Mr. Sunil O. Khandelwal, CFO, Alok Industries Ltd.

Mr. Sunil O. Khandelwal, CFO, Alok Industries Ltd. Mr. Khandelwal is a qualified Chartered Accountant, and is working with Alok Industries for 19 years. As a CFO of the company, he is responsible for overall Corporate Finance, Accounts and Tax, Internal controls, Investments, Risk Management and Strategic Planning. During his tenure with Alok, he has gained wide experience in raising funds for project financing, working capital, acquisition funding from international and national lenders, equity fund raising in domestic and international markets, private equity, financial planning and budgeting, treasury, corporate accounts and taxation.

Alok Industries Ltd. is a fully integrated textile company and is amongst India’s largest textile manufacturers. Its strategy for attaining the leadership position is to focus on world class infrastructure, best-in-class technology, uncompromising quality standards and dynamic product innovation. Alok’s first polyester texturising plant was set up in 1989. It became a public limited company in 1993. Over the years, it has expanded into weaving, knitting, processing, home textiles and garments. Alok has also integrated backward into cotton spinning and manufacturing partially oriented yarn. The company also provides embroidered products through Grabal Alok Impex Ltd., its associate company. Alok has recently entered the domestic retail segment through a wholly owned subsidiary, Alok Retail India Ltd., with a chain of stores named ‘H&A’ that offer garments and home textiles at attractive price points. In 2007, Alok acquired a controlling stake of British retailer, Hamsard 2353 Ltd. Grabal Alok (UK) Ltd. is a UK based retailing company having 216 stores across England, Scotland and Wales. The Alok Group holds about 88% stake in Grabal Alok (UK) Ltd.

In an exclusive one-on-one interaction with Hemant P. Maradia of India Infoline Ltd., Mr. Khandelwal says: " We have been growing our topline at an annual rate of 25-30% and we should be able to maintain this momentum"

Since the plant visit in April, how have things progressed at Alok Industries?
From then (April 2009) till now things have moved very well. In fact, things for the company have moved in the same direction we had talked about. Today, most of the overseas retailers are looking at India as a strategic destination for sourcing. They are also consolidating their sourcing operations and restricting them to only the large players. Big Indian textile players like Alok Industries are having a very healthy order book. Even in the domestic market, we have seen demand growth.

During the economic downturn last year, most foreign retailers went for vendor consolidation to improve efficiency and cut costs. Also, they moved onto basic products, from the high-end premium products. We were able to match their requirements. Because of that, we didn’t feel the after-effects of the slowdown that much. We continued to receive new orders even during the worst of times. We were able to run our plants efficiently. Right now we are overbooked.

Smaller Indian textile players were affected but not the larger ones.

Does a long-term relationship with the customers help in anyway?
That of course helps. What also favoured us were the large scale capacities that we had created. Since, we were among the first ones to create large capacities we got the first mover advantage.

What has been the order inflow in the past few months?
Order inflows have been good in the last 3-4 months. In the home textiles segment, we are booked for almost 9 to 12 months. In apparel fabrics, our order book is full for the next 5-6 months.

What has led to this revival?
What has happened is that consumer demand in the overseas markets such as the US and Europe has improved. Buyers are much more confident now. Retailers whose inventory had totally dried up they are placing large orders now. So, we got the immediate spurt in our order book partly due to that.

We feel that overseas demand will remain healthy as the US, Europe and other matured economies are likely to witness positive growth momentum in the next 2-3 years.  In addition, demand from the domestic side is also picking up. India’s GDP is growing at a fair clip and incomes are also rising.

Do you have the capacity to meet the growing demand?
We have the capacities to meet these orders and we are optimising the capacities to improve efficiency. Plus, we are doing some balancing capex, which would help us increase the capacities. We would go for normal capex of Rs2.5-3bn over the next 2-3 years.

Are the US and Europe your big overseas markets?
Yes, correct. The US and Europe remain our main overseas markets. Almost 60% of our exports are to these two markets. But, we have recently added Middle East and certain Asian economies like Sri Lanka and Bangladesh to our portfolio. We are also looking at Africa and Latin America as major markets.

Do you have any concern on the so-called double-dip recession overseas?
Even if the slowdown happens again in the US and Europe, the large textile exporters like Alok Industries won’t be affected as much as the smaller ones.

Tell us about the recently finished capex?
We have spent Rs60bn over the past five years, starting from FY05. The expansion has been done across the value chain. We were never into spinning about three years back. We have now set up 3 lakh spindles of ring frame and about 3,000 open-end spindles. We plan to take this to 4 lakh spindles in a year.

Similarly, on the polyester side, we were making polyester chips. Now we have done backward integration and are now manufacturing PTA and MEG. On the weaving side, we have added quite a few looms. We are now close to 2,000 air jet looms. We have added capacities in knitting and processing as well. We have also forayed into terry towels. We have also expanded our garmenting capacities.

Are you already seeing the benefit of the expansion?
Yes, some benefit of this expansion has already started reflecting in our financial performance. But the full benefit will kick in by financial year 2011-12.

What will be the impact on your revenue?
We have been growing our topline at an annual rate of 25-30% and we should be able to maintain this momentum going forward as well.

What is your view on cotton prices?
Cotton prices have firmed up in two months. Globally too cotton prices have gone up. Though India is a cotton surplus country, and the cotton production has also risen, we expect the prices to go up further. Still, we have to wait and watch till the current crop season is over.

