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"Garment industry is likely to see consolidation…" - Views on News from Equitymaster
 
 
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  • Jun 21, 2001

    "Garment industry is likely to see consolidation…"

    Mr. Pradeep Kumar Bhandari, earlier the CFO of the Raymond Group, is currently the President-Corporate of Raymond Limited. A Chartered Accountant, Company Secretary and a LLB by qualification, he played a key role in the company’s restructuring exercise. Presently, he is responsible for the entire textile business of the company and also continues to look after the Group’s finance function.

    In an interview with equitymaster.com, Mr. Bhandari shared his views about his vision for the company. He also spoke about the company’s strategies that would provide the necessary impetus for Raymond to become a textile major.

    EQM: The growth in the textile segment has been on the decline towards the later half of 1990s. Do you see this trend continuing in the coming year also especially with exports slowing down in 4QFY01?

    Mr. Bhandari: The textile industry in general is going through a difficult period for last few years. Despite slow down, Raymond has been able to maintain its market position in the worsted fabric segment. Under difficult international market conditions, Raymond recorded a growth of 20% in its export business. We expect to achieve a growth of 10-15% in the export market in the current year. As far as domestic market is concerned, we expect an 8-10% growth in the fabric business. However, in the readymade garment business the growth is going to be much higher at 30-35%. Raymond, as a strategy, has been continuously expanding its own distribution network through Raymond retail shops. As of today, we have 257 shops including 13 overseas which are exclusive retail shops selling only the company’s products.

    EQM: What is your view on the recent policy initiatives taken by the government? TUF has helped a long way in modernising small-scale units, 100% FDI is allowed in the small-scale garments sector and revised labour policies?

    Mr. Bhandari: TUF is available to the entire textile industry and will definitely help in modernising the textile industry. However, this initiative has been taken too late and many of the textile units may not be in a position to financially support its modernisation. As far as garment industry is concerned, it has been suffering from restrictions on investments because of reservation for small-scale units. However, with the recent changes in policies, large investments may start in the garment industry.

    EQM: What is your opinion on imports and competition from multinational companies?

    Mr. Bhandari: In fabric as well as garment business distribution plays an important role. Raymond has a very strong distribution network which will help in competing with imports and multinational companies. Raymond has been in the export market for more than 40 years. Despite export market being not as profitable as the domestic market, Raymond continued to stress on exports so as to enable it to create facilities, which can compete with international players. In the years to come there will definitely be threats from imports but with a vast range of products and the distribution network we have, I am sure we will be able to compete with imports quite successfully.

    I personally feel that it will be very difficult for multinational companies to create large distribution network since at the current retailing margins it may not be viable to set up a chain of stores. Raymond, as a matter of strategy, continues to lay stress on increasing its own exclusive distribution network. We have plans to add 30-40 shops every year.

    EQM: Do you see the recent uptrend in denim prices continuing? What are the demand prospects for the denim segment?

    Mr. Bhandari: Yes, I feel that denim prices have bottomed out with prices going up by 5%-6%. See, basically there are two types of denim, one open-by-open and another ring-by-ring or ring-by-open. Ring-by-ring and ring-by-open are the superior variety of denim where we see a strong demand particularly in European markets. The ring-by-ring and ring-by-open prices are generally 15-20% higher than the open-by-open. Demand for denims showed positive trend in the international markets last year and we expect this to continue in the current year as well.

    EQM: What is your outlook for the files division? How do you see realisations and prices moving in the coming years?

    Mr. Bhandari: We expect our files division to report 8%-10% growth in the current year. Prices should remain more or less at the prevailing levels as some international capacities have been closed down. We expect that our share in the world market will go up to 35% by FY02.

    EQM: You still have close to Rs 5.2 bn as debt. Do you plan to retire this? How do you plan to utilise around Rs 6 bn of cash that you have?

    Mr. Bhandari: We have already retired debts close to Rs 200 m in the first two months of the current year. We could not retire the other loans basically because of restrictions in pre-paying external commercial borrowings (ECBs).

    There are also possibilities of investments by way of acquisition in the garment industry. The garment industry is likely to see consolidation and we would definitely be there to participate in this consolidation process.

    EQM: With increasing competition in the garments segment, how does Raymond intend to differentiate itself from other brands? Are you planning to open new direct retail outlets like say, Madura Garments? What about new product launches?

    Mr. Bhandari: We have plans to increase the number of exclusive `Park Avenue’ and ‘Parx’ outlets from 10-12 at present to 100 stores in 3 years. Though these will be small shops with 1,000-1,500 sq. feet against the average size of 5,000 sq. feet for Raymond Retail Shops, these outlets will be used to leverage the brands `Park Avenue’ and ‘Parx’.

    EQM: With the 16% excise duty being imposed, do you see margins coming down? Have you passed on the costs to the consumers?

    Mr. Bhandari: Yes, we have passed on the costs to the consumers. The prices have been raised by around 8-9% across the segment. Since there is Modvat available on fabrics, this increase more or less compensates for the 16% excise duty.

    EQM: Don’t you think in such a competitive environment outsourcing fabrics would be a better option than indigenous production, which could provide better margins and returns? E.g. Madura Garments

    Mr. Bhandari: Yes, I agree that in garment industry outsourcing do give better margins. We are also moving in that direction. We completely outsource garments for ‘Parx’.

    EQM: What is your planned capex for FY02?

    Mr. Bhandari: The capex for FY02 is around Rs 800 m of which Rs 200 m will be utilised to expand our denim capacity by 5 m meters.

    EQM: You have formed a new company called Raymond Infotech? What is the main reason for setting up this company?

    Mr. Bhandari: As per the 2000 budget, software companies set up in the software export zone are to get tax exemption for a period of 10 years. This company was formed last year to take advantage of this provision. Going forward, I don’t see any substantial cash infusion into this company. If possible, we can utilise this to work on an effective supply chain engine for Raymond and its wide spread distribution network.

    EQM: What is your vision for Raymond? Do you perceive Raymond as a pure textile major or…

    Mr. Bhandari: Raymond has built-up a strong brand equity over a period of time in the textile segment. Having achieved a status of brand leader in this field in India we are definitely looking at becoming a major force in the global market. The vision for Raymond is to be a globally competitive textile major.

    EQM: The personalities and books those have influenced you the most?

    Mr. Bhandari: I like Mr. Dhirubhai Ambani for his entrepreneurship primarily because he thought much ahead of his times, which nobody else could think so. I also like Mr. J.R.D. Tata for his statesmanship. I like Mrs. Indira Gandhi for her ability to do things with a certain zing.

    I have varied interest when it comes to reading. The one book that comes to mind at first is “Business @ Speed of Thought’ by Bill Gates.

     

     

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