The Hindu Business Line : `People are making a beeline for India'

Integra Apparels is the new garments arm of Morarjee Mills, part of the Piramal Group. Mr Krishna Kumar, CEO, Integra Apparels, could be considered a veteran in the textile export sector.

After a stint with Madura Garments, he went on to head the export division of Arvind Mills. Mr Krishna Kumar, while well aware of the Indian industry's shortcomings, remains optimistic about the industry's prospects. In an interview with Business Line, he provides insights into what India's strengths could be in the quota-free regime.

Morarjee Mills has been a dormant textiles player in the last couple of years. It now appears to be renewing its thrust in the sector and has a new focus on garments. What are its plans and what would be the role of Integra Apparels in taking them forward?

Morarjee, incidentally the oldest textile company in India, was operating out of Bombay, which is a high cost centre. They were also in a very low-value, commodity segment — Polyester-Cotton fabrics, which has competition from Chinese imports. But they have successfully managed to restructure their business. They shut down operations in Bombay and are redeveloping the land. They have not got out of the textile business, because it is their traditional business.

They moved their entire operations to Nagpur and started focusing on the high-end segment-premium yarn dyed cotton fabrics and premium cotton voiles, which are basically used in the women's wear segment.

So, when we approached them saying "as you are already there in textiles and we are a team of professionals who have experience in the apparel industry, especially in exports, it is an opportunity for you to vertically integrate", they invested in the venture. So the brief that we have got is to take this business global.

To me their decision makes a lot of sense, because today, international buyers are looking for vertical entities. One of the bigger issues that plague the industry is reliable supply. That is what Integra is all about.

Our model focuses on the high -end segment. We have leased out factories and, starting from March, we will be investing in our own manufacturing set-up. What we are looking at is acquiring a running unit, because start up time in the garment industry takes up to 18 months. The Piramals, being a cash- rich group, are ready to invest in this business.

Integrated operators may be able to be a one-stop shop and also deliver within lead-times. But to provide the kind of variety that a pure-play garment maker does, one would have to ultimately source fabric from elsewhere. Won't that diminish your advantage to some extent?

That's true. We have to be prepared to source from outside. It also depends upon the product mix you are in. For example, we have clearly decided that we would focus on tops, because the mill makes fabrics for these products. Customers would look at you only in that category.

We would also like to do things differently. We would like to create alliances with fabric mills. The fabric mill and the garment maker would deliver the entire package. I think that's going to become very important.

Many garment manufacturers do not reveal the source of their fabrics. Most of them are cagey about revealing the identity of the fabric maker to the customer and that of the customer to the fabric maker.

They create vertical silos, which I think has to go. People have to work together if they entertain hopes of becoming bigger in the future.

What is your outlook on textile exports post 2005?

People have a lot of opinions and projections, which are confusing, at times. But a couple of things are clear. One is that sourcing out of India is going to increase.

Today, a lot of people are making a beeline for India. There was a fear that China was going to wipe out all countries. But you are beginning to see more investment in apparels.

Most players are expanding capacity. So I think scaling up is important. Right now, the quota regime is skewed towards smaller manufacturers. Now the quota regime is going.

With the industry landscape changing, many have predicted a consolidation in the industry. Is this likely to take place?

In the export industry, people don't add value to a business; they add value to the factory. It is not the same as Birlas (Indian Rayon) acquiring Madura Garments-they valued the business at Rs 250 crore. It had a brand. But in other cases, there is no proprietary technology in this business that enables you to hang on to a customer.

It is not like you have a new technology that locks in the customer. Nor is there some kind of brand value, which can help you to acquire a customer and grow an existing customer base.

So in the absence of these two, people are not keen on buying out a business. They would only want to buy out factories. In which case, it becomes a pure question of how much the plant and machinery are worth.

And those who want to sell would want to get more than the value of plant and machinery. This is why I don't see many deals happening.

The only consolidation that might happen is smaller fellows exiting the business. This happens every year and may pick up post 2005.

Lots of international players were forced to do business with smaller players because of quotas. With that quota advantage vanishing, I expect larger companies to benefit.

What about the smaller players who form the clusters in Tirupur and Ludhiana, which are thriving?

The growth of these clusters came about because the government encouraged fragmentation. For a long time the investment cap was Rs 1 crore and the industry was reserved for the small- scale sector.

Fragmentation was encouraged and that is not going to go away soon as there are a lot of sensitive issues attached to it. The second part of the story is that these smaller units have delivered a great level of service. They have been extremely flexible.

Being a small operation with very low overheads they have been able to deliver at very low prices. For importers and for retailers that operate in the low-price, mass segment, these clusters would continue to hold their appeal.

If you consider Knitwear, the top of mind recall is Tirupur. They have become super specialists in that area. It is unlikely that that kind of learning can be transferred to other geographical areas.

Being a labour intensive industry, labour clusters are going to play a major role. As much as you would want to set up a garment unit in Himachal Pradesh to get a tax incentive, it is not going to happen. For instance, in Hyderabad, an apparel park was set up. Even after two three years, there are not many units. So places like Tirupur and Ludhiana would thrive.

Small units have managed to be competitive in the past. Does this not defeat the argument that we need substantial scale to compete with the Chinese textile industry?

China is good for a standardised product. If you want a good men's shirt, a polyester shirt at $3.5then China is the place. Chinese manufacturers always want to do large volumes. Their philosophy is "your price, my quantity"... if you say $2.5 then I will give you a million units. So the Chinese will certainly stand to gain in certain segments where standardisation is involved.

When you come to customisation, design capabilities and smaller sizes, they are not as strong. I think India would do well where customers ask for flexibility of design content. When customers come to India they come with very specific objectives. In India, they can deliver garments within 60 days. A lot of European brands place orders very close to the season. Unlike American brands, they do not want to commit well in advance. So American customers come with orders that are to be executed in the next six months.

European customers would, however, keep you waiting, as they watch what the retail trends are and make changes. They give you 60 days to ship the goods from the moment they sign off. Now the Chinese are not used to these kind of tight cycles. They expect people to freeze everything well in advance; they have large production lines. I think we should play our strengths in cotton. We are the third largest producer in the world and we have a very good spinning base and a good apparel base. Unfortunately weaving and processing is where we still need to cover a lot of ground. I think cotton will continue to do well.

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