Chennai/Bangalore: Domestic textile exporters, faced with a fast appreciating Indian rupee, have initiated steps to bill their exports in rupees for the first time, aiming to protect their margins by passing on the currency fluctuation risk to buyers.
Gokaldas Exports Ltd, India’s largest garment exporter, has already started billing two of its European buyers in rupees, while the JVS Group, which has the world’s largest retailer, Wal-Mart Stores Inc., as its client, has begun negotiations with buyers and is hopeful of converting some contracts by this year end.
“Rupee billing will begin across the industry. This will be the trend,” said Rajendra Hinduja, managing director, Gokaldas Exports, which has revenues of Rs1,044 crore last year.
The Indian rupee has appreciated by 11% in the current calendar year and this has adversely affected the profit margins of textile exporters, who work on single digit margins in a competitive global market.
Textile exports from India touched $17 billion (Rs67,150 crore) during the year ended March, out of which apparel exports was at $8.4 billion.
The net margins in apparel exports range between 5% and 8%, according to the Apparel Export Promotion Council.
Current trend: The production centre of Gokaldas Exports in Bangalore. The company has already begun billing two European buyers in rupees.
Exporting through rupee billing shifts the currency risk to overseas buyers, thus allowing Indian producers to earn profit from manufacturing alone.
Through rupee billing, buyers in international market would pay more if the rupee gains in value and pay less when it is otherwise. Thus, rupee billing is an indirect way of asking buyers to pay more.
“We are talking to other suppliers and also requesting export promotion councils to spread the message,” says Britto M. Joseph, managing director of the JVS Group.
JVS Group, which has clients such as Wal-Mart Stores Inc. and UK’s largest retailer, Tesco, has already taken the initiative towards rupee billing. “The shift is inevitable and we hope to succeed by this year-end. As the risk factor shifts to them, the resistance level is there,” said Joseph.
As a first step, JVS said it has started converting US dollar billing of Europe-based customers to their local currencies. Compared with the US dollar, the pound sterling and the euro has gained 7.5% and 4.8% in this calendar year.
Gokaldas, which is now currently 50% held by private equity firm Blackstone Group, said it is talking to three buyers to move from the euro to the rupee, and expects to account for 20-30% of its total exports in the Indian currency, which has appreciated against the dollar, the currency it bills most of its customers with.
A. Sakthivel, president of Tirupur Exporters’ Association, said: “It’s a buyers’ market now and it’s very difficult to convince buyers to rupee billing. But, members have started making efforts in this direction.”
In response to rupee appreciation, SP Apparels Ltd, an exporter of garments in Coimbatore, said a few European customers have raised prices between 3% and 4% without affect their profitability.
Vidhya Sivaramakrishnan contributed to this story.