Labour reforms is a long-pending demand. Cost of labour is high in India. Standardization of labour laws is also an important aspect
The spate of restrictions being implemented in various states is bound to impact consumer sentiment and sales, and a quicker rollout of vaccines is necessary to sustain the economic recovery, Raymond Group chairman and managing director Gautam Singhania said. In an interview to Mint, Singhania said his group has focused its efforts on cost rationalization and reducing debt, adding that he expects fiscal 2022 to be more like a pre-covid year. Edited excerpts:
How do you see mini lockdowns being announced by state governments impacting your business?
Any lockdown impacts sentiments. It impacts sales. In any case, whether you have a lockdown or not, if you have imposed a covid-19 test to enter malls, your footfall will dramatically drop. I think the faster we vaccinate people and the faster that has an impact, the faster we will come back to normalcy.
Obviously, things are far better than last March, but vaccines will bring down the number of covid-19 cases and the consumer sentiment will turn positive.
How do you see this fiscal panning out for your company?
There has been cost rationalization across all functions. We were aggressive in terms of advertising and marketing, but post covid-19, we have slashed that. Yes, working capital has been a priority and in the last two quarters, we have reduced our debt, which has helped us bring in more efficiency. So, this fiscal could be more like a pre-covid year.
Our FMCG is doing well as we are very strong in the branded space. We have focus in that area now. We merged the prophylactic business with the FMCG business, and we do see a month-on-month growth. It needs a multi-pronged approach, so we are working on various aspects. Our debt-equity ratio is under 1 and we are comfortable with that, but we are on a downward trajectory; we are improving our debt-equity. In our real estate segment, we are in the affordable luxury segment and looking forward to new launches this year. We are, however, not looking at setting up any large factories this year.
Cotton prices are up this year; will that impact your business?
Raymond is a more branded value-added services company, so it does not impact us as much. However, the current import duty is at 10% as the tax comprises a basic customs duty of 5%, and an additional 5% to finance the development of agricultural infrastructure in the country was imposed in the recent budget.
Added to that is the shortage of (shipping) containers, which has pushed freight prices up by 300%. So, if you factor in the import duty as well as freight prices, the current cotton price per kg is almost up by 50% in comparison to pre-covid level. Resultantly, yarn prices have also gone up approximately by 40%. Also, with countries banning the use of Chinese cotton, the preference is driving the Indian yarn. So far as retail is concerned, that is not a big problem as the cost can be passed on, but the businesses that have a large B2B customer base will have an impact.
How does the shortage of shipping containers impact your business?
It is a cost impact. But the container issue is a much larger issue. First, you had the pandemic. Then a massive snowstorm in the east coast of the US and then the Suez Canal issue. So, two things will happen. One, the containers are in short supply and two, the cost of containers has shot up.
With the fuel impact, the logistics cost will go up. The container issue will take four-six months to normalize as the entire cycle is disrupted.
Any specific relief that your sector has sought from the government?
One of the long-pending demands is the labour laws. Cost of labour is very high in India and since ours is a very labour-intensive business, the cost becomes a concern and also standardization of labour laws is an important aspect. In Ethiopia, however, the cost of labour is around 50% of the cost in India. Also, trade pacts with European Union countries and the US puts India in an uncompetitive position as far as global competition is concerned. So, technically, if I have to export garments to Europe or the US, we end up paying higher duties. Whereas countries like Bangladesh, Vietnam are at an advantageous position as their governments have a good trade pact signed with those countries. That is the reason we went to Ethiopia as there is no export duty from Ethiopia to the US or Europe.