GHCL — which has businesses across textiles, soda ash and edible salt segments–says the impact of demonetisation, especially on FMCG sales, is going to be only short term. Ravi S Jalan, the managing director of GHCL, says demonetisation will pay “rich dividends” in terms of higher tax mop-up by the government and more transparency in business transactions over the longer term. He also says India now accounts for roughly a half of the sheet imports by the US, which is a remarkable feat. In an interview to FE’s Banikinkar Pattanayak, Jalan pitches for an FTA with the EU to further improve the country’s competitiveness in textiles and garments in that key market. Excerpts:
GHCL is a big player in some of the most labour-intensive industries, such as textiles, soda ash and edible salt. How has demonetisation impacted you?
Demonetisation is an effective way to increase tax collection and boost the economy. The textile sector is also responding well to this move. We have always believed that strong, transparent systems should be in place for conducting businesses. Even much before demonetisation, we had started the practice of paying our labourers through cashless modes. Hence we haven’t witnessed any challenges during this period.
To what extent do you think demonetisation has affected your revenue or profits in the third quarter?
Our production level has been good, but our FMCG sales have been slightly impacted due to lower demand, especially in rural areas. While the situation is improving, it could take a few months to offset the impact completely.
You have been a supplier to big companies like Target and Bed Bath & Beyond. Is the flow of orders from the US or the EU for Indian textile players recovering or is it still tepid?
India’s share in the sheet imports by the US is increasing year on year. In the last two years, it has been well past 50%, compared with 47% previously. This is mainly due to the reliability of Indian exporters as well as the consumption growth in China. This 3% increase on a huge base like the US provides ample growth opportunity Also, we hope that a free trade agreement (FTA) with the EU will make Indian exporters competitive in that key market. (For instance, industry executives say, Indian yarn, fabrics and garments attract export duties of 4%, 5% and 9.6%, respectively, in the EU, while competitors like Bangladesh export there at zero duty).
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How much of a goods and services tax (GST) rate would you suggest for textiles and garments? There are some players who seem to favour even 12%.
I think a zero GST rate will be the best for the textiles and garments sector, which is one of the largest contributors to the country’s gross domestic product (GDP), rural employment and foreign exchange.
Also, the sector shouldn’t be exempted from the GST ambit as it will give rise to cascading effects in costs for the entire textile value chain. When the GST is in place, it will create a level-playing field for everyone and will be positive, particularly for companies, such as GHCL, with integrated processing facilities (For integrated players, the input tax costs can be seamlessly offset against output tax liability).
GHCL is one of the largest manufacturers and exporters of soda ash, with customers like HUL, P&G and Philips. How do you see rural demand shaping up for FMCG products in the coming quarters?
The economy has witnessed mammoth process of demonetisation and it has its short-term impacts too. At present, we see some improvement in the demand trend in FMCG, but it will take some more time to be back to normal completely.
How much of a rise do you see in your revenue and profits in 2016-17, compared with a year earlier? What is driving your growth?
GHCL’s revenue has grown 1.9% to R703.14 crore during the second quarter of this fiscal, against R690.34 crore a year earlier. However, during the first half of this fiscal, the company registered 72.4% growth in net profits to R193.11 crore, against R112.04 crore in the same period the previous year. GHCL’s income rose 9.3% to R1,429.83 crore in the first half of 2016-17, compared with R1,308.54 crore a year before. We are targeting year-on-year growth of 20% in our profits. As far as growth in revenues is concerned, there would be a marginal rise, as our capacity expansion in soda ash will be in operation next year. Apart from a strong work force, the company has benefited from lower prices of commodities, especially coal.
What are your expansion plans?
We have various expansion plans for both inorganic chemicals and textiles segments. Our expansion in soda ash is on track and we expect it to be completed in the current quarter. This will result in a 12% rise in production volumes, with additional 1,00,000 tonnes brownfield capacity.
The total capex outlay for the project was R375 crore. An incremental capex of around R80 crore has been allocated for debottlenecking soda ash capacity by 25,000 tonnes, apart from doubling the sodium bicarbonate capacity (It will be raised by 30,000 tonnes).
In the textiles segment, we have allocated R70 crore towards the expansion of our processing capacity from 36 million meters to 45 million meters, along with building capacity for producing value-added yarn and expanding weaving capacity.