy 141.67
German F Rep 123.81

Australia 116.78
United Arab Emirates 89.02
France 84.24
Spain 61.39
Canada 58.88
Netherlands 51.31
A further observation to support the fact that jute is a declining industry is that in the past decade,
only one mill was shut down in 1998. This is in sharp contrast to the fact that the year 2002 saw the
shutting down of 3 jute mills.
MILLS DATE OF SUSPENSION OF WORK
J K KANPUR (U.P.) 13 / 4 / 1987
GOURIPORE 4 / 9 / 1998
NEW CENTRAL 29 / 12 / 2000
UNION (NJMC) 15 / 1 / 2002
EASTERN 9 / 5 / 2002
ALEXANDRIA 1 / 9 / 2002
Installed Capacity
Installed capacity
Prod. of jute Domestic
Year apart fm 100%
goods Demand
EOU
Dec-99 1901 1622 1406
Jun-00 1901 1622 1406
Dec-00 1901 1622 1406
Jun-01 1887 1625 1435
Dec-01 1940 1605 1422
Jun-02 2080 1601 1461
The installed capacity (excluding 100% EOU) far exceeds the production of jute goods.
This is because
a. This is a declining industry
b. It is a commodity industry.

6. Jute Value Chain
Flow of raw jute

Various players in the Jute industry are Jute growers, Village Collection points, intermediaries,
dealers, co-operatives and mills. The flow of raw jute among these players is depicted in the
following figure.
Possible players who come into play after the raw jute reaches the terminal markets are given in the
following figure:


7. Steps in Jute production
Plantation: Jute seeds are sown anytime between March – May. The crop prefers a hot & humid
climate. It is low laying and takes about 5 to 6 months to grow.
Harvesting: Trees are cut from the bottom; leaves are stripped off from the top and accumulated in
bundles.
Retting: Retting is the process of extraction of the fibre. Bundles are then submerged in water for 7
to 10 days. Retting takes place due to joint action of water, aquatic and plant surface organisms,
mostly bacteria and the cambium and the cortex gets decomposed.
Stripping: The labourer holds the stem in one bunch and taps the rood end lightly with a mallet. This
frees the fibre at the foot of the stalk. The fibre is then grasped & by lashing & jerking the stem in
the water the rest of the fibre loosens and comes off.
Drying: Jute fibers are kept hanging on makeshift hangers for drying. This process takes about 2 to 3
days. Now the fibre is ready to be marketed. Here Grading becomes imperative depending on the
fineness, color, density, clearness etc, they are all score. Higher the score the better the pr for a
higher price. This is done at the buyers (like JCI) The crop new process to the hands of buyer
Grading: Jute is then brought to JCI godowns. The bundles are scanned and jute fibres are
categorized as per grades (TD1 to TD7). Gradewise these are stocked at separate locations
Pressing: Gradewise bundles are subjected to machine press to convert them in Bales. Even the
ropes used to tie the bales are prepared from the jute wastes. The bales are finally stored in the
warehouse as per their grades for sale.

8. Jute Products
The conventional jute products includes:
 Jute yarn - of various counts

 Jute twine - made by winding two or more yarn strings
 Jute cloth - of different variety and for different applications like
 Carpet backing cloth
 General packaging purpose
 Converting into sacks for carrying foodgrain, vegetable, sugar, fertilizer, cement etc.
 Another area where jute has been put to use of late is the diversified sector where a wide
range of technologies has been developed. Jute has an infinite range of applications viz.
o Fine quality of yarn, which is used in weaving finer quality of fabric. Blended fabric
where even better quality of fabric is woven blending jute yarn with other superior
yarn.
o Jute fabric could be chemically processed, dyed and printed to produce colorful
fabric for manufacturing shopping bags, designer bags, brief cases and suitcases.
o Jute pulp for applications like making paper. Moulds etc.
o Jute particles boards or boards made of jute sticks. This in now being used in house
hold interior applications and knockdown furniture.
o Jute non-woven products, for industrial applications like automobile industry,
underground cable encasings etc.
o Jute geo-textile, which finds applications in holding soil erosion, making rural roads,
embankment building, landslide prevention, landscaping etc.
o Handicraft products, decorative and utility products of ethnic nature. This has an
infinite range such as Floor coverings, mats and under-layings etc.
Some characteristic qualities of the finished product which make them specially suited for their end
needs:

