Established in 1986 as a private limited company, Alok Industries Ltd. began with texturising of yarn and steadily expanded into weaving, knitting, processing, home textiles and readymade garments. Alok also controls an extensive embroidery operation through its sister concern, Grabal Alok Impex Ltd. In less than two decades, Alok has grown to become a diversified manufacturer of world-class home textiles, apparel fabrics, garments and polyester yarns selling directly to manufacturers, exporters, importers, retailers and brands the world over. Alok is amongst the fastest growing vertically integrated textile companies in India.
Mr. Sunil O. Khandelwal is the Chief Financial Officer of Alok Industries Ltd. He is a Chartered Accountant by profession, and has been with the company for the past 17 years. He is responsible for the overall finance of the company. He is a part of the core management team of Alok Industries responsible for strategic planning.
In conversation with Hemant P. Maradia of India Infoline Ltd., Mr. Khandelwal says that overseas companies are looking at a viable alternative to China and India fits the bill.
How do you see the Indian textile industry one and a half years after the quota-free regime was introduced in the global textile market?
The Indian textile industry has definitely performed as per the expectations. Exports have grown by 25%. The industry is still gearing up for this opportunity and lots of expansion is taking place. We have begun on a good note and we see good time ahead for the Indian textile industry.
Has India's managed to increase market share? What about prices? Has there been any improvement in realisations per unit in dollar terms?
Not really. India's share of the global textile trade is 3.5% at present. We are aiming at an 8% market share by 2010. Though the official data is not yet out where India's market share has gone up, but the growth is definitely coming. If not 8%, we will definitely reach near that level. As of now, we can't say that the country's market share has gone up.
I will not say there is an improvement in realisations, but there is not much deceleration let's put it that way. In the case of some of the apparel segments, realisations have increased very marginally. Nothing of much significance.
To what extent is the recent strong performance of textile exports attributable to the safeguards slapped on Chinese exports by the US and the depreciation in the rupee's value vis-a-vis the yuan?
India has strength in textiles. The overseas buyers are also recognising this now. The importers are looking at India, as they don't want to be too dependent on China. As a long-term strategy they are definitely looking at India as one of the sources for textiles. The safeguards on exports from China and the depreciation in the yuan are not the only reasons for them to look at India. Our design strength is very good; our quality of cotton and fabrics is also good. So, overseas companies are looking at a viable alternative to China and India fits the bill.
Where are the weak links in the Indian textile industry? What do you think should be the strategy going forward?
The weakest link is processing. And, thereafter it is weaving. The Technology Upgradation Fund (TUF) has really gone a long way in encouraging Indian textile entrepreneurs to invest in weaving and processing. We expect a lot of new capacities in weaving and processing coming up in the country from the organised sector. So, the limitations are being addressed, and in the next 2-3 years you will see the performance of the textile industry improve accordingly.
Out of the total textile exports from India, what is the share of apparel and non-apparel? How do you see this mix going forward?
By and large garment or apparel exports constitute 47-48% of the total textile exports from India. So, roughly half of the Indian textile export is that of apparels. The rest is home textiles, yarn, fabrics, silk, jute, etc.
To what extent has the stock market meltdown and the hardening of interest rates globally hit the company's future fund raising plans?
As far as Alok is concerned the company had already raised the required money from the market. So, we are not directly affected by the downturn in the stock market. None of our plans have been affected by the recent meltdown.
We do not have any plan of raising fresh money from the market in the current fiscal year.
Your OPM in both Q4FY06 and FY07 improved yoy. Could you tell us how did you manage to improve your margins?
This was mainly due to the expansion that we had gone in for in value-added products like bed sheets. So, value addition is helping us in getting our margins up.
What is your current debt-equity ratio? What is the cost of financing this debt?
Our debt-equity ratio is 2:1. The average cost of financing is about 5.5%. The cash level in the balance sheet is Rs5.25bn as of March 31, 2006.
Which is the fastest growing segment?
Apparels fabrics are the biggest revenue earner. Apparels fabrics and home textiles are prominent in terms of their contribution to the margins.
What is the share of exports in your total turnover? Where do you see exports in terms of percentage of your total revenues?
As at March 31, 2006, exports comprised 30% of our total revenues. In value terms it was about Rs3.8bn. Gradually, our exports should be 50% of our total revenue over the next two years.
USA is our largest export market followed by Europe. We are also looking at Japan, Australia, Latin America, Middle East, and even the African continent.
What are capex plans? When will you complete the capex plans?
Processing is the real strong point of Alok, and we have one of the largest processing capacities, both in home textiles and in apparel fabrics. In the latter, we have a strong positioning for woven as well as knitted apparel fabrics. We have gone in for backward integration in weaving and knitting. We are going in for further backward integration into spinning. That would capture the entire value chain, right from spinning to weaving, knitting, processing and garments. So, we are trying to create economies of scale through backward integration.
We have drawn up a capex plan of over Rs11bn under our Phase III expansion. We have raised External Commercial Borrowing (ECB) of US$100mn. This will be utilised over the next 2-3 years. So, overall capex plan works out to about Rs15bn, including the ECB.
Are you going in for any equity dilution?
Not in the next two years at least. Not till March 2008.
Are you looking at a retail foray?
We are coming out with outlets. But, I will not call it a proper retail foray. We have large capacities and would like to offload some of it in the domestic market, but I would not call it a proper retail foray.
Could you give us some sense of the company's future outlook in terms of its growth strategies, expected turnover, profits, etc.?
We want to be a finished product company. We want to supply garments, processed fabrics and bed sheets as a finished product. That should bring in a lot of value addition. We want to be known as the large producer of all these value added items supplying to various brands.
Are you planning any inorganic growth?
There is no firm plan yet but we are open for it. There are no concrete plans yet. We will look at targets with synergies with the overall company business.
What is your message to your shareholders?
The company has prepared itself for the quota-free opportunity and we are going to have good times ahead.