Arvind Ltd CMD Sanjay Lalbhai said the company's is operating at cent percent capacity which will result in 25 percent growth in exports.
With China's exports standing at USD 276 billion as against India's USD 40 billion, Lalbhai believes the latter needs to focus on scaling up textile businesses that can be achieved by tackling issues such as labour and infrastructure.
The textile major has land parcels that can be monetised to reduce debt, by which they plan to retain domestic market share, he says in an interview with CNBC-TV18's Ekta Batra and Anuj Singhal.
Below is the verbatim transcript of the interview:
Q: I remember last year you had told us that FY14 would be the best year for Arvind and its history for the textile industry and that is something that we saw. What is the outlook for FY15 now that you have glorious FY14 behind you with the higher base, what kind of growth outlook could be there for FY15?
A: We grew by 30 percent last year and this year I think we should most probably grow by 25 percent. So, we are still quite buoyant about our growth prospects for this year.
Q: How the exports are doing for the company at this point in time, what did you do in terms of total export growth in FY14 and what are you envisaging in FY15?
A: Our exports are growing at around 20-25 percent, the topline is growing at 30 percent. So, exports are growing pretty well. This year also we are planning that our exports should grow by 25 percent and this is constrained by the capacity, so we are running at 100 percent capacity so we cannot grow any faster than this. So these are the kind of numbers we are expecting to achieve this year.
Q: Last year of course the big factor was rupee depreciation that clearly made Indian textiles very competitive, since then we have some appreciation in the currency, at 59-60 per dollar, does the Indian textile industry remained quite competitive and at what level would you say that there could be some problems in terms of competitiveness if the currency gains further?
A: The competitive framework has completely changed as I have been saying over the last year that China is dominating the world textile trade, they have an export of USD 276 billion against our number of USD 40 billion, which was published in a newspaper report. So we have become the second largest but there is a huge gap between China and India. China continues to grow at 13.5 percent in their exports even though their costs have gone up — the labour costs have tripled over the last ten years — and their currency has appreciated; this is happening because there is no scale in any other country.
Even if you see that Indian garments have done very well but in India, there is no garment business with scale. So unless we can build businesses with scale, we will not be able to migrate the business from China. So at 58-60 per dollar, we are very competitive because we have to also see what has happened to the Chinese currency. So it is a comparative kind of framework. China is becoming expensive but it is a question of achieving scale. Labour issues, infrastructure issues will have to tackled. If we can then I think there is no issue as far as our competitive framework is concerned. 55-57-58 per dollar should not create a major issue.
Q: What about the domestic market because there is lot spoken about the revival of the gross domestic product (GDP) in FY15 and FY16. Will you now also focus large part of your energies in terms of the domestic market in order to capture larger share of the domestic market and could you take us through the place that Arvind holds within the domestic market at this point?
A: We are the most dominant company vis-à-vis all the major brands in India, so we would have upwards of 50 percent market share in their kind of consumption of fabrics. So they are all very important customers and as they keep on growing at 30-40 percent, our brands are growing at 45 percent and some of the brands which we are servicing are also growing at a very handsome clip. So, we will have to keep on servicing them, so to that extent our focus on the domestic market will have to increase if the domestic market does better than what it has done in the last two years.
The last two years have been difficult for the market even though the markets were bad some of the well established brands have grown well. The retail business was weak; retailing of fabrics was weak for the last two years. So, we are expecting that if the economy grows at a much faster clip, I am sure that the domestic market will revive and we would like to retain our market share in the domestic market. Therefore, to that extent we may have to add capacities and focus more on the domestic markets.
Q: 40 billion to 276 billion is a lot of gap and being the leader you would want to do something about that. Now since you are saying that you are operating at 100 percent capacity, what is the next step? Would acquisition be a strategy that you would be looking at maybe domestically or is there some other strategy that you would look at?
A: We are thinking in terms of setting up Greenfield operations off scale and we are predominantly investing in setting up higher garmenting capacity because that is what India needs and the model which we are going to adopt is the kind of Chinese model where we will build dormitories and we will bring workers from where they need the jobs to that location and we will put them up on the campus and we will have scale. We will setup a garment facility which will deploy more than 10,000 workmen at one place and churn out more than 15 million garments with a turnover or topline of 1,000 crore. So, we will have cluster of Rs 1,000 crore complexes and that is what our strategy is going forward, to create scale.
Q: Considering that you are looking at 20-25 percent growth in the export market and you surpassed your FY14 guidance as well which was at 30 percent versus what you had earlier guided. Can you give us a sense in terms of your total revenue growth for the entire fiscal that you would be envisaging at this point in time along with the margin picture as well?
A: We are planning to grow at 25 percent and we should be able to retain our margin, so that's broadly the kind of guidance which we have given and we are confident that we should be able to achieve these numbers.
Q: What would your plan on the balance sheet be then, the debt as we last recall was at around 2,400 crore. Would there be any plans to scale that down?
A: We have decided that we will only grow from fresh cash flows so growth is going to be constraint to the extent that we will not borrow more and as our EBITDA grows, we are not planning to dramatically bring down the total debt but EBITDA will keep on growing as the topline grows; we are very concerned about our total debt to EBITDA ratio and we will improve that year in year out. So, that's the broad strategy. If we are able to monetise any large parcel of land, of course to that extent we will try and bring down the debt. Otherwise, the strategy is to constantly bring down the total debt to EBITDA ratio and improve it year in year out.
Q: Monetisation of land still remains an issue or still remain something that you would look at because on one hand you are saying that you are looking at setting up some Greenfield facilities, you would still look at some monetisation of your land?
A: These parcels are not going to be used. We have different locations in mind for setting up Greenfield projects. So, we have land parcels which can be monetised, something like another 500 crore is going to be planned in this year or the next year. so, we have good amount to look forward to. As and when the permissions come in, we should be able to monetise it and now the climate is also improving, so it should be easier to monetise land with the economy improving.
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