Exiting non-core businesses under consideration

Alok Industries, India’s largest and most vertically integrated textile company, has gone through a period of major restructuring and consolidation. Having established very strong manufacturing capabilities across the entire textile value chain, from spinning to garmenting, Alok did invest in retail and real estate. But the company was quick to realise that its core competency remains in textile manufacturing.

Alok has divested a major portion of its interests in realty and has also put in place a strategy to exit its retail business. The company is all set to write its next chapter of growth in the textile industry by focussing its energies on the opportunities unfolding in the textile business within India and globally.

Mr. Dilip Jiwrajka, Managing Director, Alok Industries, says: “Going forward, Alok is planning to channelise all its energies in becoming an established supplier in the global textiles space and a leader in the Indian market. With this single-minded focus on the textiles space servicing blue chip clients with a wide array of products across the value chain, we have decided to exit our non-core businesses like retail, both domestic and international, and monetise its assets in these spaces. On both these fronts there has been good progress in 2012-13”.

Alok, with its five state-of-the-art manufacturing facilities based in India (Silvassa, Vapi, Navi Mumbai and Bhiwandi) and a strong workforce of over 29,000 people, has some of the largest capacities in the Indian textile industry with an infrastructure to manufacture 150 million metres of sheeting fabric, 13,400 tons of terry towels, 186 million metres of apparel width woven fabrics, 25,000 tons per annum of knitted fabrics and 22 million pieces per annum of garments in the cotton and blended segments. In the polyester segment, the company has a capacity of 5,20,000 tons per annum comprising 2,40,000 tons per annum of polyester textured yarn, FDY of 70,000 tons per annum, polyester fibre of 1,10,000 tons per annum and 1,00,000 tons per annum of POY and chips.

The Alok Group declared results on a consolidated basis for 18 months from April 2012 to September 2014. For the 18-month period ended September 30, 2013, on a consolidated basis, net sales were Rs. 21,388.36 crores against Rs. 9,784.72 crores in the 12 months of 2011-12, operating EBIDTA was Rs. 5,327.17 crores against Rs. 2,471.92 crores in 2011-12, and profit after tax was Rs. 296.72 crores against Rs. 92.99 crores. The standlone turnover for the 18-month period ended September 30, 2013, was Rs. 19,917.75 crores. Total exports of the company stood at Rs. 5,108.91 crores to destinations like the US (40%), Asia (22%), Europe (15%) and Latin America (11%).

The company has incurred capital expenditure of Rs. 1,629.23 crores across various divisions. This was mainly invested in additional capacities in the polyester division for partially oriented yarn, polyester staple fibre & texturising, knit & knit processing and regular capex.

Mr. Ashok B. Jiwrajka, Chairman, Alok Industries Ltd., says: “Alok Industries is possibly the largest vertically integrated textile company in India, having significant global scale manufacturing facilities across the cotton and polyester value chains. Our integrated manufacturing process gives us immense competitive advantage when it comes to controlling both cost and quality of the products we market. Our competitive pricing, customer-friendly service and ability to turnaround large volumes within record time make us a partner of choice for blue chip international customers comprising world-renowned retailers as well as importers and brands. Our focus on R&D has enabled us to expand into value-added segments and offer Innovative Textile Solutions”.

Spinning

Alok has the largest spinning facility in India at a single location in Silvassa with a capacity of 4,11,840 ring spindles (60,000 tons) and 5,680 open end rotors (20,000 tons) to support its in-house apparel fabric and home textiles segments. Almost 85 to 90 per cent of the cotton yarn manufactured in the facility is utilized for captive consumption by its apparel fabric (woven and knit fabrics) and home textile (bed sheets and towels) divisions.

Mr. Sapan Mukherjee, Chief Executive Officer – Spinning, observes: “Since inception of spinning in Alok in 2006-07, we have established our presence emphatically in the domestic as well as in the international markets. In terms of productivity, we are amongst the leaders in the industry within this short span, an achievement by itself. In recent times we have adopted value-added technology for making speciality yarns like core-lycra and fancy-slub yarn which contributes to the main stream business. This is what we term as ‘Smart Intelligent Spinning’ which not only enhances the topline but also contributes to the bottom line. Going forward we have plans to enhance our capacity in the speciality yarn segment in order to make us more competitive”.