Yarn
Jute twine in varying weights and thickness is, however, used extensively both in India and abroad
for sewing, tying, and for a variety of industrial applications such as packing pipe joints, cable
binding, etc
Hessian bags
Totally biodegradable and easily blend with the environment. Jute Hessian bags are used for packing
of a variety of commodities viz. Food & Grains, Potatoes, Onions, Sugar, Tobacco, Coffee, Cocoa,
Peanut, Sand, Cement etc. These bags are tailored so as to hold goods up to 100 kgs of weight.
Sacking bags
Sacking bags, woven wholly from jute fabrics, are available as plain and twill bags. Jute bags, the
other name for sacking bags are mainly used to pack cement, sugar and other bulky articles, which
are packed in weight range from 50 to 100 kgs
Jute Hydrocarbon free cloth

Sacking bags treated with vegetable oil making it free from the harmful effects of hydrocarbons.
This renders it 100 % bio degradable and very safe to store edibles in.
Both Hessian bags and sacking bags are exported to Australia and New Zealand
Jute geotextiles and Hessian

Jute Geo-textiles are flexible, foldable, not very biodegradable, and water-resistant in nature,
particularly suitable for rain-fed, flood-prone climatic conditions. They can be used as geo-technical
engineering products like fibre drains, separators, filters and reinforcing materials.
Jute Hessian (Burlap) matting is extensively used in controlling soil erosion and usually laid along
the river embankments, sides, canal banks and hill slopes -
• Helps stop erosion damage

• Act as an aid to good vegetation growth on difficult terrain
• Easy to lay and to reposition

They are also called Erosion Control Matting. They are supplied in large quantities, throughout the
world.
Carpet Backing Cloth

CBC as it is commonly known as, commensurate to its name, is used as base material for carpets or
as the backing material of carpets. Manufacturers and exporters supply CBC in large quantities to
many carpet industries throughout the world. Carpet Backing Cloth is mainly used and is in great
demand in the carpet industry. CBC calls for export oriented market and jute mills in India are well
known in the export market for their produce
Home furnishings and textiles

Silky lustre, high tensile strength, low extensibility, considerable heat and fire resistance, long staple
length and inexpensive nature are the characteristics of jute that has immense designer potentials.
Manufacturers and exporters have discovered the high versatility of the fiber, which can be easily
combined with other materials. Finding a lot of usage in upholstery, the monotonous brown hue of
the fiber can be transformed to exotic colors, suited to a person's choice and style. Even the
coarseness of the fabric can be changed to a soft, silky fabric, which is environment friendly,
lightweight, durable, extremely fashionable and very easy-to-use. Jute is used for making covers and
stuffing etc. necessary for doing up furniture.
Industrial uses of jute

Jute felt - High quality jute felt is an excellent insulating material. Long lasting Jute felt is made to
serve the purpose effectively for a long time.
Jute Webbing
Jute webbing is used in many industries. It has the following usage:
• In the Cable industry

• As binding tapes for the carpets
• For upholstery

Main Products & Present Markets
Products Markets
Yarn Belgium, Turkey, Egypt
Lighter Packaging India, African & Latin American Countries
Food Grade Jute Products for packaging African & Latin American Countries), USA, Argentina,
Cocoa & Coffee Beans, Shelled & Pea nuts Turkey
Geo-textiles USA, West Europe
Shopping Bags USA, Japan, Saudi Arabia
Floor Covering USA, West Europe
Other Diversified Products USA, West Europe
9. EXPORTS OF JUTE GOODS DURING 2001 - 2002
OTHERS
8%
HESSIAN
JDPS 31%
22%
YARN SACKING
36% CBC 1%
2%

EXPORT OF 5 MAJOR JDPS FROM INDIA DURING 2001-02
Decorative
Fabrics
Wall
2%
Hangings Gift
5% Articles
7%
Hand & Floor

Shopping Coverings
Bags 56%
30%
10. Research & Development

Research and development by reputed organizations in India, have led to the strengthening of the
natural attributes of jute. With technological support coupled with government's developmental
efforts, the golden fiber, today, has entered into a varied range of applications generating
employment, contributing to sustainable human development and leading to a cleaner and healthier
environment.
Intensive R & D efforts through various research institutes mainly funded by Government of India
have resulted in remarkable breakthrough in product diversification. Prominent Products are:
• Hydro carbon-free Jute Products for packing food grade products like cocoa, coffee, shelled
nuts etc.
• Major R & D works in DREF Spinning System.
• Production of jute blended yarns with jute as the major component-using Jute/Viscose,
Jute/Acrylic, and Jute/Cotton--jute content varying from 60 to 70% by weight. Such yarns
suitable for blankets, shawls, pullovers and as also thick dress materials.

