The Hindu Business Line : Precot draws up Rs 90-crore capex plan

THE Coimbatore-based Precot Mills Ltd, an established player in the `niche' cotton yarn manufacturing, is set on implementing a Rs 90-cr capacity expansion programme.

The company, which is strengthening production infrastructure spread across spinning, textile processing and weaving, is also poised to venture into the high margin-earning garmenting to serve export merchandising and domestic retailers as well.

"We plan to invest Rs 30 crore to create own garment making facility. In the phase-I, we will have 400 stitching machines with a capacity to produce 4 million pieces annually and the number of sewing machines would be doubled subsequently. The garment unit would be through by September next", said Mr Ashwin Chandran, Director, Operations.

Precot's capacity expansion will cover its core spinning activity (to raise combined spindleage from the existing 1.26 lakh to 1.40 lakh by adding 14,000 spindles in its Walayar unit) and hone up its two new green-field projects, namely, the 3.5-tonne per day textile dyeing plant at Perundurai (costing Rs10 crore) and modern weaving plant at Sethumadai near Pollachi which produces the premium range yarn dyed fabrics to run on higher capacities.

While the dyeing plant capacity would be raised to 5 tonnes a day, its weaving division presently fitted with 88 rapier looms will soon have another 23 looms, including 18 air-jet looms which will enhance its fabric production from the current five lakh metres a month to 7 lakh metres.

"The changing dynamics in the textile trade under the WTO regime has spelt the urgency for textile companies to move up the value chain with quick response time, remaining closer to the retail chain with innovative products and supply chain flexibility. Hence the decision of Precot to acquire own dyeing, weaving and garmenting facilities, said Mr Ashwin.

With its Sethumadai weaving plant having stabilised in production of the high-end yarn dyed fabric meant for men's shirting in the last two years, Precot has already emerged as a favoured sourcing point for major garmenters who work for international/domestic apparel brands. Among those sourcing Precot's woven fabrics are Madura Garments, Celebrity Fashions, Gokaldas, Shahi Export House and R K Industries.

To derive the maximum cost advantage and operational convenience, Precot has made spinning, processing and weaving activities multi-locational. But the company has professionally aligned these manufacturing with chosen technology, work practices and physical quality control derivatives that have enabled it achieve the scale of operation and cost competitiveness.

Precot has, for example, located three of its four spinning units in Kerala and the fourth in Hindupur in Andhra Pradesh as the company had chosen to take advantage of the historical lower power cost in these states.

"Our investment of Rs 20 crore made in 1999 in the Andhra Pradesh Gas Power Corporation had enabled us have a power tariff lower by Rs 1.50 per unit and the entire 26 lakh units of power required by Hindupur unit is met by gas power. We have today recovered the entire investment too," said Mr Ashwin Chandran.

Precot's Hindupur unit, slated to switch to compact spinning under capacity expansion plans, does offer product mix to the company's yarns as it produces 5 tonnes of polyester thread which is sold in the market under `Venus' brand.

"Unlike stand-alone spinning where profitability is raw material centric, moving up value chain by venturing into weaving and garmenting for a textile company would `desensitise' it from raw material value-dependency" said Mr A. Ramkrishna, Executive Director of Precot.

Precot has adopted internal labour reforms and machinery modernisation as an ongoing process to achieve year-on-year productivity growth. While the company has pegged its overall employee cost at 7 per cent of its turnover, the level of modernisation has enabled it achieving 2 per cent targeted rise in the gram per spindle (GPS) productivity every year. Its current GPS is 130 which is linked to 40s count, much above the industry average.

Meridian Industries Ltd, another textile company promoted by Precot, is also in the throes of capacity expansion. Set on a Rs 70-crore expansion, Meridian Industries would have its spinning capacity raised from the present 34000 to 51000, besides acquiring the knitting and knitted garmenting facilities under its banner.

Precot is planning to enhance its equity to part finance capacity expansion and its funding would be through a mix of internal accruals, TUFS term loans and additional equity infusion. Its present equity base is Rs 5.45 crore and its existing debt equity is below one. The company has projected a sales turnover of Rs 400 crore (current sales Rs 250 crore) in 2008-09 when its capacity expansion will be fully in place.

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