Bangalore: Large textile firms are gearing up to increase production after almost a year-long lull, on the back of a revival in international orders, but the pressure on pricing continues.
Several apparel exporters say their order books are filled up to at least December, a peak sales season for retailers in the US and Europe in the run-up to Christmas.
Encouraged, the Blackstone Group Lp-controlled Gokaldas Exports Ltd, a Rs1,200 crore exporter employing at least 42,000, will open a new production facility in Hyderabad by the end of September. The unit will produce around 100,000 pieces a month and add around Rs50 crore to the company’s turnover.
“We’ve had the facility ready with us for over a year now but didn’t think it was necessary to start operations,” said managing director Rajendra Hinduja. “Now that our order book is full till February, it’s time we add to our capacity.”
The new factory provides Gokaldas an opportunity to drive its export business by volumes rather than margins. Export orders that had declined by 20-25% are improving but prices have stayed 10-15% lower.
“Now, even when things are returning to normal, clients don’t want to return to normal pricing,” said Hinduja, whose key clients include some of the world’s biggest retailers such as GAP Inc., Levi Strauss and Co., Nike Inc. and Reebok International Ltd.
The past 8-10 months have been rough for Bangalore-based Gokaldas, which has 46 manufacturing facilities in Chennai, Hyderabad, Bangalore and Mysore, and owns the apparel retail chain The Wearhouse. Its net profit in the June quarter declined to Rs2.81 crore from Rs11 crore in the year-ago period.
About one-third of India’s textile and garment exports are shipped to the US, but this constitutes less than 5% of the US’ imports, Union textiles minister Dayanidhi Maran had said recently.
Between January and April, India’s textile and clothing exports to the US declined by 14% compared with a year ago to $1.78 billion (around Rs8,700 crore) because of a slump in demand, Union minister of state for textiles Panabaka Lakshmi said recently in Parliament.
Orient Craft Ltd, a Gurgaon-based apparel exporter which is also expanding its production facilities, has decided to stick to the 8-10% price cut it currently offers to buyers, though it means a slight squeeze on its profit margins.
“Getting the pricing right is a huge challenge for Indian exporters, which is why Bangladesh managed to overtake India in exports in the last six-seven months, in the height of the recession,” said chairman and managing director Sudhir Dhingra.
Garments produced in Bangladesh are 15-25% cheaper than those from India, and Cambodia’s textiles are 15-20% cheaper, he said. The two countries are India’s closest competitors in the global textiles export market.
To reduce labour costs, Orient Craft, which earned around Rs800 crore in 2008-09, is setting up its new garment unit in Bhilwara, Rajasthan, employing 3,000 workers to produce around 250,000 pieces a month. The facility would be ready by November.
In the coming months, exporters will get more bookings but have to fight to cut costs in areas such as infrastructure and labour to retain the right pricing, said Dhingra.
Praveen Nayyar, vice-chairman of industry lobby Apparel Export Promotion Council, said that though business is improving exporters should not be expanding in a hurry.
“Some of India’s largest clients in Europe and the US haven’t been in great shape in the recent past and so we need to really see how business picks up. Accordingly, exporters should increase production,” said Nayyar, also managing director of Dimple Creations Pvt. Ltd. Nayyar is betting on consolidation rather than expansion for his firm.
Sunil Khandelwal, chief financial officer of textile firm Alok Industries Ltd, thinks otherwise. “If you can increase production capacity, there is no dearth of orders,” he said.
Alok Industries plans to boost sales by 30-35% by increasing its production capacity. The firm had export revenue of around Rs1,050 crore in 2008-09 and wants to add another Rs265 crore in 2009-10. It will set up two new garment factories by the end of 2009.