• Production of fine blended yarns using Jute/Cotton, Jute/Silk, Jute/Wool etc. for apparel use
Jute Content is 30-40%.
Jute based fabrics used particularly in areas of furnishing, upholstery, carpets, blankets and other
home textiles. R & D Institutions have developed Jute Reinforced Composites in the form of
flexible, semi rigid sheet and rigid board to substitute wood, timber, and plywood.
UNDP jute program has also facilitated diversification of jute sector by developing new technology,
promotion of employment opportunities by encouraging new entrepreneurs to set up production
units and development of indigenous machine manufacturing sector. Some of the on-going projects
are use of jute for paper production; jute based needle-punched carpets, development of multi-
component yarn from wool, jute and other fibers for floor coverings blankets and knitwear.
11. Porter’s Five-Force Analysis
Supplier Power
The major portion of the marketable surplus of jute is sold by the growers in the villages. This fact
has led to the establishment of a chain of middlemen between the growers and the manufacturing
mills. In addition to purchasing and selling the raw jute, these middlemen often perform such
essential functions as assembling and storing the crop, transporting it to the secondary market, and
financing the various transactions. While the power of the farmers cannot be said to be particularly
high, that of the middlemen is certainly high. Also, the jute farmers have the incentive to switch to
alternative crops like rice which is grown on the same land. This might altogether stop production of
jute; the main losers seem to be mill workers and not the farmers if jute declines further. Hence
supplier power seems to be reasonably medium to high.
Buyer Power
The buyers’ power is collectively significant as to mostly the price of jute is set depending on the
demand. The major buyers of jute as such are organizations like Food Corporation of India which
buys the jute sacking for foodgrains and the sugar, cement and fertilizer industries. This is mainly
due to the regulations issued by the government of India, leading therefore to forced buying. But
there are a number of political factions pushing for reducing these sanctions, due to the relatively
high price of jute packaging compared to other substitutes. Secondly, where jute sellers are

following a differentiating strategy is by trying to make jute more of a lifestyle product and therefore
establishing some kind of a fashion statement. Here, the buyers are big supermarkets like Shopper
Stop, which sell a whole range of products and Jute bags and accessories are just a miniscule part of
their total business. Hence it is not as important for them to buy the jute products as it is for the jute
industry to sell them. Of thirty major primary commodities traded internationally, only about six
have as much price and supply instability as jute. Demand is highly sensitive to price increases, but
not nearly as sensitive to decreases; once a portion of the market is lost to synthetics, it is very
difficult to win it back through price competition.
Apart from these, significant portions of buyers are foreign importers.

Overall, the buyer power seems significant.
Entry Barriers
Profitability – Low
Investment – Not too high, foreign investment available including joint venture options
Technology – Not a barrier, no specialized know how
Labour – skilled workers who are available in plenty or can be trained especially in India
Except for low profitability and the fact that jute industry as a whole is declining, there are no entry
barriers as such. All the major players in the jute industry are reported to have planned fresh
investments, which will not be restricted to West Bengal. However, according to a section of the
industry, the jute sector has not grown enough to absorb such huge production capacities. It is more
likely that the new units will only replace some of the older ones. Currently, the overall capacity of
the jute industry is about 100,000 tonnes per day. The annual turnover is Rs 4,000 crore and there
are altogether 73 integrated jute mills, of which 59 are in West Bengal. Fresh capacity to the tune of
25,000 tonnes per day is being currently implemented, creating job opportunities for more than
25,000 people, both skilled and unskilled.
Substitutes
Each category of jute products faces a number of substitutes. The threat of substitutes is very large
because jute is mainly used as a fiber in the production of the end product and there are a number of
man made ad natural fibres that can act as very close substitutes. It is true that jute has a number of

characteristics, which should prompt its usage but lack of knowledge of its qualities works in its
disfavour. Looking at substitutes in its main categories:
 Packaging purposes: Jute is a flexible packaging material. It faces being substituted by

