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Indian Rayon – Riding on fashion trends

Jun 28, 2000

This has been a phenomenal year for Indian Rayon, the flagship company of the Aditya Birla group and the third largest manufacturer of polyester yarn in the country. The company has acquired Madura Garments, de-merged its sea water magnesia unit, and de-bottlenecked some of its operations. Though it has posted a net loss for the year, businesses have improved. Garments
The company acquired Madura garments and their brands like Van Heusen, Allen Solly, Louis Phillipe, Peter England with the exclusive rights to market them in India, Gulf and the SAARC countries. Currently the garment business constitutes just 5% of the total turnover of Indian Rayon (this business was formally added to the company only in the last quarter of FY00). But this has high growth potential.

Just to put the size in perspective, the men’s readymade garment market in India was estimated at Rs 60 bn in FY00. It is expected to reach Rs 150 bn by FY10. However, the branded segment accounts only for 25% of the sales. Considering the projection of 45%-50% by FY10, the sales would be Rs 75 bn by FY10. Indian Rayon currently has 30% market share of the branded apparel market, which works out to a total turnover of Rs 23 bn. Apart from this the company has forayed into the women’s readymade segment, which again is an untapped area up till now.

Yarn
Exports of almost all varieties of yarn registered an impressive growth during the year. The share of fabrics in the total exports of synthetic and rayon textiles was the highest at 44% followed by yarn and made-ups at 34% and 21% respectively. The company is planning to improve quality by strengthening the yarn and widen both the export and regional market. For example, in south India the use of yarn in saree’s is gaining momentum. These should have some positive effect on the topline growth of the company.

Anchoring the show
Rs m FY99 FY00 Change
Fabrics 20,120 21,120 5.0%
Yarns 12,660 16,330 29.0%
Made-Ups 7,050 10,050 42.6%

But, on the downside, with textile and clothing market becoming fully integrated with global markets under the WTO regime, the domestic companies will have to face competition not only from domestic companies but also from other leading multinationals. Moreover, polyester filament yarn is a matured industry with both sales and realisations declining due to change in fashion trend (rexin is the recent fashion).

The company is aggressively expanding its distribution network and multi-branded outlets. The move is aimed at consolidating its position in the textiles and ready made garments market. Coupled with the recovery in the insulators and carbon black division, the move is anticipated to give the company a boost in coming years. The stock is currently trading at Rs 70 at a P/E multiple of 2.1 on FY99 earnings.

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