Integrated Companies See Good Growth, while Pure Garment Exporters take a Hit on the Bottomline
After the debacle of 2009, the textile and garment industry is getting back on its feet and exporters are witnessing positive gains. Though it is difficult to analyze performances of most exporters as they are not too open to scrutiny, listed companies have shown that there are many factors that influence performance and that the structure of the company, the nature of integration and scope of operations play a major role in profitability.
A case in point is KPR Mills, the
fully integrated company from
spinning to garmenting has registered revenue increase of 26% in first quarter of FY’11 at Rs. 222 crore as against Rs. 175.8 crore, year-on-year basis. More significantly the net profit surged 333% to Rs. 28.4 crore as compared to Rs. 6.5 crore last year. Earnings before interest, taxes, depreciation and amortization (EBIDTA) margins came in at 27% versus 20.7%. Very impressive indeed…
P Nataraj, Managing Director, KPR Mills, is confident that the recovery has started from the international as well as domestic market. He is honest in his assessment when he admits, “We are able to do better performance because of demand in the yarn segment.” In the garment segment the company has added new clients for growth. Further, with the improvement in the power situation in Tamil Nadu, KPR Mills was able to achieve up to 90% capacity utilization. “Due to this, our turnover has increased and margin also improved,” he says.
Indeed it is an advantage to be an integrated setup and Alok Industries has demonstrated the same. The company has reported profit-after-tax of Rs. 465.1 million for Apr.-Jun. ’10, up 45.8% from a year ago. Net sales for the quarter increased 39.8% on year to
Rs. 10.99 billion. Encouragingly, export sales during the quarter registered robust growth of 64.6% at Rs. 4.36 billion. The upward trend has continued and for Q2 FY11 net sales was up by 48.90% at Rs. 1451.50 crore. Export sales for the six months ended September 30, 2010 stood at Rs. 10.41 billion compared to Rs. 5.83 billion in the corresponding period of the last fiscal year, a growth of 78.43%.
Commenting on the results, Dilip B. Jiwrajka, MD, Alok Industries said, “Our current quarter performance is indeed satisfying. This industry is now surely on the threshold of its brightest era. We are witnessing buoyancy in
the trade after a long time and this appears to be a sustainable development. We are fully geared in terms of capacity, technology, product development and human capital to tap the emerging opportunities in this exciting scenario, both on the cotton and polyester fronts.”
While home textiles account for a lion’s share of total exports at Alok Industries of almost 45%, garments account for about 6-7%. Others include polyester yarn at 25% and the balance is fabrics, cotton and cotton yarn exports. The company is undertaking capital expenditure of about Rs. 8 billion to expand capacity in polyester and cotton spinning. “In cotton spinning, we have a capacity of about 340,000 spindles; and we are increasing this to about 400,000 spindles by March 2011. Our second polyester plant is starting in December 2010 in stages. That would take our capacity from 200,000 tonnes per annum to 400,000 tonnes per annum by March 2011. We may plan another expansion of 200,000 tonnes per annum in polyester once we complete our current capacity addition project,” informs Jiwrajka. He adds, “Cotton prices have shot through the roof, which makes it difficult for common people to buy cotton products. Therefore, we are seeing increasing demand for polyester in the domestic market. Today, polyester accounts for about 55% of our country’s textile consumption while cotton makes up the balance 45%, which is likely to go up to 75% in polyester and balance 25% in cotton in next 4-5 years.”
As a pure garmenting company Gokaldas Exports Limited has had a more difficult time and though it achieved apparel sales turnover of
Rs. 228 crores, as against a figure of
Rs. 223 crores of Q1 of last year, the bottom line has been affected due to the pricing pressures and this has affected the realizations. Significantly, a loss of Rs.17.7 crores is reported. “This loss has been a consequence of low export realizations and the mid-April fire accident at our godown. Due to fire accident, the production got delayed by about 3 to 4 weeks, and the wage bill being Rs.1.05 crores per day has resulted in a production loss and has hit the bottom line. This delayed production also was responsible for air freighting some merchandise at the company’s cost,” said Rajender Hinduja, MD, Gokaldas Exports.
The company feels that the apparel export industry is still not out of the woods, with the high raw material prices and the wage increase of 22% from 1st of April, 2010. “Though the order position has improved, pricing pressures still remain. The orders for Q2 and Q3 exceeds Rs. 500 crores and post September 2010, an improvement in prices is seen, and we expect much better numbers from Q3 onwards,” added Hinduja. He feels that the future growth of the industry depends much upon the Indian cotton prices. “Our customers have indicated a positive interest in sourcing much more from India and this surely is a welcome sign,” he ends on a positive note.