other flexible packaging materials like plastic; nylon and other man made fibres and also
form non-flexible packaging materials – boxes, cartons, and aluminium. Apart from which
latest innovations like modified atmosphere packaging cans, which seal in the air to retain
freshness, or smart materials that can “breathe” selective gases and keep food unspoilt are
being introduced which pose a big threat to using jute as agro product packaging.
 Textiles: Cotton is the closest substitute having the same “natural” appeal, which is the main
marketing plank of jute textiles. Considering that currently all over the world, there is an
over capacity of cotton production and falling demand, downward trend of cotton prices will
tend to lower demand for jute textiles. Besides in this area Indian jute faces stiff competition
from Bangladeshi jute – known for its superior quality. The range of colours the dull brown
of natural jute can be dyed into – not faced by synthetic materials, which are regularly what
is used, restricts Jute usage for furnishings.
 Jute bags: Here substitutes come from three areas: a) Plastic – either very low cost or comes
free with purchases since it is more economical for companies to use plastic bags for
promotional purposes. b) Cloth bags c) Leather bags – makes a stronger fashion statement
than jute! Again since the leather industry is going through a slump downward price makes it
a lot more difficult to replace. Cotton and Leather are more the more regular mediums of
expression as far as fashion goes. Demand for jute from both textiles and bags has depended
on fads rather than sustainable trends.
Competition
Major Players in the industry (India)
The entire jute industry, which is geographically concentrated in West Bengal is dominated by a few
key players, as can be easily seen from Table 1.1. A brief introduction of the operations and major
strategies followed by these players is given below.

Table 1.1 Major Players
Based on turnover:
Company Name Turnover

Champdany Industries Ltd. 177.56
Cheviot Company Ltd. 131.70
National Jute Manufacturers Corporation Ltd. 125.72
Aekta Ltd. 113.54
Gloster Jute Mills Ltd. 90.62
Based on Market Capitalisation:
Company Name Turnover

Cheviot Company Ltd. 46.38
Champdany Industries Ltd. 24.14
Howrah Mills Company Ltd. 8.08
Aekta Ltd. 4.32
Gloster Jute Mills Ltd. 3.60
Champandy Industries Ltd.

This company has the highest turnover and operates the maximum number of plants i.e 8 in West
Bengal and 2 in Orrisa. It is looking to further expand through takeovers and acquisitions.
Champandy has recently diversified from raw jute and sackings only to production of more non-
standard jute products.
This company seems to be concentrating too much on scale and seems to be concentrating on
becoming the biggest player turnoverwise. However, it has the second lowest profit margin among
the top 5 players. It’s capacity utilization is the lowest at 62.53% in the last financial year. It also
suffers from very poor industrial relations and had to close it’s factory for as long as 7 months due to
a strike in 1996-97.
Cheviot Company Ltd.

As compared Champandy, Cheviot’s capacity is lower, but it’s utilization is the highest in the
industry. Cheviot is into 100% manufacture of finished goods. Recently it was plagued by power
problems and hence is vertically integrating into power generation to meet it’s captive demand. In

order to meet the low, cyclical demand for jute, Cheviot also plans to diversify into non-jute
products. It has the highest net profit margin in the industry of 13.45%
Gloster Jute Mills Ltd.

Gloster operates only 1 jute mill in West Bengal and compared to the other companies, focuses less
on exports. It is a 100% jute products company and has recently more up the value chain onto more
value-added jute products. It has a major focus on technology and strives to achieve productivity
improvements through better technology.
Aekta
This company , which is majority- owned by the Kanoria group, is also a 100% jute products
company. An interesting fact about this company is that it operates a plant in Gurgaon for
manufacture of it’s diversified jute products. No other jute mill has any factories in northern India.
This gives a signal of it’s focus on exports of diversified goods to a great extent. Hence , it’s
strategic stake and focus in the diversified jute-product industry seems to be high.
Howrah Mills
Howrah Mills produces both raw jute as well as a variety of jute goods. It produces yarn for internal
use and for sale . This mill was under the BIFR , but is now on the road to recovery. It has
undertaken large-scale retrenchment under BIFR protection. It is targeting growth through
diversification within jute as well as modernization. It is targeting newer products such as soil
savers, sorim cloth, export yarn, shopping bags, bleached and dyed hessian. A noteworthy fact is that
it has an extremely high debt-equity ratio of 1.4 . This is suprising given the fact that most of the
small players in the jute –industry are non-dividend paying, privately owned companies. Howrah
mills has also applied for ISO 9002 certification for it’s products with a view to building it’s brand
identity.

