Will reduce debt to Rs 2400-2800 cr by end of FY17: Arvind's CMD

However, exports are doing well, but domestic markets will see an adjustment period, he added.

He said that company's debt to reduce to Rs 2,400-2,800 crore by FY17 end.Below is the verbatim transcript of Sanjay Lalbhai’s interview to Latha Venkatesh & Sonia Shenoy.

Sonia: For you 2016 was a pretty good year, you sold 10 percent of your brand and retail business for Rs 740 crore. I want to start by asking you what the outlook is for that business itself because this is a segment that has been growing for you at a compounded growth rate of 25 percent for the last three years. Do you think that the next three years look equally good?

A: We are very confident about this business. I think the unique thing and the valuation also clearly indicates that we have been able to create a platform. So, some of the marquee brands and some of the best brands globally, we are the first kind of reference as far as India is concerned and we get the first option to agree or disagree on bringing them to India. So, it is a very good platform, I think we have been doing extremely well in this business and we are equally confident about the future.

As far as demonetisation is concerned, in November everyone had a setback but we are very happy to note that December has surprised us and the key accounts in our own exclusive brand outlets (EBOs) are almost on budget. The only problem we are facing is with our multi brand outlets which are around 400 in numbers and that would constitute around 15 percent of our business. They are doing reasonably well as we are being told but there are cash flow issues, so they are not able to pay us on time. They will have to I think migrate to the formal economy and ensure that the cash flows are met.

However, otherwise we are very confident. Let us see as to how January, February, March goes and that would indicate the trend, but long-term we are extremely buoyant. The other thing which is very evident is that compliant and organised players are definitely likely to do much better, not only because of demonetisation but also because goods and services tax (GST) is likely to be introduced sometime in July or September and that would make the formal economy stronger. So, that is also very evident that the value segment that is unlimited and I have heard lot of opinions on unlimited but I am happy to state that all the formats be it Reliance Trendz, FFB or Max or all the value formats and unlimited have done almost 200 percent of their Budget in December. So, that is very heartening. I think the formal compliant players are definitely going to win and win big.

Latha: I wanted to know about the informal sector's pain as well. You have much more sources and ground sources. We got some very tearful stories from both Bhiwandi and from Tiruppur. Is the informal sector in great pain? Will it be able to survive and joint the formal sector at all or are we going to see formal sector make a lot of money but a lot of misery otherwise outside it?

A: Tiruppur should not face any problems because they are absolutely on exports they are not servicing the domestic market at all. It is a question of just getting used to banking and paying everything through the banking system, but otherwise there is absolutely no pain because exports are doing extremely well and there are no issues.

As far as the domestic market is concerned, there will be an adjustment period and they will have to migrate and understand. I personally feel that they are absolutely capable. It is just the question of becoming compliant and some of the advantages, which they used to enjoy being non-complaint, I think one will have to admit that one will have to make that change and because they are a reasonable size of the entire textile value chain - I am sure that there would be winners and losers in that space but it will require a bit of adjustment period but I am sure that they were aware because they were preparing themselves for GST.

Of course in this informal segment I think unless the problem happens people continue and hope that things will be as usual. However, I think it is a good reminder for them, a wakeup call and now they will be much better prepared for GST.

Sonia: How smooth has the payments channel been, before demonetisation what percentage of the payments for your products were coming in through plastic money and post demonetisation has there been any kind of change?

A: Yes, substantial change. Now almost 80-90 percent is through cheque or other mobile kind of monetary facilities. However, prior to that it was 60:40.

Latha: You told us about your revenues and your guidance was 25 percent for the brands and retails business. The guidance you gave us was 35-40 percent doable?

A: No, this quarter we will not be meeting our EBITDA numbers for this business but we are hopeful. We are working on January, February and March and the team is telling me and they will try and achieve the budget. So, let us see. However, early days, giving guidance would be too foolhardy I would say.

However, they are feeling that December has gone very well, so one is hopeful that the next quarter will pan out more or less around the kind of budgets we have prepared but I won’t like to hazard a guess.

Sonia: Your group is still sitting on about Rs 3,000 crore of debt. Have you used any of the money from the sale to pare off your debt and how much could your debt reduce to say over the next two years?

A: Absolutely, I think almost Rs 1,000 crore, 1/3rd of our debt would be lower this year so we will be down to around Rs 2,800 crore from where we were.

However, now we are not looking at debt because we are growing in turnover and everything. So, working capital is getting added on but we will have no long-term debt except Textile Upgradation Fund (TUF) money, which is very cheap and I think it is more to do with the kind of number which I have been always talking about that we are chasing EBITDA to total debt and that would be down to 2.4 percent or below that.

So, we are headed towards two times to EBITDA to total debt which is as comfortable as you can get. On the contrary, it is very safe and it is the best situation to be in. I think we have done remarkably well. I have been always talking about this and we have been able to achieve our objectives this year.