We don’t speculate on cotton prices. We buy the entire annual cotton at during the December to March period when cotton is usually harvested. We buy cotton on the spot basis. We buy cotton from the open market as well as from the CCI. We mainly buy cotton from Maharashtra, Gujarat and South India.

How will this affect margins?
The rise in cotton price is mostly demand led. So, we are able to pass on the increase to our customers. As a result, we don’t see any impact on our margins.

Are you planning any fresh fund raising?
We don’t foresee any project related funding requirement going forward. But, we are looking to improve our gearing. So, we may look at fund raising through the sale of some equity. We haven’t yet finalised anything as of now.

If at all we go for fund raising, it would be by way of issuance of new shares. We did a Rights Issue of shares in April 2009. Our gearing has improved a little after that.

What is the debt:equity ratio now?
The debt:equity ratio is 2.7 right now.

Tell us bout your plans for technical textiles and special textiles?
Technical textiles and special textiles will be one of the focus areas for the company in future. We are setting up a R&D facility for this at our Vapi plant. We would definitely like to grow this side of the business. This is a niche segment and it is growing rapidly. Today it contributes about 15% to our total apparel fabric revenues. We intend to take this up, to 30%.

What about your retail arm and its future plans?
As of now, we have about 150 stores across India under the H&A brand. We are looking to add about 250 new stores every year for the next 2-3 years. These are all franchisee run stores.

How is your UK retail operation doing?
Store 21 is the brand name of UK-based stores. We have been able to turn it around. We have 210 stores in the UK as of today. We are growing there also. We are opening 3-4 stores every month.

We believe you are looking at fund raising for retail?
Yes, our domestic retail operation under the H&A brand is looking at raising money for expansion. We are working on that and it would take some time to finalise.

What about your recruitment plans?
That is an ongoing process as and when we plan to hire 1,000 more people in the next six months at our Silvassa facility.

How do you plan to ramp up Garment and Knitting businesses?
Garment and Knitting divisions are growing a bit slower, but we see a lot of potential in these businesses going forward. We are looking at growing our presence in a big way in these two areas. Over the next 2-3 years, you will find these two divisions also clocking a good growth rate. Knitting in particular would grow significantly.

Tell us about your organic farming initiative?
We expect demand for organic cotton growing in the coming years. Also, we would like to support the cause of protecting the environment in the face of rising concerns on global warming. In the Vidarbha region on Maharashtra, we have tied up with an NGO called Jameen Organic. It is a tripartite agreement among the farmers, Alok Industries and the NGO. This partnership is working very well, and we are looking at various such initiatives in future.

Do you have your own CPP or you source from SEBs?
We have set up our own captive power plants. In Vapi, we have a 15 MW CPP, which is run by gas; our power cost is very optimum in Vapi. In Silvassa, we have a 50 MW CPP. It is a dual fired power plant and runs on gas as well as furnace oil. Gas is yet to reach Silvassa, but we expect it to be available in the next 9-12 months. That will give us some benefit in terms of cost reduction. We might add another 10 MW capacity in Silvassa in the next two years. We are waiting for the gas to come there.

What is the status of your SEZ plan at Silvassa?
About 2-3 years back, we had a plan to set up a SEZ at Silvassa. But, we have dropped that plan. The space measures about 500 acres. Now that economic activity in the country is on an upswing, we are hoping to find a suitable buyer for this property.

We don’t foresee any problem in selling this parcel of land. It will take some time but it should happen in the next two years.

What are your plans on the real estate side?
As of now we have decided that whatever investment we have made in the real estate space, we should encash the same. We would be doing that in the next two years.

The proposed commercial complex with Peninsula Land will be ready by Dec. 2010. We own a complete building (Tower B) in the Peninsula Business Park at Lower Parel. This is about 641,589 Sq. Ft. It is owned by a wholly-owned subsidiary. It is podium plus 20 floors. Construction on podium plus 10 floors is already complete. Enquiries are coming in. We are confident of selling the project by the time it is 100% complete.

Peninsula Land owns the other tower. They are also making other small tower.

Is Peninsula interested in buying your stake?
We are not talking to Peninsula for selling our part of the project and they have not shown any inclination towards the same either.

What about the residential complex at Nahur?
The other one is a residential complex at Nahur. We are launching that project in Feb. 2010. Otherwise, the project will take three years to complete. If some strategic investor wants to buy our 50% stake in this project we will consider that.

What are your expectations from the budget next year?
The excise duty on cotton is already zero. On polyester it is 8% now. We would like the Government to bring this down to 4%. It was pruned to 4% in the initial phase of the stimulus measures announced last year, but it was increased to 8% again in the Budget.

Cotton prices have gone up. So, the masses would look at buying polyester. Because the rupee is now appreciating, we hope the interest subvention of 2% will continue beyond March 2010 for another year or so.

On duty drawback rates, whatever the Government can do to improve the competitiveness of the Indian textile industry would be welcome. Lastly, the subsidy under the TUFS should be released on time. By and large, the Government has given a good support to the textile industry.

What is your message to the shareholders?
We are once again seeing buoyancy in the textile industry. We had never seen this kind of order book in the past. Exports as well as local, both the markets are looking very good. Alok Industries, with its recently expanded capacities, is well poised to capture the upcoming growth. Good times are here for the company, and the shareholders can look forward to some really good performance going forward.