12. Competition Analysis

A detailed analysis of the competition between the players is given below.
Financial performance:
Leverage /D/E 0.6 0.13 0.38 0.3 1.4

Profitability
0.94% 13.45% 3.06% 0.62% 5.5%
/net profit
Gross profit
5.38% 18.79% 5.65% 3.6% 6.8%
margin
Current Ratio 2 2.87 1.95 1.4 1.45
ROE 2.8% 24.2% 16.51% 8.62% 5.26%
Identifying Strategic Groups along the following dimensions:

Parameter Champdany Cheviot Gloster Aekta Howrah Mills
High- jute, jute Plans to diversify High – variety of

High – jute, yarn, Variety of jute
Focus yarn, jute into non jute jute products for
products products
products areas export
Presence Production of Production of yarn
Power Concentrating on Only production
across the yarn +finished for internal use and
generation final goods of final goods
value chain goods sale
Capacity
62.53% 84.53% 76.78% 70.46% 67.65%
utilization
Production
61576 mt 48070 mt N.A 36661 mt N.A.
Capacity
Promoters Promoters
Promoters 33%
71.97% 57.82%
Stakeholders, FIIs 17%
FIIs 0.37% FIIs 10.7%
participation Public 3% N.A. N.A.
Public 22.94% Public 27.93%
by FIIs NRI & Corp.
NRI & Corp. NRI & Corp.
bodies 47%
bodies 4.74% bodies 3.58%
Continuing
Industrial Poor – several No serious
problems - 81 Layoffs of workers Retrenchment
Relations strikes problems
day lockouts
4 100% EOUs 1 large export Moderate - 30% Moderate- 30% of
Export/ Import Low exports
78% of sales oriented plant of revenue revenues
Productivity
Growth through Exports of Diversification
Improvements in increase thru
Growth Plans expansion and diversified jute within jute,
productivity technology ; value-
takeovers goods modernisation
add final goods
Loan -9.63 cr. Loan of 5.84 cr.
Borrowing Loan -36.39 cr. Loan of 5.4 cr, Loan of 13.14 cr.
Int. coverage = Int. coverage =
Capacity D/E ratio of 0.6 Int.coverage = 4.17 Int. coverage =2.01
69.09 3.61
Geographical 8 in W.B, 2 in 2 plants in W. 1 plant in West 1 in W.B, 1 in 1 plant in West
presence Orissa Bengal Bengal Gurgaon Bengal
Sackings –
Presence 60% value-add Sacking - Low Sacking –Low Raw jute +
Moderate value-
across products + 40% Value-add goods Value –add goods sackings + Value
add products-
categories jute & sackings – High – high add products
High
Low, private
Government Low, private Low, private
Company Low Low
involvement Company company

Jute Gloster
Cheviot
goods Aekta
Company Strategy:
Diversification into value-added jute products like jute bags, footwear etc. seems to be the profit
pool in this industry. As observed in the diagram above, the companies with the highest profitability
Categories
are the ones who operate entirely in the diversified jute goods market. Since production of raw jute
Champandy
Howrah Mills
is a commodity industry and prices are regulated there is not much differentiation between players.
But, in the production of value-added jute products, the major players are trying to differentiate
themselves from the rest either through
Small proving superior quality (ISO9002) or through technological
fragmented
players
superiority.Raw
However,
jute according to us there are 2 main issues that will have to be addressed by these
companies in the future:
Low High
Capacity Utilisation
1. Profit based on the parameters mentioned above (capacity utilization and diversification)
does not lead to sustainable competitive advantage as these can easily be imitated. Capacity
utilization in fact deals with operational efficiency and not with strategic positioning of a
firm. As shown by the data, firms like Howrah Mills which are diversifying into high-end
product and at the same time bringing in efficiency through layoffs and technological
improvements an easily pose a threat to Cheviot in the future.

