Textile policy, GST, good monsoon to boost sentiment: Arvind

With the Textiles Minister Rashmi Verma today telling CNBC-TV18 that the Cabinet may take up the new textile policy within a month, Sanjay Lalbhai, CMD, Arvind said the policy is likely to increase competitiveness in the market.Moreover, he said with the 7th Pay Commission coming through and the likelihood of goods and services tax (GST) being passed in Parliament monsoon session, the consumer sentiment will improve significantly. The upcoming festival season could be a totally different picture in terms of sales.   Historically, too, the Q2 and Q3 have been better than Q1 for the company, said Lalbhai in an interview to CNBC-TV18. The company currently is seeing a consistent growth of 20-25 percent but it would be a bit too early to comment on the future growth trajector, he added.He said all their retail formats (Aeropostale, Sephora, GAP etc) are going as per plans and the company is also focused on opening new stores. At the store level, profitability is good, like-to-like growth is healthy, too, he added.Going forward, the company would focus on garments, he said.Below is the transcript of Sanjay Lalbhai’s interview to Mangalam Maloo and Reema Tendulkar on CNBC-TV18. Mangalam: A couple of weeks ago, we got the new policy. How does that help the company? How much of your revenue comes from government exports and what kind of benefits can you see on the back of duty drawback on the states? A: We are at around Rs 800 crore and we are growing very rapidly. So, with the kind of package which should have much more competitiveness compared to China and the Bangladesh which is eroding our market share, we should become competitive because it is not only the kind of duty drawback and refunding taxes which we are paying, but it is also a flexible labour policy. Reema: Let me come in on the Seventh Pay Commission which was announced by the Cabinet. The monsoon is playing out well so far. Does this mean that demand for the company can improve in FY17? What should we expect? A: As we all know that the consumption story was going through a little bit of a troubled times in India because there is not enough money in the hands of the consumer. So, this will go along way. A good monsoon, the pay commission now followed by the public sector units also rolling out the Seventh Pay Commission or the states rolling out the Seventh Pay Commission. So, there is going to be a substantial amount of money in the hands of consumers. And if goods and services tax (GST) is also to get ratified in the Rajya Sabha monsoon session, the sentiments will be all-time good. So we are really looking at a completely a different festival season, the next Diwali or the upcoming diwali. Mangalam: Could you give a number to that optimism? How has Q1 fared so far? What is your outlook for Q2, Q3 which have Diwali that you just spoke about? A: For me, second guessing as to how the demand, what kind of spurt and how much it will result into our topline, but usually, the second quarter and third quarters are much ahead of the first quarter because that is the slowest quarter as far as brands and retail is concerned. And we are growing at anywhere between 20 and 25 percent year in, year out. So, I do not know whether we will improve on that and there would be a huge spurt, it is very difficult to put a number there. All that I am saying is that for the first time, the consumer sentiment would be very positive. Reema: If you could just give us the return on capital employed (ROCE) and the revenue outlook for the brands Gap, Sephora and Aeropostale? A: I could only tell you that all these retail formats are going as per plan. We are opening many new stores. At the store level, the profitability is very healthy. The like to like growth is also healthy. So all of them have to reach a critical size to start giving us ROCEs and very good return on capital deployed. That is all planned out and in many of the analysts meetings, we have shared what kind of expectations which we have, but for me to give you all these numbers would be quite a difficult proposition. Mangalam: We just had a conversation with Textile Secretary, who said that the government policy which has been announced last week and there is a new textile policy which is likely to be announced next week as well or rather next month. What are your key expectations from there? A: The kind of things which we have been asking about is the similar kind of, the state taxes still not refunded, so we would very much wish that there is thought given to that. Labour flexibility which has been provided at the garment stage, if it can be provided for the entire value chain, it will be very encouraging. So, these kind of inputs would go a long way in making the entire value chain much more competitive than what it is today.