Sanjay Lalbhai, CMD, Arvind, says that the retail market has been a difficult but the company has out performed the market. He also says that the company exports around 40 percent of the production and export segment is contributing well to the performance of the company. The company is not facing any interest and debt issues.
"The company plans to fund its growth with internal accruals rather than raising equity," says Lakbhai.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Take us through what went so good. Was it a combination of better margins as well as volume expansion?
A: Our topline has grown by 16 percent compared to last year. Our net profits are up by 44 percent and our EBITDA margins are up by 34 percent compared to the previous year. This is due to topline growth and secondly, our brands have grown by 35 percent. Our woven and denim business has turned in very good numbers so we can see the surge in our PAT numbers.
Q: There was expectation that the company would outperform this time due to festive season. After the festive season, almost a month have go by now do you see demand holding up or are there signs of dithering again, is demand getting back to being weak?
A: For brands in retail, it is been a difficult market but we are outperforming the market. The markets are difficult and the season was not strong as expected but we reported good set of numbers. We expect to exceed the budgeted numbers set for January-March. The market is not in a strong position but we will outperform the market.
Q: What is the export position, what percentage of your revenues came from exports and how are those markets doing?
A: Our exports are doing pretty well. Around 40 percent of our production is exported. Though the markets in Europe and America are difficult but we are seeing strong demand from our customers.
The American economy is turning around so we believe that the demand will become stronger. As far as Europe is concerned, because of our competitive position improving vis-à-vis China we don't find it difficult to retain or improve our numbers with our current customers in Europe.
Q: How will your finance cost do, at the moment the numbers are flat, you are doing about Rs 80 crore per quarter in terms of interest payment. Will you do something to bring down this cost?
A: We believe the company is not facing any interest and debt issues. Our EBITDA to total debt, is around 2.5 and is constantly coming down. So, our debt remains almost constant and our EBITDA is growing by 34-40 percent. The more important aspect is to grow the topline and EBITDA.
Q: Do you plan any equity raising plan in the near term to pay down debt?
A: No, we don't have any plans to raise equity. Most of our growth comes from internal accruals. We are not increasing our long-term debt and our topline is growing by 16-20 percent. Our EBITDA is also constantly growing with healthy margin. We like to see this type of momentum next year.
Q: On the retail side, if you could take us through what Megamart did? Gross margins last time around were closer to about 37 percent or so, have they improved from there? What is the outlook?
A: Megamart is slowly improving and we have seen topline growth of 4 percent. Our EBITDA margins are around 4 percent.
This business was giving around 6-8 percent EBITDA but due to excise and sharp increase in cotton prices we carried very expensive goods for the entire year. So, that will come to an end by March so we should see dramatic improvement in EBITDA margins and performance of Megamart in coming year. However, this year we saw consolidation, turning it around due to severe impact it had because of excise and also we had to flush out the kind of expensive goods which we had procured when the cotton prices were very high.
Q: You mention that your EBITDA margins went up by 34 percent. Can you give us a number as to what exactly the margins are? Last year same quarter you did 15.8 percent in terms of margins so what exactly did you do in terms of margins and more importantly can you better it? How was the cotton scene looking like now for the coming quarters? If you can better it by how much can you better it?
A: Our textile margins have gone up from 14.7 percent to 16.8 percent. So, there is a good amount of improvement in our EBITDA margins as far as textile business is concerned. Our brands in retail business are gone up from 6.6 percent to 7.7 percent. So, there is a good percentage and half improvement in our brands in retail business. Our brands are doing extremely well but Megamart this year has seen consolidation and for us the challenge will be to improve the EBITDA going forward.
On a whole, next year our textile margins should remain between 16-17 percent or it will go up to 20 percent because there will have an advantage of our hedge positions are coming to an end. Our positions were taken at Rs 49 and today we will get the advantage of Rs 53.5 or Rs 54. So, that should dramatically help our export realisations and our export margins. As far as cotton is concerned, it is very flat and the cotton markets are bearish. So, we do not see any kind of negative impact to hurt us in the coming year.
Q: You sighted that you would be looking to improve your topline to be able to leverage more on the EBITDA side. What is the volume growth expectations textile about 15 percent and about 7-8 percent for brands in retail, is that a fair assumption?
A: No, our brands are growing at 35 percent, which is a healthy growth. Megamart is only growing at 4 percent. So, on the whole the brands in retail have grown by 16 percent and our textile is growing at 14 percent. So, we believe that we will be able to maintain this kind of growth for the next year, around 16 percent of our topline.
Q: How the share of the various sectors will look next year? What will be the share of textiles, what will be the share of brands in retail and will there be some additional income from real estate which was always expected?
A: Our share in textile is around 55-60 percent and our brands in retail at 20-25 percent and the balance is very small. Our target on real estate for next year is to achieve a topline of Rs 300 crore and a healthy bottomline of 30 percent margin on that turnover.
So, real estate will start contributing because almost around 7-8 schemes are under execution and as per accounting norms unless we execute more than 25 percent of the scheme we cant book the numbers into our P&L. Our sales are robust and next year the accounting numbers will start showing as far as real estate is concerned.