The Hindu Business Line : To meet post-quota regime demands — Textile exporters set to join public issue bandwagon

Faced with a deluge of orders following the January 1 deadline for phase-out of textile quotas, a number of big textile exporters are mulling the IPO option to raise capital for ramping up capacities.

Two of the biggest garment exporters — the Gurgaon-based Orient Craft and the Bangalore-based Gokuldas Exports — are among those planning to tap the capital markets, while a number of mid-sized and smaller players are also weighing the optionto fund their expansion plans. In fact, Crisil has estimated that textile players are likely to raise nearly Rs 16,000 crore by way of institutional and public equity investments over the next five years to meet the post-quota orders.

"We are looking at the option of an IPO. A final decision is yet to be taken but it (the IPO) is definitely on the agenda," Mr Sudhir Dhingra of Orient Craft told Business Line.

Gokuldas Exports Ltd has also chalked out an IPO and is planning to raise around Rs 150 crore, industry sources said.

While the bigger players are looking to consolidate on their leadership position, smaller and mid-sized players are also looking to raise capital from the markets to expand capacities and thereby achieve the requisite economies of scale for matching the prices offered by the bigger players. "The pricing pressure that has followed the quota abolition has made the survival of mid-sized and smaller players conditional to them matching global price benchmarks.

This can be possible only with expansion of capacities and tapping the markets is one of the major options before them," a textile sector analyst said.

Crisil has estimated that the textile sector could see an equity support of Rs 56,000 crore by the year 2010, of which around Rs 40,000 crore is projected to come from internal accruals of companies, while around Rs 16,000 crore is expected to be raised from institutional and public equity investments.

"In order to meet post-quota regime challenges, the Indian textile sector needs Rs 1,40,000 crore investment across the value-chain to achieve a 11 per cent annual growth rate by 2010," Crisil has said in a report commissioned by the Indian Cotton Mills Federation.

The Crisil report has assumed a debt-equity ratio of 1.5:1, thereby entailing an equity support of Rs 56,000 crore. The remaining Rs 84,000 crore would have to be raised by way of debt, of which banks and term lending institutions alone could provide about Rs 56,000 crore while the rest of the money is expected to be raised from foreign institutional debt and retail market debt, the report said.

Exporters have already started ramping up capacities in anticipation of increased orders from the US and European clients.

Welspun India, the world's fifth-largest terry towel maker, has augmented capacity expansion for terry towels and is planning to set up a Rs 575-crore facility at Anjar.

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