15 Dec 2015
Growth across businesses leading to robust performance
In an interview with ET Now, K K Maheshwari, MD, Grasim Industries, shares textile business outlook in the backdrop of non-availability of land. Excerpts:
ET Now: I want to start off with your thoughts on the export markets. How are they doing? Tell us how much more growth drivers for the segment going ahead?
When you look at the entire fibre then there are mainly two fibres which are natural, one is cotton and the other is viscose staple fibre. The trend is people want more and more of natural products. With the limitation on land availability and the competition for land from other uses like urbanisation, increase food requirement etc there is likely to be a limit on the growth of cotton which you have seen stagnating. Cotton production has seen around 25 million tonnes plus minus one million tonnes for the last many years. Therefore, we believe that VSF comes in as a natural product which can meet the requirements of the customer to get a fibre which is natural added to that it provides the advantage of being very soft providing extraordinary comfort and providing a fluidity which is unparallel from any other fibre or yarn. There is big opportunity for VSF to grow.
You asked me about the opportunities for export but let me tell you the huge opportunities that awaits even in India. We have a population which is almost the size of China but our domestic sales are a little over $70 billion for textile and clothing whereas in China it is well over $700 billion. I am sure you have heard this comparison with China for almost any product but here is a product where we are talking about the growth in the economy. We are talking about the increasing middle class in the country. We are talking about the increasing spending patterns and the increasing desire of the youngsters to experience fashion, to experience life and to experience the dynamism of life and that is where we believe that even Indian markets would offer huge opportunities for growth. That is where we started focusing on ethnic wear and now of course we have extended the Liva into even the western wear. As I explained to you earlier that we are already seeing a traction coming in even from International brands. Today we export to over 40 countries.
ET Now: What is the outlook on VSF prices and we have been breaking it down to specific dynamics for each of the businesses?
VSF for its attributes which are far superior to other fibres has always commanded a premium over other fibres. The pricing tend to get influenced by a number of factors. Most recently we are seeing that the prices of most commodities have taken a hit not because of any other reason excepting for the fact that there has been a huge capacity in the industry. VSF also took a hit because of that and then we found in the last two quarters there was some semblance of re-stabilisation or re-equilibrium getting established in the market because many of the players, our competitors would not have been in a very comfortable situation with the prices. We do see these fluctuations in the prices and therefore it is very difficult to put one benchmark. Eventually if you see the fibre cost, it is such a small part of the total cost of a fabric or of a garment that we believe the unique properties which LIVA made garments would offer because of the unique VSF attributes, it would make sure that our entire value chain is more than happy irrespective of the minor fluctuations of prices on either side.
ET Now: Do you think the China impact could have a greater impact on prices in terms of a trend for 2016?
As I mentioned there has been a pick up in the prices over the last two quarters. Now we are again seeing some changes with a slowdown in China. Some pressure emerge but these are all short term volatility which we have to learn to deal with and in longer term we believe that just because of the fact that there is going to be inadequate availability of land, people's natural preference for organic products, people's preference for natural products and the fact that this is an outstanding creation which lends itself for a lot of versatility in design, VSF based garments, the LIVA based garments will continue to have a great future. There will always going to be a great increase in demand for that.
ET Now: Do you see margins improving to double digit levels on the back of the changing product mix and the new capacities coming on stream?
For any industry to have a sustainable future it would need healthy margins because you have to continue to reinvest in, not only improvements in your existing plants and equipments but also for a new research and new business development initiatives. So it is not a question for us but generally for every industry it would have to earn a reasonable return on investment and healthy margins. The industry used to have healthy margins and then over the last years they did face pressure on the margins which has started improving.
If one were to look at longer term on sustained basis, the margins would improve to reflect the fact that this is a product which has a lot of advantages over the competing products. So it is a matter of time. It is difficult to predict the exact time. Ideally it should have happened by now but for the fact that in the last few years a lot of overcapacities got created the world over, largely in China, and it would take some time for those capacities to get adjusted with the natural growth that takes place. But again, VSF as being one of the fastest growing fibres amongst all the fibres, its growth rate has been almost touching 9 to 10%. It is difficult to sustain that level of growth but even then we think that this would be a fibre which would continue to grow at the highest rate compared to all other fibres.
ET Now: 20% of your revenues come in from the textile segment. What is the outlook there, given the capex intensive nature of the business, do you think the turnaround in the cycle is pretty much around the corner?
These days the cost of inputs for most players is almost similar due to the globalisation which has taken place in the integrated world. We do not think that barring the fact that certain countries, especially China, seems to have overcapacity for most products and they do have advantage of getting certain raw materials slightly cheaper than India but then there are other disadvantages which they have. So I would say that on the whole we are as cost effective as any other manufacturer in the world. It is only a matter of time before the industry starts seeing healthy margins.