The Hindu Business Line : Eastern Silks shifts focus to domestic market

Eastern Silk Industries Ltd, in a major initiative, has decided to shift focus to domestic market instead of relying wholly on exports. Mr G. Venkatesh, President of the company, told Business Line that the tricky global market situation and fluctuations in currency markets has prompted the company to make fresh investment in the domestic market and roll out a retail plan.

Eastern Silk has obtained 150 acres in Bhagalpur in Bihar for setting up a textiles park and has planned a Rs 130-crore investment for the park infrastructure and also a silk fabric printing and processing unit there at a cost of Rs 300 crore.

Co-branded venture

In terms of retail channel, based on an independent report, Eastern Silk is considering a co-branded venture. “Initially, we may test the waters with a partner. Doing things on our own or with a strategic tie-up are two other options. We would take the final call within the second quarter of 2008-09. Given the erratic export market, we would require shifting our marketing focus on domestic market,” he said.

Q4: slips into red

Eastern Silk has reported a net loss of Rs 15.63 crore in the fourth quarter ended March 31, 2008 against a net profit of Rs 15.46 crore in the corresponding quarter of 2006-07. A combined effect of recession-related pressure, which forced the company to renegotiate prices at a discount with a US client on an existing contract, and also downward revaluation of closing stocks and losses on currency derivatives, to the tune of Rs 5.1 crore in the fourth quarter of 2007-08, caused the net loss, Mr Venkatesh said.

The share of dollar-denominated sales of the company is largest at 38 per cent. Euro zone accounts for around 28 per cent, while West Asian countries contribute roughly 12 per cent. Australian and the Asia-Pacific regions take care of around 18 per cent of its exports.

Mr Venkatesh said the trend in the first quarter suggests that the low-end products are the worst hit by the slowdown in the developed economies. “The upper end products are still maintaining their price levels. To avoid the sudden shock, witnessed in the previous quarter, we are now re-confirming our existing long-term contracts with all our clients.

Mark-to-market losses

A company official explained that the mark-to-market losses on cross currency derivatives as of now in April is around Rs 12 crore. It has put and call options positions in yen against the dollar and Swiss Franc against the dollar. All the currency derivatives contracts ESIL entered into are long-term, due for expiry in 2009.

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