2. Cartelisation to increase the generic demand for jute products may be a good option for the
existing players. This can be done through exhibitions, fairs etc.
14. Diversification
In order to enable jute-based products to make successful inroad into the textiles sector, jute has
been largely experimented with. In view of challenge faced from cheaper prices of synthetic
substitutes, more thrust has been given on diversification of jute products.
Major thrust areas of value-added diversified jute products include Jute Handlooms and Handicrafts,
Non-woven and Industrial Application, Jute Rigid Packaging, Decorative products and Geo-Jute etc.
15. Jute in Bangladesh
This is the traditional source of export earnings as well as one of the most important sectors in terms
of employment. However, competition from other countries, consumption substitutions with
synthetic products, and public sector management of many of the mills have all led to financial
problems in this sector. With advice and help from donor agencies, half of the public sector jute
mills were privatized in 1982 (Bhaskar and Khan, 1995). The government still has equity in over
three-quarters of the sector. After privatization, more manual labor was hired but output fell
steadily. Much of the decline in output since the 1980s was because of falling world demand.
Although jute manufactures still account for three-fourths of total jute exports, the proportion of raw
jute and jute manufactures in total exports has fallen from 68.4% in 1980 to 11% in 1995 (Rahman,
1997). The appreciation of the Taka against Asian competitors in the world market also had adverse
effects on output. More recently, the allowance of zero duty on machinery imports has helped jute
industries to re-orient themselves to some degree. The government has participated in a sectoral
adjustment scheme with the World Bank to close down a third of the public mills, downsize two
large mills, and privatize the remaining mills, but labor union and political opposition has led to the
cancellation of this program (The World Bank, 1999).
16. Future Strategy

At the margin, any growth in the jute industry will stem from growing exports. The top ten jute
importing countries across the world are Belgium , USA, Egypt, Turkey ,UK, Japan, Saudi Arabia,
Australia, Italy, and Syria
Jute Geo-Textiles
Geotextiles have seen unrivalled growth with a forecast by the United Nations International Trade
Center (UNITC) of 1,400 million m2 produced by the new millennium. Europe and North American
markets each account for 40% with the remaining 20% attributed to Japan, Asia and Australia. The
main applications are separators in earth works, drainage and linings as well as controlling soil
erosion and establishing plant growth.
As jute accounts for such a small proportion of geotextile use in the West there is enormous scope
for increased usage. Most land managers in Europe are generally unaware of the relevance of jute
products, as they consider textiles as the main output of the industry. Jute accounts for less than 1%
of total geotextile use, despite the technical advantages and low cost of jute geotextiles, which has
been demonstrated by research and the results of full-scale use. A promotion program that aims to
provide product information in readily useable form has been initiated by UNITC, UNDP and
JMDC.
Whilst the cost of geotextiles (selling in Europe for £ 0.40 to £ 0.80 per m2 ) is lower than synthetic
geotextiles ( £ 1.10 to £ 1.35 per m2 approx) and other natural fibre geotextiles (£ 0.75 to £ 2.00 per
m2) their usage is very low. S.K.Bhattacharya of the Indian Jute Mills Association stressed jute was
competitive on price, and other delegates commented that technical characteristics were also
superior to other materials in particular applications. Jute degrades in over 2 to 4 years, but this is
usually a sufficiently long period for vegetation growth to become established, and trials have shown
that degraded by-products are beneficial plants. Work is progressing to produce treated jute which
has a longer life before degradation.

Growing the domestic demand
The demand for jute is highly concentrated in West Bengal and the north east states – around the
regions where they are produced. In other parts of the country there is an exclusivity associated with
jute on account of a) its price b) availability only in high class fashion shops like Shopper’s stop or
Lifestyle, where the markup is more due to brand name rather than cost of the product itself. To
drive home this point a shopping bag which costs around Rs 55 – 100 in Kolkata costs anywhere
upwards of Rs.200 in the lifestyle shops in Bangalore. Making jute bags more available to the
consumer at prices closer to the production price will increase its overall usage
Changing lifestyles - GO GREEN !

Increasing environment consciousness and a perceptible change towards eco friendly goods both by
the general public and the corporations will increase the demand for jute products as compared to its
strongest non bio degradable substitutes. Also government regulations all over the world lean
towards promoting more eco clean products – supplying money for R&D purposes. Innovative uses
like jute based paper will expand usage of jute. Recognition of jute’s superior qualities as fibre has
been accruing because of research efforts in universities in the UK and the Untied States. Also the
UN has been funding a number of programs to research further uses of jute lending credibility to jute
as a substitute natural fibre.

