The Hindu Business Line : Celebrity fashions a new blueprint

Celebrity Fashions Ltd, garments supplier to top global brands, which went through a trough post its IPO last December following a chain of events, expects to make a strong comeback by the fourth quarter of this financial. Early this year, the Rs 150-crore company acquired the trouser-making facility of Ambattur Clothing at the Madras Export Processing Zone for Rs 85 crore.

The plant, with a capacity of 4 lakh trousers a month, supplies to high-fashion brands Gap and Anne Taylor as well as Levi's Dockers. As Mr V. Rajgopal, Chairman and Managing Director, Celebrity, explains, two months into the acquisition, it was hit by a double-whammy of sorts, which derailed the company's plans temporarily.

"While we were going through the process of integrating the two companies, two of the biggest customers of this plant, Gap and Anne Taylor, sought that Celebrity go in for a requalification as a supplier because we were the new management. It was a bit unpleasant for us but we went through the process," he told Business Line. This process took three months, which is the order placement period and sampling for two seasons. So, in July and August the large plant was running at just 50-60 per cent capacity.

In fast-tracking Celebrity's growth through acquisition, the company did have to go through a downside, he explains. The lower plant utilisation impacted two quarters. In Q2 it was a lower-priced business while plant utilisation was 50 per cent. Over Q3, utilisation has come back to 100 per cent but unit prices per garment are still on the lower side. From Q4 onwards all the customers, including Anne Taylor and Gap, will be back on board, capacity utilisation will be optimal and the order mix will go back to what it used to be. "Moreover, new customers who are Celebrity's customers, will also come on board," explained Mr Rajgopal. Brands such as Eddie Bauer, Northface and Nautica are coming in for supply of trousers.

The impact of the two poor quarters was felt by the bottomline as Celebrity posted a Rs 5.83 crore loss in Q2 while the share price plunged from a yearly high of Rs 269 to Rs 100 (on December 13).

However, the acquisition of the trouser plant has proved fortuitous in more ways than one for Celebrity. Unlike shirts, in which there is a constant price pressure from brands, apart from the glut of shirt-makers, the capital investment needed for trousers is much larger, which serves as an entry barrier for new players to jump in. Says Mr Rajgopal: "Three months into the acquisition we realised that trousers is the long-term product to be in. China remaining under quotas till 2009 for trousers to the US gives India a unique opportunity for sourcing of bottoms. Even in the quota era, India had a very small percentage of quotas for trousers, which is why premiums used to be very high. So, the number of people who got into trousers was very small."

As China is a huge holder of quotas for pants, historically it used to be the largest supplier to retailers in the US. However, in India, post-quota, while the opportunity presents itself for entrepreneurs, the skill-sets for making trousers are limited. "This was an opportunity we got along with the acquisition, though we were in a sense unaware of what was coming in the wake," adds Mr Rajgopal. The acquired plant possesses all those skills for trouser-making and can transfer the learning to Celebrity's other plants.

Next year, Celebrity expects to have a full order book of Rs 450 crore in exports alone.

In June, Celebrity inaugurated a Rs 20-crore shirt-making facility in the Sriperumbudur industrial belt. However, realising that trousers could provide better margins, Celebrity moved quickly to convert that too into a trouser facility at an additional investment of Rs 7 crore. Altogether, when the new plant gets going, the group will have a trouser-making capacity of 8 million pieces a year. Also, Rs 4 crore was invested in the acquired plant for value-added equipment like sand blasting and whiskering for trousers.

More Stories on : Outlook | Readymade Garments

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