There is a need for consolidation in the textile industry

Updated: Jan 1 2006, 11:05am hrs
Welspun India Ltd is one of the largest producers of terry towels in Asia, with an annual sales turnover of Rs 453.21 crore. It generates almost 80% of its revenue from exports. Jitendra Kumar Gupta of The Financial Express speaks with BK Goenka, vice chairman & managing director, Welspun India Ltd. Excerpts:

The company has grown constantly over the last 2-3 quarters at around 35-40%; how far is this growth sustainable

The company certainly aims at sustaining the 30-40% growth, which is evidenced by the huge expansion it is going in for. The post quota scenario coupled with the booming demand in the home textile sector globally and the shrinking base of US and European textile manufactures, provides, unique opportunity which the company is poised to capitalise on. The expansion project is next to the existing Anjar facility which entails enhancing of capacities of towels, bed sheets and spinning facilities and also entering into a new product line viz decorative beddings.

When do you expect the completion of phase II Anjar expansion plan and what kind of returns is the company expecting

The Phase II Anjar expansion will be completed in a time frame of 24 months. The proposed expansion could start contributing to top line from 2nd quarter of the financial year 2006-07, thus reducing the project completion cycle significantly. With the proposed expansion, the company expects a significant boost in its top and bottom line as well as sustainable returns to stakeholders.

The company has generated almost 82% of its total turnover through export; going forward how do you see export to contribute

The domestic market volume is likely to increase from 4% to 10% of total business, thus exports would remain the key focus and shall contribute to about 90% of the total turnover.

How do you look at the domestic market to grow and what are the company's strategies to penetrate the same

The domestic market is growing at the rate of 8%. This is being further fuelled by the current retail boom in the country which has a 3% share in the $330 billion global retail market. Our retail presence gathered momentum this year with "Spaces" our retail face of the company reaching the 50 plus store mark and therefore achieving high penetration levels. The need for consolidation arises amongst the domestic textile companies, since they face competition from even their Pakistani counterparts.

As the other domestic players are eyeing to enter or expand the existing capacity in the towel and bed linen segments, how do you look at the growing competition

With the existing capacity expansions in the next phase of development at our plant at Anjar, we are on the fast track to growth. The company has achieved an enviable position with its customers which is not easy to duplicate. The company enjoys strong relationship with 12 out of 20 top retailers in the world which has been a result of last 10 years' sustained efforts.

Chinese exports to EU and US have grown faster than India. What is your take on the Chinese competition in the international markets

In home textile segment, India is nearly utilising its capacity to its peak. Welspun which has just doubled its terry towel facility has already nearly booked its entire capacity. It is now clearly established that India is the second most preferred alternative to China for textiles sourcing, according to a new study from the Confederation of Indian Industries (CII) and KSA Technopak. Huge new capacities are coming up in this sector in India, with corporates taking advantage of finance from the Technology Upgradation Fund (TUF) at just 3% interest and a debt-equity ratio of 2:1. Further the US and European buyers do not prefer to rely on only one country, since they run a huge risk owing to political and other instabilities which may arise in future. India with its stable political outlook and also being net exporter of cotton and better designing capabilities and traditionally skilled labour clinches a decent share in the international market.

Indian companies' efforts to improve its power situation (to attain parity with China in terms of availability of power at the most competitive rates) include the establishing of the captive power projects at all major factory locations.

Also the European Union and the US are constantly pressurising China to improve its labour conditions on a massive scale. With the quotas being slapped on China, India and other developing countries have a three year breathing space, during which ideally India should concentrate on overcoming its present shortcomings ie those of power shortage, redundant machinery, aging infrastructure of ports and roads, etc.

With competition high in the domestic and international market, how is the company guarding its operating margins

This is done by producing cost effectively, with the aid of state-of-the-art brand new imported and fully automated technology driven plants. Secondly, procuring raw material at most competitive prices also enables safeguarding of the profit margins by hedging the raw material price rise. To this extent, the company is going in for corporate cotton farming wherein the company will be procuring huge tracts of cotton growing agricultural land in and around its factory locations.

What are the demand drivers for the Indian textile industry and how do you expect this to grow

Closure and near bankruptcy status of large home textile companies like Pillowtex, West Point Stevens and Dan River, etc in the USA have left a huge void in the supply situation particularly in the USA and Europe. American home textile companies have started to invest in factories in Asian countries. Springs Industries for example already has floated global ventures in Latin America. Both Springs and West Point have opened offices in China, and are considering joint ventures there. They are looking at India, too, and Pakistan may also come into the reckoning. Thus there is a clear shift of production from the developed countries.