Tirupur exporters billing in euro, pound to hedge against dollar fall

Tirupur exporters billing in euro, pound to hedge against dollar fall
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First Published: Wed, Nov 21 2007. 01 33 AM IST

Revisiting roots:  P. Nataraj, MD, KPR Mill. Despite the appreciating rupee, the company hopes to grow revenues by around 50% from Rs512 crore last year.
Revisiting roots: P. Nataraj, MD, KPR Mill. Despite the appreciating rupee, the company hopes to grow revenues by around 50% from Rs512 crore last year.
Updated: Wed, Nov 21 2007. 01 33 AM IST
Tirupur, Tamil Nadu: The rupee’s rise against the dollar—11% till 20 November—has resulted in around 8,000 workers in the town losing their jobs thus far, according to the representative of a local industry body.
Tirupur is one of the country’s largest apparel export hubs, and though only 30% of its exports end up in the US, almost 70% are billed in dollars, making the town’s around 3,500 textile units vulnerable to any appreciation in the local currency.
Around 100,000 of the town’s 700,000 workers in apparel units could lose their jobs by March if the “situation” is left unchecked, said A. Sakthivel, president, Tirupur Exporters Association.
Revisiting roots: P. Nataraj, MD, KPR Mill. Despite the appreciating rupee, the company hopes to grow revenues by around 50% from Rs512 crore last year.
A stronger rupee makes exports uncompetitive (they cost more in dollars). With the average price of apparel exported from Tirupur being around $2-2.5 (Rs79-98), margins are already wafer-thin and customers, usually large departmental stores in the US, are unlikely to agree to a price increase.
Even as they clamour for government support, some exporters in Tirupur have started billing in currencies other than the dollar, hedging their foreign exchange exposure, increasing cost and production efficiencies, focusing on short-term contracts, and even selling their products in the domestic market—all in an effort to ensure their profits are not hit by the rupee’s rise.
Last year, Tirupur’s apparel units exported Rs11,000 crore worth of products. And most exporters work on profit margins of less than 10%.
Worker representatives clai-med exporters are holding out job loss threats in an effort to gain some leverage in bonus negotiations that usually happen at this time of the year and garner additional incentives from the government.
“While it is true that rupee appreciation has affected their (exporters) operations, there is no information so far regarding job losses,” said K. Subbarayan, a Communist Party of India member of Parliament who represents Coimbatore, the constituency under which Tirupur falls.
The government has already announced incentives such as duty rebates and shipment credit for exporters.
Meanwhile, some exporters are trying to bill customers in their local currencies.
JVS Group, which exports to Wal-Mart Stores, Inc. and Tesco Plc., said it has convinced some of its European customers to bill in local currencies.
While the dollar has lost 11% against the rupee, the euro and the pound have lost only 1.4% and 7.1%, respectively.
“Companies, by billing in local currency, can reduce the impact of rupee appreciation,” said Roopa Raman, an analyst covering the textiles and clothing?sector?for?Fitch?Ratings?Ltd.
Sakthivel said doing this isn’t easy. Customers have realized they stand to benefit by continuing to bill in dollars. “It’s a buyers market,” he said.
Other exporters are revisiting their and Tirupur’s roots. The town built a name for itself in the global textile business by quickly executing small orders that required some am-ount of value-added activity.
KPR Mill Ltd, a large textile firm that recently sold its shares to public, has adopted this strategy. The company completes export orders in not more than 75 days, compared with long-term contracts that extend between six and 12 months, said P. Nataraj, managing director, KPR Mill.
Despite the local currency’s appreciation, KPR Mill hopes to grow revenues by around 50% from Rs512 crore last year. In 2006-07, one-fourth of its revenues came from exports.
Large firms such as KPR Mill and Royal Classic Mills Pvt. Ltd (RCM) have also started to look to hedge their foreign exchange exposure. “Companies could look at borrowing and repaying in US dollars which could compensate (for the rupee’s appreciation) to an extent,” said Fitch’s Raman.
Imports are a natural hedge. They have become cheaper with the rising rupee. However, Nataraj said, import price of cotton—which accounts for 55% of the value of apparel—is still high.
He added that imports were also made more difficult by issues related to logistics.
As a result, some exporters have started looking within to cut costs. A few are doing away with cost cushions or buffers they had built up over a period of time.
For instance, if an apparel needs 220g of cotton, an exporter could have budgeted 235g. Such buffers protect profits, according to D. Prem, chairman of the Prem Group, which claimed it would end 2007-08 with Rs200 crore in exports to Europe. “These buffers cannot exist under the new circumstances,” he added.
Even as they try and cope with such issues, exporters are cheering the growth of organized or formal retail in the country. Exporters claimed that several large retail chains are in talks with them for “private labels”, or store brands, according to R. Sivaram, executive director, RCM, a company that ended 2006-07 with Rs225 crore in revenues and Rs125 crore in exports.
RCM has been present in the domestic market with its own brands such as Smash and Classic Polo. The company now plans to double its domestic business to Rs200 crore in revenues by 2010.
Another company, SP Apparels Ltd, has recently acquired brands such as Crocodile and Natalia and is also focusing on increasing its domestic presence.
Exporters wanting to look at selling in the domestic market have to get used to the way the business works. Retailers in the domestic market do not pay for the apparel they buy from suppliers immediately.
Still, in an era of a weak dollar, a longer credit period is better than lower profits.
john.s@livemint.com
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First Published: Wed, Nov 21 2007. 01 33 AM IST
More Topics: Tamil Nadu | Tirupur | dollar | apparel | export hub |