In order to build its capabilities in technical textiles and achieving integration therein, the company has plans to expand spinning capacities for production of specialised yarn (for technical textiles) by 3600 tpa by adding 14,112 more spindles and 5040 tpa of regular yarn by installing 38,016 spindles. Eventually, the company may expand its spinning capacity to match its total captive requirement.

Polyester yarn

Alok is an integrated player in the polyester yarn business which is the second highest revenue generating division after its apparel fabric division. It uses purified terephthalic acid (PTA) and mono ethylene glycol (MEG) and through continuous polymerization (CP) converts the same into partially oriented yarn (POY) or chips. It also does further processing and converts the POY into draw texturised yarn (DTY) besides fully drawn yarn (FDY), cationic yarn and polyester staple fibre (PSF). The company is also planning to turn out value-added products like master batch, specialised yarn, etc.

The polyester yarn division recorded a sale of Rs. 4,842.03 crores (8.4 per cent more than the previous period) which was about 24.31 per cent of the total sales of the company. Its exports amounted to Rs. 1,172 crores, which is 24 per cent of the division’s sales. The company’s major export destinations are Latin America, Eastern Europe, Africa, South-East Asian countries, China and Asia. It has recently installed auto doffing DTY machines, auto packaging and erection, polyester staple fibre, both staple and conjugate fibre.

Weaving and knitting

The company’s weaving facilities at Silvassa mainly comprise a combination of high-speed air jet and rapier looms capable of producing normal and wider-width greige fabric. The fabric division continues to be the highest revenue generator for the company with a 60 per cent share in the total sales of the company for the 18-month period ended September 30, 2013, with a revenue of Rs. 11,937.51 crores. Both woven and knitted fabrics recorded significant growth with woven maintaining its dominant position with a 96.3 per cent share in the total apparel fabric division sales. The company has one of the largest woven and knitted fabrics capacities in the country with 186 million metres per annum for woven fabrics and 25,000 tons for knitted fabrics. The company has identified technical textile products and high-end yarn dyed fabric as its major growth areas.

Alok produces a wide range of fashion fabrics both in knits and wovens. Its woven fabrics include twills, voiles, cambrics, poplins, lycra poplins gabardines, jacquard, satins, matte, canvases, dobby, lawn, yarn dyed, and many more. Yarn dyed fabric is a sub-segment within fashion wear, which includes fabric used for fashionable shirting and high-end women’s wear.

Technical textiles are speciality fabrics that have special functionality and are used in industrial, aerospace, military, marine, medical, construction, transportation and high technology applications. Some examples of these fabrics are fire-retardant, water-repellent, soil release and high visibility fabric.

Technical textiles, a highly import intensive segment, is still at a nascent stage and is also quite unorganised in India. It is estimated that this market will grow at a CAGR of 10 per cent and will reach Rs. 1,45,000 crores ($27 billion) by 2020.

The company’s knitting division achieved a sale of Rs. 440 crores for the 18-month period showing a growth of about nine per cent. The export revenue for the same period was Rs. 191 crores, which is 41 per cent of the total revenue of the division. In order to meet the growing demand for the company’s products in export and domestic markets, it has increased its finished fabric processing capacity from 1,000 to 2,000 tons per month (knitting 25,000 tons) which will be operational from January 2014.

Looking into the future, all major brands have declared their intention to buy 100 per cent ethical fabrics by 2020 and are rapidly moving towards their target. Alok, who is a pioneer in adopting buying strategies, is now completely focused on strengthening its ethical products segment right from farming to fabrics. The company has an established and strong presence in major textile buying markets like Bangladesh and Sri Lanka. Its woven fabrics division has carefully analysed the opportunities of spreading its wings further to emerging markets like Myanmar, Vietnam, Cambodia, the Middle East and South America.

Embroidery Division

Alok produces a wide range of embroidered fabrics, laces and trims for the world market. Its designers continue to create an exquisite range of designs in keeping with the prevailing market and fashion trends and impart high value addition to dress materials, garments and home furnishings. Since the company has huge manufacturing capacities for both Schiffli and multi-head machines, it is in a position to cater to each and every market segment for embroidered products at very low operating cost as compared to its competitors. Alok with its excellent market strategy has added Mali and Indonesia to its list of customers.

