BANGALORE | AHMEDABAD: United States may still be staring at all-time high unemployment levels, but back in Bhilwara, they are raising a toast to the gradual turnaround of the world’s largest economy and its West European counterparts.
In this desert town in Rajasthan, known for its textile units, over 3,000 workers are waiting for the opening of a new garment facility, owned by one of India’s biggest exporters, Orient Craft. The workers, whether in Bhilwara or Tirupur, were left to fend for themselves for a good part of the year, as textile units downed shutters in the face of shrinking orders from key Western markets.
Sitting at its Gurgaon headquarters, Orient Craft CMD Sudhir Dhingra says the new Bhilwara plant was necessitated by the surging demand from the US and Europe, and will produce 250,000 units a year. The company’s order-book has grown 15-20% in the past few months.
Consumer spending in the US firmed up in the third quarter ended September 2009, as the economy expanded at a 2.8% annualised rate, compared with a contraction of 0.7% in the previous quarter, government officials said last week. After US retail sales grew a seasonally adjusted 1.4% in October, economists and retailers predicted a pick-up in the coming year.
Export leaders such as Gokaldas, Classic Polo and Alok Industries now say fresh orders from the likes of Tommy Hilfiger, Wal-Mart, GAP, and Nike have boosted their order-books by around 20%. That contrasts to a 14% dip in textile exports in the January-April period this year as against the same period in 2008.
The world’s largest retailer, Wal-Mart, for instance, had reported a 3.2% increase in third quarter profits, aided by inventory reductions. It also forecast that US sales for the fourth quarter would remain flat or plus/minus 1%. “Imagine the impact of a 1% growth in Wal-Mart’s sales,” says BK Goenka, chairman of the Rs 8,000-crore diversified Welspun Group. “Order-booking in the industry is up 100% in home textiles. We are booked till next June.”
That confidence reflects in a move by India’s largest exporter by volume, Gokaldas Exporters, to set up a new plant in Hyderabad. The plant, which can produce 100,000 pieces a month, has generated 350 new jobs and will add around Rs 50 crore in revenue every year.
Gokaldas’ order-book used to be at Rs 260 crore per quarter before the slowdown, and had slipped to Rs 240 crore in the past quarter. It is now quoting at Rs 280 crore. “The most important thing to note here is that the average order size has gone up,” says Rajendra Hinduja, managing director of the Rs 1,173-crore (2008-09) company, which counts international private equity behemoth Blackstone among its investors. From around 20,000 units a year ago, the average order size for Gokaldas is now 25,000 at a price of $6-9 a unit.
The Rs 3,000-crore Alok Industries, which reported Rs 550 crore in export revenues in 2008-09, has already booked orders worth Rs 1,000 crore in home textiles to be delivered over the next eight months. The group is planning to invest Rs 300 crore in the coming year to expand its production facilities at various locations. “The demand for home textiles has doubled,” says chief financial officer Sunil Khandelwal.
Orient Craft expects its revenues to go up from Rs 800 crore in 2008-09 to Rs 900 crore this fiscal. With new orders in its kitty, the company expects revenues in the calendar 2010 to grow 40% year-on-year.
Tirupur-based Classic Polo, which exports over Rs 300 crore worth of garments to clients like Tommy Hilfiger and GAP, says it plans to hire more than 500 people later this year.
Executives of the big retail houses in India, who specialise in buying, say they are not surprised by the excitement. “Retail demand in France — our biggest market — picked up during this quarter as compared to the past few quarters. So, we are already started placing more orders in countries like India,” says Mathieu Brousse, country head, Carrefour Global Sourcing Asia. An executive at UK retailer Tesco, who did not want to be named, adds that sourcing from India will go up significantly once other European countries like Spain show signs of bouncing back.
R Balaji, director at the Apparel Export Promotion Council, says that while demand in the West is picking up, the rate of recovery has been “surprisingly good”. Companies are now averse to hedging through future contracts indicating that they are sure of the rupee remaining weak as compared to the dollar for some time, says Mr Balaji.
Hedging has been an integral part of the business, wherein the exporters sign a deal to supply their produce to the client at an agreed price for a certain period of time in future, say for the next six months or a year. This provides hedging against a sharply rising rupee and hence, prevents substantial losses. However, earlier this year, the dollar became weaker than expected, and the Indian exporters could do nothing to take advantage of it, bound as they were on the contracts. “If risk mitigation leads to losses, it is time to think again,” says R Sivaram of Classic Polo.
Britto M Joseph, who heads the JVS Group, and has clients like Wal-Mart and Tesco, says this will last as long as the dollar remains weak against the rupee. But analysts caution this might not last long. Calyon, the investment banking unit of France's Credit Agricole SA, is more bullish on the rupee, predicting it will rise 9% in the coming year.
Source : The Economic Times