Mr. Kailash R Lalpuria, Executive Director and CEO of Indo Count Industries Ltd.
is a Chartered Accountant and has more than 37 years of experience in the Textile Sector. His expertise includes Strategic Growth of Organisation, Planning Joint Ventures, Developing Overseas Sales Team, and Contribution in overall Value Chain, New Areas of Business Development, Commercial Aspects of Export Business, Sales & Marketing and Customer Relationship Management. His entrepreneur skills to conceptualize business has established Indo Count as a successful enterprise.
Indo Count is among the few textile companies that have weathered traditional challenges faced by the sector and emerged as one of the largest exporters of home textiles.
In an interaction with Shweta Papriwal, Editor, indiainfoline.com, Mr. Kailash R Lalpuria, Executive Director and CEO of Indo Count Industries Ltd said,
“The Industry is witnessing a significant trend in terms of increasing migration of consumer preference towards value-added categories including Health & Wellness”.
Indo Count’s performance has been excellent during the last quarter. The Company has improved on the average quarterly volume. How do you see this trend going forward and what is your sustainable EBITDA margin guidance?
We have guided for annual sales volume of 72-75 mn meters. For H1FY21, we have already achieved 32.66 mn meters and we are confident to deliver on our guidance on the back of robust demand from our end markets. Our sustainable margin guidance of 15-17% is on the back of
Increase in volumes - We have improved on our average quarterly run-rate which brings lot of cost efficiencies. The volume increase is on the back of increased traction in demand for Home products as Home is becoming the center stage. There is clearly China + 1 strategy playing out which is recognizing capabilities of Indian Home textile players like Indo Count
Better Product Mix - With the migration towards value added categories of health, hygiene and wellness along with our R&D capabilities and innovations in these product categories, we expect better product mix with increased margin profile
Better RM Prices - We are fairly covered on the fluctuations in the cotton prices which should act as a cushion to any further price increase
We believe all these factors along with increased traction in demand for Home products will lead to sustainable margin profile of 15-17%
Do you see a structural shift in people’s preferences with “HOME” becoming a center stage?
Consumers haven’t been able to spend in the ways that they normally did in the past. There’s less spend on travel, restaurants and entertainment which has redirected a lot of their spending towards purchases of goods, especially things that they use to make their home environment more aesthetic and conducive to overall well-being. Also, various factors like work from home culture, focus on health and hygiene products along with the changing lifestyle will lead to a long-term shift in people’s preferences for Home products.
Can you elaborate on the recent brand launches and developments in the space of Health, Hygiene and wellness?
The Industry is witnessing a significant trend in terms of increasing migration of consumer preference towards value-added categories including Health & Wellness. Products which offer operational performance and sustainability along with fashion and utility are gaining faster momentum. In order to address these evolving customer preferences, we have launched products that offer better sleep and hygiene homes under the “Wholistic brand”. On the performance bedding side, we have launched products made of Sustainable material under “Sleep Rx™” performance brand. We have also announced exclusive partnership with Archroma in India which uses plant-based dyes for our products over conventional petroleum-based solutions.
With Indo Count’s good hold on the Sheet Set side, what are your plans on the Fashion / Utility and Institutional Side and what is the contribution of these segments to your overall portfolio. How big is this opportunity for Indian Suppliers?
Home Textile Size of US market at Retail is $ 28bn in which bed linen is $ 14bn i.e. 50%. The market comprises of Sheet Set (28%), Fashion (36%), Utility (25%) and Institutional (11%). India has a strong presence of ~50% on the Sheet Set side. On the Fashion, Utility and Institutional side, currently China is a dominant player in this category and India is still at a nascent stage. Rationalization of duty structure in Man-made fiber (MMF) by Indian Government will lead to level playing field against China where the cost difference is currently 20-25%. We believe China +1 Strategy will also help shift these product categories to India. Indian Home Textile Industry stands to gain on this potential shift of these product categories.
At Indo Count, we had already pre-empted the benefits of entering the larger segments of fashion, institutional and utility bedding in 2016 and had made strategic investments in building our capabilities. Benefits of this strategy had started to flow from Q2FY20 and we now expect this momentum to continue in quarters to come. As of H1FY21, Fashion, Utility and Institutional contributes 15% of our portfolio.
How is the “China + 1 Strategy” playing out for domestic home textile players?
On the back of the Covid-19 situation, many brands are expected to reduce dependence on a single geography. India is expected to be a preferred partner due to availability of cotton, skilled labour, manufacturing capacities and capabilities. Also, the government support under “Atmanirbhar Bharat” has uplifted confidence of domestic manufacturers. The “China + 1” strategy has already started playing out in consumer durables and to some extent in the pharmaceutical sector. With India being the second largest home textile exporter after China, we expect domestic manufacturers to benefit for long term from this structural shift.
Do you foresee Retail consolidation in your main market of US? How will this benefit Indo Count?
We expect consolidation from many small retailers to few large retailers due to their higher financial capabilities and increased capacities to process larger orders. With this consolidation, companies with focused solutions and faster go to market approach will stand to gain market share. We believe, our strong relationships and higher capabilities with large retailers along with our significant investments in creating backend infrastructure, our credibility as consistent and innovative supplier partner to our customers across the globe will greatly enhance our positioning in the market.
What is your current duty structure and any additional government incentives excepted in near term?
Currently, incentive structure comprises of Duty drawback of 2.6% and Rebate of State and Central Levies and Taxes (RoSCTL) of 8.2%.
The government is expected to announce Remission of Duties or Taxes on Export Products (RoDTEP) scheme which aims to reimburse the taxes and duties incurred by exporters such as local taxes, coal cess, mandi tax, electricity duties and fuel used for transportation, which are not exempted or refunded under any other existing scheme. The implementation of the scheme would make India a WTO-compliant exporter in the international market. However, since there is no notification from the government on the new scheme, it is early to comment now.
With your Net/Debt equity historically lowest at 0.06x , what are your plans on maintaining this ratio?
At Indo Count, on the back of continuous efforts, we have been able to reduce and repay our debt. We believe in sweating our exiting capacities and only then look for expansion plans. We have sufficient capacity for growth for FY22. We are currently on the drawing board to address and assess future capex plans.
Concerns related to second wave of Covid is visible in countries like US and Europe. What kind of impact has the second wave of Covid has had on your business?
Our customers are the big box retailers. Along with the in-store experience, these retailers are selling online or offering store pick-up to ensure safety of customers. We believe as people have now adopted to the new normal, the option to purchase online and offline has led to a new demand environment. These retailers follow a high level of disciple and safety measures for the overall wellbeing of their customers and employees. Despite higher restriction on movement of goods in certain regions, we don’t see any significant impact in our operations.
Your outlook on Cotton prices
Cotton prices recently bounced back following a steady fall driven by the pandemic’s effect. We expect cotton prices to remain steady from here. Our average Indian cotton procurement rate is around Rs.41,000 / Candy levels.