Sanjay Lalbhai, chairman and managing director of Arvind expects the recent rupee depreciation to help the textile firm become more competitive. He says Europe and America are not growing, while China is witnessing slowdown.
"The Chinese have 40 percent market share of the world textile trade. So, we are chipping away and getting a higher market share because of our competitiveness," he told CNBC-TV18 in an interview. The textile firm is growing at a healthy clip of 15 percent in exports, Lalbhai says. Also read: Textile cos in better shape, see no slippages: Karur Vysya Below is the verbatim transcript of his interview to CNBC-TV18 Q: The prime candidate after this kind of rupee depreciation would be an exporter company. How is the situation on the ground? Are you better able to compete? A: That is true because the depreciation in rupee makes us more competitive compared to our competition. China is becoming more expensive, their currency is appreciating unlike all the other currencies in Asia. So, as a result we are becoming more competitive compared to China. The Chinese have 40 percent market share of the world textile trade. We are chipping away and getting a higher market share because of our competitiveness. Q: On the other hand China is also a huge growth engine that was growing at 13 percent and is now probably likely to just manage about 7 percent. That 6 percentage point fall in its gross domestic product (GDP) over the past six years comes at a time when Europe and America are also not big consumers. Are you seeing it very difficult to find demand there? A: It is true that the markets are not growing. Europe, America and even China are slowing down. But what is happening is that we are getting a higher market share of a shrinking market or not growing market. So, we are able to do better. Last year our exports de-grew by almost 4.5 percent, from 34.5 billion to 32.8 billion. However, what I have been hearing is that in April-May-June our textile exports maybe growing at a healthy clip of around 10 percent. The data will only come in August but this is what the early indications are showing that we have started growing again in our textile exports. Q: With respect to exports and Arvind in particular, three questions; (1) what is the contribution of exports to Arvind (2) you have come out with revenue guidance so what is your expectation of the export growth in Arvind in FY14 and (3) because of the rupee depreciation what perhaps will be the improvement in export margins, if you could compare that with perhaps what we saw in FY13. A: Our breakup of exports to domestic is 60 percent is domestic and 40 percent is export. Last year our exports stood at USD 300 million and we are growing at a healthy clip of around 15 percent in our exports. The margins would improve, not only because of the depreciation of rupee because you need to understand that all the other costs also go up. Cotton is linked to international prices so is fuel linked to the international prices. So, when rupee depreciates all these costs also goes up in concurrence to the depreciation of rupee. Therefore, we do not get the benefit on the entire value add, we get benefit on 40-50 percent value add, but it makes us more competitive which is for sure and helps us grow our topline. Our textile business should be growing at 16 percent. So, we are pretty bullish on our textile business. Domestic as well as exports is growing at around 16 percent. Q: We are also standing at very decent monsoon; do you think that FY14 will therefore see some improvement in margins because of the raw material getting cheaper? A: Raw material is a very complicated thing as far as cotton is concerned, there is enough stock worldwide in cotton so the supply is plentiful. However, China is buying all the cotton and building its reserves. So, unless you know the Chinese policy whether they will build on the reserves which is already more than a year of their consumption, it is very difficult to predict as to what will be the demand supply equation in cotton. However, if you purely go by demand-supply, I think the cotton prices should remain stable because of good monsoon in India. Also the world cotton crop except in America is likely to be pretty large. So, we believe that cotton prices should remain stable. But whether we will be able to improve our margins because of cotton prices? We will only be able to say that in November-December of this year. _PAGEBREAK_ Q: Could you tell us where the debt on the books currently stands at and is there any percentage of your debt which is perhaps in foreign currency? Any repayments which are due perhaps in this fiscal year? A: All our debt is in rupee terms. So, we have no foreign exchange liabilities because of our borrowings. Our borrowings stands at around 2,500 crore which is 1:1 debt equity. Now we are not very concerned about our debt because our EBITDA to debt is also healthy at around 2.8. We are trying to bring it down to 2.5 because as we are growing, our EBITDA margins are growing and our debt is not growing at the same clip. So, we are pretty happy with the kind of debt equity situation, which we have and total debt to EBITDA which is also getting healthier every year. Q: You were expecting cash flows from the sale of your land and a bit trance is to start kicking in from FY14. How much money will come in from that sale of your realty business this year and what will it be used for. Will it be to retire debt? A: Basically we are investing around Rs 600 crore-700 crore and we are generating that kind of free cash flow. So, whatever monetisation we are going to be able to do by sale of our land may go into repayment of our total debt, but otherwise it will go towards growth. The whole company is growing at around 16-20 percent on a reasonably large base so that requires capital investments and also our working capital keeps on going up. So, what we are very carefully monitoring is our long-term debt does not go up. Our long-term debt stands only at 1,200 crore and our EBITDA is at around 800-900 crore. So, I think total repayment is only to the extent of 1,200 crore. We are not concerned about our working capital debt. That will go up as our turnover and topline grows. Q: Your working capital days increased to 84 from 66 in FY13 as well we understand inventory days worsen to 110 versus 94. I am reading out from a research report, FY13 debtor days worsened. So, in terms of balance sheet ratios this look uncomfortable and hence the question will you be using it to retire debt or will things look good because you will make more money this year? A: We will be making more money and these aberrations do come in depending on where our market share in sales move because if we sell more to Bangladesh; Bangladesh requires three months credit against leading composite (LC) so our account receivables go up. Therefore, it all depends on where we are selling and what percentage of sales goes to which geography. However, it is all controllable. Last year we were carry little more cotton stock. So, all in all it will all come down and as far as numbers of days are concerned we are back to our e also original numbers. Q: Your revenue guidance for the current year is 20 percent? A: About 20 percent. Q: Where the working capital days, inventory days as well as debtor days currently stand at? A: I do not know exact number but they are very much under control. Q: Monetisation of any real estate business does not contribute in FY13. Is there any likelihood of it contributing in FY14 and what is the total capex which you have outlined in FY14? A: We are in the process of getting permissions for large tracks of land which we own in Ahmedabad. The exact timing is always difficult because these procedures always get prolonged beyond our estimation but we are hopeful that we will get the permissions during this fiscal and if all that is to happen we can look at around 200 crore-300 crore of divestment of our land bank but to predict exact number is difficult because it will all depend on when the permissions will come through. The second issue is the real estate market is pretty slow so we will also have to decide on the timing as to when we want to sell this stretch of land. Our capex is going to be around Rs 500 crore to Rs 600 crore.Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!