Market strong; performance to improve in H2: Arvind

Confident Sanjay Lalbhai, chairman and managing director of Arvind told CNBC-TV18 that the company will perform much better in the second half of the year.

Arvind's consolidated net profit rose by 4.3 percent year-on-year to Rs 65 crore in the second quarter of current financial year. It reported a foreign exchange loss of Rs 17.4 crore during the quarter. Consolidated total income grew by 5.6% to Rs 1,324.6 crore from Rs 1,254.3 crore during the same period. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin 190 basis points year-on-year to 12.4 percent. The textile player aims to improve its EBITDA margins in brands and retail segment going ahead. "Our brands and retail business is growing by 10 percent and that should now improve to around 20 percent," he added. Below is the edited transcript of Lalbhai’s interview with CNBC-TV18. Q: What is the outlook for the rest of the year now after the first half delivery? The Q1 was marred by the strikes which you seem to have bounced back from the second quarter but for the second half what do you expect to achieve? A: The markets are strong, so we are looking at a much improved performance in the second half of the year. Denim is strong; our woven business is extremely strong in the second quarter. Our woven business has grown by 24 percent. In our textile portfolio, now woven and denim are going to almost be achieving the same kind of volume, which is around 9 million a month, so woven business is growing well. Brands and retail, which was going through our difficult period we have been able to get 6 percent EBIT in the Q2. Going forward, our EBITDA margin should be improving in brands and retail. We are confident that the year should end on a much better note. Q: What kind of EBITDA levels are you targeting for the full year? A: Our textile EBITDA is around 16.2 percent which we should be able to maintain or improve. Our brands and retail EBITDA is around 6 percent in the second quarter, which we should improve to 8 percent. Going forward, our objective is to take it to 10 percent. We should be looking at much healthier EBITDAs going forward. Q: What kind of volume growth are you expecting to see in the branded segment? A: We have grown only by 6 percent, but the base effect was different. Last year, Diwali was in October, so September was a big month. We are growing by 10 percent in brands and retail business, so that should now improve to around 20 percent. Our textile business should grow by 10-15 percent. Q: You said that the denim market was strong. Can you give us some more details on that on what is the kind of uptick that you are seeing in denim and what the international market is looking like? A: China is becoming expensive. We are getting the advantage of China loosing its market share. Though the export market is not very buoyant, our market share, Indian market share is improving. Arvind is doing extremely well in exports both for woven and denim. Always Q3 for denim domestically is a slow quarter, but otherwise denim has been showing 15 percent growth domestically. We believe that after the sluggish period is over in November, denim should be very robust in the domestic market also. Because of the Chinese becoming more expensive in textiles, Indian textile should do well in exports for many years to come. _PAGEBREAK_ Q: How is this festive season opening up in terms of domestic consumer demand? What are the early signs? A: It was sluggish to start with, but the last ten days are very good. We are exceeding our daily targets, so we are now more confident that Diwali should go as per our budget. It is to be seen how the market pans out post Diwali. It would greatly depend on how the economy is performing. If the feel good factor continues then we are confident that the markets would be healthy. However, if the economy slows down then it may have an impact on the apparel category. Q: What kind of trend are you seeing in cotton prices right now? A: Cotton is very stable. Globally, cotton is in oversupply so we see that the entire year till the next year cotton prices should remain bearish or stable. Q: What are your plans for the department store segment where you are trying to make some progress by acquiring operations of Debenhams, Next? What you’re your plans now and what kind of revenues are you targeting from that segment of operation? A: We are planning to open three more stores of Debenhams. We have two existing stores and we are looking at three more stores. We are looking at Delhi, Ludhiana and various cities where Debenhams would have more relevance. We are planning eight more stores to be opened in the coming eight-12 months. The total revenue from these brands would go up by Rs 100 crore. Q: Any update on how things are moving with the new launches in the real estate space and are you on target to meet the kind of revenues you forecasted from that segment for this year? A: We are on target. Around four schemes are operational. We have almost sold 3/4th of those schemes. Targets for sale have been achieved, now execution is happening. Three more schemes are getting launched. For next year, we are projecting that we should have a topline of around Rs 300 crore coming from real estate compared to Rs 80 crore this year. We are pretty much on target as far as real estate is concerned.