Home textiles

In home textiles, with an annual capacity of 150 million metres for wider width fabric and 13,400 tons for terry towels, Alok offers a wide range of products in bed linen from 180 TCs to 1000 TCs and sheet sets, duvets, comforters, blankets, quilts, bed-in-a-bag in prints, solids, embroidery, sateens, flannels, jacquards, dobbies, yarn-dyed, etc. It also produces curtains and terry towels and has emerged as the largest producer and exporter of bed linen in the country and won several gold trophies from Texprocil and the Ministry of Textiles.

With a total sale of Rs. 2,594.42 crores, home textiles accounts for 13 per cent of the overall revenue. The company exports 99 per cent of its home products and faces tough competition from the Chinese, Pakistani and Turkish manufacturers. The major export markets for home textiles in the world are the US, Europe and Australia.

The Towel Division at Alok is planning aggressive growth. The company proposes to increase capacity by 50 per cent next year and increase revenue by focussing on value-added products. Furthermore, the ecommerce business has shown much promise at a global level, and Alok has achieved considerable success on this platform too.

Lastly, the company’s institutional range of towels for hotels and hospitals too are enjoying good demand. Alok is confident of achieving further success and constant growth in the coming years.

Mr. Senthil Kumar, Chief Executive Officer – Processing, Alok Industries, says: “Looking to the growth opportunities in the export and domestic markets, we have increased finished fabric processing capacity from 1,000 tons to 2,000 tons per month which will be up and running from January 2014. By investing in state-of-the-art machinery, we have focused more on automation to offer better lead times and ‘On Time Delivery’ to our buyers. This will help us to increase business share with the existing buyers and also provide a key advantage in adding new buyers. With 2,000 tons production capacity of finished fabrics, we are perhaps the biggest in the SAARC list of countries. We are confident that we will be able to harness the potential of big volume sales to known global brands in the coming months, as most of them have already assured us of big volumes and long-term buying”.

Alok’s Garmenting Division, with an installed capacity of 22 million pieces spread over three locations, has been able to create a niche for itself in the work wear, technical garments and uniforms businesses. A lot of field trials have been done with its military uniforms with various armies and is expected to be major player in this segment too. The company’s garments sales amounted to Rs. 281.83 crores for the 18-month period, which is 1.4 per cent of the total sales. The division is mainly focused on exports which account for 76 per cent of its sales.

Research and development

Continuous innovation and increased focus on R&D has been the key to Alok’s success. The company offers textiles with a variety of specialised finishes for special applications like fabrics with a stain guard finish for the hospitality industry, anti-bacterial finish for the health care industry and infrared ray resistant finish for the defence industry. It also offers other value-added products like dyed yarn (structured) fabrics, institutional work wear, printed apparel, specialised work wear, etc.

The Towel Division at Alok, is contemplating an aggressive growth and proposes to raise its capacity by 50 per cent and increase revenue by focussing more on value added products next year.

In addition, the company made its first international foray with the acquisition of Mileta in the Czech Republic and went on to aggressively promote its foray into retail in India through H&A stores and in the UK through the acquired ‘Store Twenty One’ business. It has also made strategic investments in real estates.

The opportunity that presents itself is huge, as the world is looking towards India for its textile and garment requirements. With the increase in wages in China and its shifting focus to high technology industries, combined with the devaluation of the rupee, India has emerged as the world’s choice destination for textile sourcing.

As the global vistas of opportunity continue to unfold, it becomes imperative to move into the next phase of growth momentum, going beyond consolidation. The sourcing pattern in the global textile industry is changing. China’s market dominance is gradually on the wane, thanks to the rising yuan, increasing wages in the Chinese industry, growing domestic demand and the need for large buyers to de-risk their operations.

Concurrently, India, with its advantages of lower wages, strong integrated textile industry, abundant availability of design and technical talent, falling Rupee and enabling environment for export of textiles, is emerging as the destination of choice for global textile buyers. It is the dawn of a very bright and fruitful phase for Indian textiles, and the country is expected to increase its share of the global textile market from 4.5 per cent to 6 per cent, almost doubling its exports from the present $33 billion to $65 billion by 2020.

Alok is all set to take advantage of the opportunities unfolding in the textile industry globally.