Bangalore: Large textile firms are again scouting for acquisitions in India and abroad, mainly to expand capacities.
Companies such as Welspun Group, Vardhman Textiles Ltd, Nakoda Ltd and Shri Lakshmi Cotsyn Ltd have earmarked the bulk of their 2010-11 capital expenditure (capex) for acquisitions, responding to a sharp rise in both export orders and local demand.
Inorganic growth: A Welspun textile facility in Gujarat. The company says it will use most of the Rs156 crore it recently raised in a qualified institutional placement on capital expenditure and acquisitions.
The last time India’s textile sector saw a spate of acquisitions was in 2005-07, after which the downturn of 2008-09 cramped expansion plans.
“There are at least 10-12 companies who are looking at such inorganic growth,” said Ashish Dhir, associate vice-president at KSA Technopak Advisors Pvt. Ltd, a consultancy. “There are unviable textile plants in Europe and Asia available at throwaway prices and firms would explore those options.”
Nakoda, one of India’s largest makers of fully drawn yarn, is close to striking its first acquisition—a polyester factory in South Korea for around Rs115 crore—and will look at similar deals in countries such as Taiwan, chairman and managing director Babulal Jain said.
The company will spend another Rs300 crore on overseas deals as part of its Rs1,500 crore expansion plan over three years. “There are good acquisition opportunities in Korea and Taiwan, where several textile units are shutting down, and we see a lot of potential in them,” said Jain.
Welspun Group, too, wants to enter new markets. The company will deploy most of the Rs156 crore it recently raised in a qualified institutional placement on capex and acquisitions, said director (corporate affairs) Akhil Jindal. “We are looking at some options, but can’t disclose which are these overseas markets.”
Welspun isn’t new to foreign acquisitions. In 2006, it bought an 85% interest in the UK’s largest towel maker CHT Holdings Ltd, which owns the high-end brand Christy. The following year, it acquired a 70% stake in Portugese luxury bath rugs brand, Sorema-Tapates e Cortinas de Banho SA.
Industry experts say foreign deals are easier now than domestic acquisitions. But KSA’s Dhar cautions that managing overseas operations would be a challenge for Indian companies and sustaining the businesses may be difficult.
Among companies focused on purchases in India is Kanpur-based Shri Lakshmi Cotsyn, part of the Shri Lakshmi Group of Industries, which wants to nearly double yarn production to 150 tonnes a day, from 80 tonnes now.
The company is close to buying a spinning mill in Lucknow for Rs125 crore after buying another spinning unit from Uttar Pradesh Mills Production for an undisclosed amount in April.
Ludhiana-based Vardhman Textiles, which has set aside around Rs1,000 crore for capex and acquisitions in 2010-11, is also keeping away from overseas acquisitions.
The firm is scouting for plants with 80,000-100,000 spindles in states such as Punjab, Madhya Pradesh and Himachal Pradesh.
“There are one-two such opportunities that we are closely looking at,” said Sachit Jain, executive director of Vardhman Textiles.
The textile ministry is aiming for a growth of 12% for the industry in the next five years and wants to increase India’s global trade share in the sector to 7% from 4% now, textile minister Dayanidhi Maran had said at a Confederation of Indian Industry meet in February.
One company keeping away from acquisitions, at least for now, is Secunderabad-based Suryalakshmi Cotton Mills Ltd, which in February won an order from Wal-Mart Stores Inc. for 2.5 million metres of organic denim.
“We will spend Rs150 crore on acquisitions next year, but for now it will expand its spinning and denim capacities,” said managing director Paritosh Agarwal.