APPENDIX 1
Indian Jute Industry – Facts at a glance
The Organized Sector
 No of Jute Mills : 76
 Annual Production : 1.6 Million MT
 Workers Employed : 266 Thousand (direct & indirect)
 Families dependant : 4 million household(direct & indirect)
 Main Products Manufactured : Sacking, Hessian, Carpet Backing Cloth, Yarn, Food Grade
Products, Geo-textiles
The Informal Sector
 Number of registered units : around 700 units

 Total Employment : around 63000
 Main Products Manufactured : Jute Bags, Jute Blended Fabrics, Jute Blended Carpets,
Giftware, Handicrafts, Decorative Articles

APPENDIX 2
Geographical distribution of jute production
Following map shows the various regions in which jute is grown in India.

APPENDIX 3
Evaluation of Champandy and Cheviot
Assumptions for valuation
1. Net profits have been discounted at cost of capital to find present value of the firm, since
details of the income statement and balance sheets were not readily available to calculate the
cash flows.
2. Betas of both companies have been obtained from data on www.insight.asianerc.com
3. Perpetual growth rates of 3% (inflation) have been applied to calculate the terminal value of
both companies.
4. Based on our competition analysis using the strategic dimensions, our assumption is the
Champandy will be able to make a profit of 1.5% in the near future.
5. Similarly, we assume that Cheviot, which is currently earning a profit of 13% will earn profit
of only 8% in the near future. This is because it’s competitive advantage, based on
diversification into jute products and operational efficiency will soon be imitated by other
firms (As can be seen from the plans for growth of the other mills)
Conclusions
Champandy: The stock has been valued at Rs.31.75. It is currently trading on the BSE at 40.45 and
NSE at 30.45
Cheviot: Cheviot, according to our valuation is valued at Rs.372. it has been valued on the BSE at
Rs. 152.8. This is because we have made optimistic forecast of sales and profits for Cheviot, based
on our analysis which states that in the near future, technological improvements and moving up the
value chain of jute –products will lead to increased profitability for a firm.

Raw Jute scenario: India
India extended all-out government support to farmers in providing fruit of research - HYV seeds
development, seed multiplication, preservation and distribution.
Indian jute mill owners pay, on the average, Rupees 450 per maund to growers of jute which
contributes to upliftment of farmers' economic condition and encourages them to go for jute
cultivation with enthusiasm. That is how, India has been able to increase jute acreage from about
8 lakh acre producing about 16 lakh bales of jute in 1947 when India was divided, jute fields
falling in East Pakistan. Now in about 35 lakh acres she is producing about 80 lakh of bales jute,
becoming almost independent of jute supplies from Bangladesh.
Bangladesh Raw jute scenario: Result of research done in Bangladesh Jute Research Institute for
development of raw jute production, has remained confined in the laboratory.
Governments of Bangladesh has not done anything ever in assisting farmers with multiplication
and distribution of HYV seeds. , Bangladesh market is now flooded with Indian seeds lowering
quality of Bangladesh jute. Cost of production of jute in the field is very high for farmers in
Bangladesh. Had jute been purchased from farmers during the harvest season and had the gang of
jute purchase officer, manager and CBA leaders not indulged in corrupt practices, jute cost for
mills would, at the maximum, be Tk. 450 per maund and farmers would get remunerative price of
Tk. 400 or more per maund.
Resultant effects of jute purchasing pattern followed in nationalised jute mills:
(i) Jute farmers becoming poorer getting less and less for their produce and are being discouraged
to go for jute cultivation.
As a result, jute acreage has come down from maximum of about lakh acres producing over 70
lakh bales down to minimum of about 15 lakh acres producing minimum of about 35 lakh bales
of jute, with fluctuations from year to year. When farmers get good price in one year, they grow
more next year and vice-versa.
(ii) The wind-fall profit earners are the middle men, such as farias, beparis and stockists, at the
cost of farmers and mills, mainly because government banks invariably fail to provide funds to
mills in June/July. Paradoxically, however, same banks, at government instructions, ultimately
advance funds to same jute mills for jute purchase in September, when jute is no longer with
farmers, but is with stockists. This happens every year.
(iii) Tk. 100 per maund ill-gotten gain against jute purchase is shared by mill manager, jute
purchase officer and CBA leaders, and a part is also siphoned up.
(iv) Cost of production of jute goods produced by jute mill is increased by about Tk. 5,000 per
ton, only on account of raw jute, but for which jute mills would have gone into profit.
Maintenance: Indian private jute mill owners have been very careful in regularly maintaining

