Sanjiv Shroff, Managing Director, Reliance Chemotex Industries Limited,
has been the Managing Director of Reliance Chemotex Industries Limited since 1988. He joined the company after graduating with Chemistry Honours from Calcutta University. His thorough operational expertise, extraordinary industry insight and uncompromising value system have moulded Reliance Chemotex into a widely-respected organisation.
In an interview with Shweta Papriwal, Editor, indiainfoline.com, Sanjiv Shroff said, “Our focus has always been on quality, flexibility, building lasting relationships with our customers and constantly reinventing ourselves and our product range.”
Can you give a brief on your business?
The business was started by my father Shri Shanker Lal Shroff in 1977 as spinning mill catering to the local apparel industry. Over the years, the Company evolved into a leading synthetic yarn manufacturer with a versatile product portfolio and customised offerings. In terms of manufacturing capabilities, the company began with 12,480 spindles in 1979 and has gradually increased it to 53,280 spindles. Furthermore, we have our own dye house with a capacity of 12 tonnes per day which has been our strength since inception.
I joined the business in 1983 and over the next few years, I worked closely with my father to understand the dynamics of this business. In 1988, my father decided to pass on the reigns of the business to me and appointed me as Managing Director while he remained the Chairman of the Company. His devotion to quality production, exceptional human relations and his irrepressible desire to be the best embodies everything Reliance Chemotex stands for today.
Our focus has always been on quality, flexibility, building lasting relationships with our customers and constantly reinventing ourselves and our product range. In the early 2000’s we conceptualised and developed multi-fold, fibre-dyed viscose yarns that revolutionised the artificial silk carpet and high-end upholstery industry. This remains one of the company’s core products today. In 2008, during the global economic slowdown, we added manufacturing capacity with a focus on technical yarns for the automobile industry.
Over the last 10 years, our topline has grown by more than 100% whereas our Net Profit has grown by close to 150%.
How has the company performed during the last year?
The Company’s performance for last financial year has been outstanding. We have reported a growth of 13% in Total Revenue, 201% in Normalized PBT and 57% in Net Profits. The domestic sales have grown by 37% and now account for 44% of total revenue whereas the exports have grown by 5% and account for 56% of total revenue.
On the operations front, due to our continued cost reduction efforts and relentless focus on optimizing our product mix, we have been able to improve our operating margin by 137 bps to 8.55% for FY19 from 7.18% in FY18.
During H1 FY20, our profits and margins have continued to improve. Although our revenue was marginally lower on a year-on-year basis, the operating profit has grown by 10% and profit before tax has grown by 54%.
On the balance sheet front, the company repaid Rs. 10.75 crores of its long term debt during last financial year and repaid another Rs. 2.3 crores of long-term debt during H1 FY20. Furthermore, during H1 FY 20, the company completed a rights issue which has resulted in an equity infusion of Rs. 23 crores and has further strengthened our balance sheet.
Can you throw more light on recently completed Rights Issue?
The Company completed the Rights Issue during July 2019 and raised Rs. 23 crores by allotting 35,62,713 shares at Rs. 65 per share in the ratio of 1:1. The proceeds from the Rights Issue were utilized to redeem 10% Cumulative Redeemable Preference Shares amounting to Rs. 23 crores. The redemption of preference shares will reduce dividend which is treated as an interest expense under IND-AS and will strengthen the balance sheet further. Post the rights issue, the Promoter shareholding in the Company has increased to 72.65%.
Under the current weak economic environment what steps are you taking to control costs and improve profitability?
As we have discussed earlier, we have always focused on strategic cost reduction and on further improving our versatile and value-added product mix. This, along with our flexible approach to manufacturing, allows us to respond quickly to market requirements. Furthermore, we have successfully pursued businesses that require yarns of extremely high quality and yarns that are utilized in technical end-uses.
Additionally, in our effort to further reduce our operating costs, we have evaluated the feasibility of installing Solar Panels (up to a capacity of 3MW) on the rooftops of our manufacturing units in Udaipur. This endeavour will reduce the Company’s carbon footprint, lead to significant cost savings and will, to a certain extent, insulate the Company from fluctuations in Industrial Power Tariff Rates.
You have talked of changing product mix towards more of value-added products as one of the reasons for improving profitability, can you elaborate more on any new product that you have introduced recently or are planning to introduce?
As mentioned earlier, we actively pursue businesses that require a consistent supply of yarns of extremely high quality and require the supplier to be vetted and be part of an established value chain. Additionally, over the last 18-24 months, we have established essential partnerships with raw material suppliers in the protected technical textile value chain and have been manufacturing technical textiles yarns. Our technical yarns are well accepted in the domestic and international markets.
What are your capex plans for the year?
We have embarked on an expansion and modernization project which will replace certain older machines while allocating others for research and product development purposes. The project will be completed in 2 phases and a total of 16,800 spindles will be replaced by December 2020. The project has been appraised by Rajasthan State Industrial Development & Investment Corporation (RIICO) and they have sanctioned a term loan of Rs. 35.50 crores at a very attractive rate of 9%. The loan sanctioned is also eligible for an interest subsidy of 7% post which the effective rate of interest will be 2%. The repayment tenure of loan is 9 years with 3 years of moratorium on principal repayment and 6 years of principal repayment with a ballooning payment schedule. This project will significantly reduce operating costs, improve profitability and operational efficiencies and further increase the flexibility of the company’s manufacturing.