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G. Madhan

THE textile sector has managed to weave the fabric of success in 2002-03. An analysis of the performance of 121 textile companies that have declared their results till now shows that a majority of the companies have succeeded in wiping out the red ink from their bottomline.

The lead in this performance was taken by the top five textile majors - Indo Rama Synthetics, Alok Industries, Century Enka, SRF and Vardhaman Spinning. These companies, accounting for almost half the revenues of the entire industry, reported excellent earnings growth aiding the turnaround of the industry. In fact, but for these five companies, the overall sample would continue to show a loss for 2002-03, albeit a lesser value.

The sample shows a modest turnover growth of about eight per cent this year, from the corresponding previous year. The big companies managed to improve upon their performance. For instance, the net profit of Indo Rama Synthetics grew two-fold while Century Enka rose by 68 per cent.

Increase in the yarn prices, cost cutting measures including restructuring high cost debt coupled with the soft interest rate regime appears to have helped Indo Rama to improve the operating margins and boost the bottomline.

In the case of Century Enka, a sharp drop in the depreciation expenses appears tohave done the trick.

Some companies such as JCT and secondary textile manufacturers such as NRC, Central India Polyesters and Suryalakshmi Cotton Mills have also moved from losses to profits. Increases in yarn prices coupled with sharp drop in depreciation expense (about 35 per cent) and drop in interest expense (about 24 per cent) appears to have aided JCT's move to profits in this fiscal.

JCT's performance is despite the loss of Rs 1.6 crore (net loss of Rs 4.1 crore) in its steel business. The company as a whole reported a net profit of Rs 3.4 crore (net loss of Rs 34.5 crore) for 2002-03.

The soft interest rate environment appears to have been a critical factor in the turnaround of the industry. Interest expenses have dropped by about 15 per cent for all the 121 companies taken together.

The top 10 companies (in terms of total income) have managed to do even better reducing interest cost by 27 per cent.

Owners of textile stocks have reason to cheer. Stocks such as Vardhaman Spinning (84 per cent), Sutlej Industries (65 per cent), Alok Industries (63 per cent) and Rajasthan Spinning & Weaving (37 per cent) have surged forward in the last one year. Others such as Jindal Polyester (11 per cent) and SRF (6 per cent) also saw modest appreciation in their stocks.

Looking ahead, the textile industry appears to be having bright prospects for growth given the dismantling of quota regime governing the global trade in textiles and clothing by the end-December 2004.

The various fiscal incentives provided by the Union Budget also appear to be the right fit for the textile industry.

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