their jute mill machinery which has enabled them to secure high-productivity efficiency from
their machines and workers, at 62 man-hours-ton.
Their jute mills are over hundred years old, on the average, but due to regular maintenance the
efficiency of their machinery is about twice more than that of poorly-maintained Bangladeshi
jute mills machinery, which, on an average, are only forty years old.
Almost entire money shown on mills maintenance account as expenditures for spare parts, oil etc.
are neither actually purchased nor used, and no maintenance is done in nationalised jute mills
resulting in reduced productivity of machines and workers.
Sales: Sales of all nationalized jute mills are centralized at corporation. They conduct 5 to 10 per
cent as state-to-state and bulk sales, often at discounted price.
The test of sales are conducted through export brokers in which case also 'discounts' are allowed
for the sake of 'competition' with local private mills and with imaginary Indian competitors.
All these 'discounts' are nothing but under-invoicing the sales, for personal benefit of sales
officers. The net result is that nationalized jute mills get sale proceeds at least 5 per cent lower
than ruling world price, as obtained by private owners.
Cost of producing one ton World ruling price and sale Profit/Loss sacking (jute bags) proceeds
per ton of sacking per ton of sacking
Indian Private Mills
a) Average cost of one ton of raw jute pur chased from farmers right in market reason: 26.5 mds
X Rupees 475 = Rupees 12,590/=
b) Average cost of wage of workers on 62 man-hours-ton basis = Rupees 930/
c) Other costs : Oil, starch, transportation maintenance, power, financing, overhead, etc. Rupees
6,370/=
Total Cost : Rupees 19,890/= per ton
Nationalised Mills of Bangladesh
a) Average cost of one ton raw jute, purchased from stockists after market season is over, 26.5
mds X Tk. 650/= Tk. 17,225/
b) Average cost of wage of workers on 150 man-hours-ton basis = Tk. 2,250/=
c) Other costs: Oil, starch, power, transportation, financing , maintenance, overhead, etc.
Tk. 7,500/=

Total Cost: Tk. 26,975 /= per ton
World Ruling Price Rupees 22,000/=
Sale proceeds : Rupees 22,000/=
World ruling price : Tk. 26,000/=
Actual sales proceeds : Tk. 24,500/=
Profit per ton: Rupees 2,110
Loss per ton : Tk. 2,475/=
///articles
// pape cuttings to be filed
photographs ??

Jute Industry Analysis - Declining Industry

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PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT OF

THE REQUIREMENTS OF THE COURSE ON

INDUSTRY & COMPETETIVE ANALYSIS

Anindita Sampath (120/39)

Appendix A – Facts at a glance

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Jute: The Golden Fiber

2. Jute Industry Definition

The jute industry in India is fragmented and comprises of around 75 mills.

Table 1 bring out the following characteristics of the industry:

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4. Geographical location of the mills

State Dec-99 Jun-00 Dec-00 Jun-01 Dec-02 Jun-02

5. Jute - A declining industry

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(APRIL / MARCH) HESSIAN SACKING CBC OTHERS TOTAL

1995 - 96 413.9 676.3 30.5 312.3 1433.0

(APRIL / MARCH) HESSIAN SACKING CBC OTHERS TOTAL

1995 – 96 266.9 665.5 2.3 226.6 1161.3

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MILLS DATE OF SUSPENSION OF WORK

J K KANPUR (U.P.) 13 / 4 / 1987

NEW CENTRAL 29 / 12 / 2000

UNION (NJMC) 15 / 1 / 2002

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Flow of raw jute

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7. Steps in Jute production

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The conventional jute products includes:

 Jute yarn - of various counts

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Jute Hydrocarbon free cloth

Jute geotextiles and Hessian

• Helps stop erosion damage

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Carpet Backing Cloth

Home furnishings and textiles

Industrial uses of jute

• In the Cable industry

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Main Products & Present Markets

Lighter Packaging India, African & Latin American Countries

Geo-textiles USA, West Europe

Shopping Bags USA, Japan, Saudi Arabia

Floor Covering USA, West Europe

Other Diversified Products USA, West Europe

9. EXPORTS OF JUTE GOODS DURING 2001 - 2002

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EXPORT OF 5 MAJOR JDPS FROM INDIA DURING 2001-02

Hand & Floor

10. Research & Development

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11. Porter’s Five-Force Analysis

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Apart from these, significant portions of buyers are foreign importers.

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 Packaging purposes: Jute is a flexible packaging material. It faces being substituted by

Major Players in the industry (India)

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