• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Shanthi Venkataraman

BL Research Bureau The April-June quarter proved to be dismal for textile companies, as an appreciating rupee took its toll on operating margins of major exporters.

For those companies that were on an expansion spree, capital costs only worsened profit declines. Profit growth lagged sales for most companies, while absolute profits actually shrank for a few. Operating margins have taken a hit, plunging by 2-4 percentage points for many companies. This is despite export sops (effective April) to the sector that had been granted to alleviate the impact of rupee appreciation.

Spinning companies bore the brunt of margin pressures, being at the commodity end of the business. Declining realisations offered them little cushion to absorb the higher depreciation and interest costs, resulting from the ongoing expansion wave in the sector.

In fact, higher interest and depreciation costs appear to have been the bigger culprits behind the poor performance of several textile companies. For companies such as Alok Industries, which operates in the fabric and home textiles segment, interest and depreciation costs were as high as 15 per cent as a percentage of sales, up from 11.6 per cent last year.

However, a silver lining in this quarter’s performance has been the fairly strong revenue growth recorded by leading players in the sector. This suggests that the rupee factor did not materially affect demand for exporters, though it blunted margins. Companies such as Welspun India, Bombay Rayon Fashions and the recently listed Indus Fila, which have been on a massive expansion spree recently, have been able to ramp up volumes on the back of strong demand.

Larger exporters such as Gokaldas Exports and Welspun India are trying to lessen the impact of the appreciating currency by negotiating for better prices with their customers. According to Mr Tapas Mitra, CFO, Welspun India, the rupee appreciation will not significantly impact demand for Indian merchandise, as India has become among the preferred sourcing nations for global textile importers. While pricing pressures exist in the export market, he believes that it is possible to convince importers to pay a higher price for quality. Welspun India has been among the better performers among textile companies on the back of a stronger contribution from its new sheeting facility.

Others are beginning to turn to the domestic market for better realisations. Gokaldas Exports is looking at selling its garments to domestic retailers to reduce its dependence on the export market. Recently listed Mudra Lifestyle is also focusing on this market. However, Mr Mitra remains hopeful of the export scenario, despite the appreciating rupee. According to him, the situation only calls for a relook at one’s own operating costs.

“Ultimately, if the rupee has appreciated, we should be able to extract more from it,” says Mr Mitra. While companies may not be importing their raw material directly, they should be able to get their vendors (who, in turn, import their inputs) to pass on the savings from the appreciating rupee to them, he adds.

More Stories on : Textiles | Exports & Imports | Forex

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Monsoon roars back to life with Bay storm

Copyright © 2007, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line