Sharp currency movement to positively impact Alok Industries: Sunil O Khandelwal
In an interview with ET Now, Sunil O Khandelwal, CFO, Alok Industries, shares his views on how the depreciating rupee is going to impact the company's profitability. Excerpts:
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| Updated: In an interview with ET Now, Sunil O Khandelwal, CFO, Alok Industries, shares his views on how the depreciating rupee is going to impact the company’s profitability. Excerpts:
How will a depreciating rupee aide your profitability and your top line?
Well, exports are about 35% of our sales and to that extent yes, it will give us some benefit. But mind that we are dealing with the informed buyers. They also track our currency very well and whenever any sharp movement in the currency happens, they start affecting that in the prices. I would not say it is a great benefit and may be for a very small period we would enjoy that, but then it gets factored into the pricing.
But are you seeing any sudden pick up in demand or inquiries in the last few days?
Yes, of course exports are doing well. Our exports are growing and despite the slowdown in the US and Europe that people are talking about, our order book is quite healthy. I would not say there is a sudden pick up, but it is gradual which is the normal business for us.
But the discretionary spend or the discretionary consumer of US is getting tired and the European buyer is confused so why do you think export demand at least in the near term will remain strong?
What you are saying is may be good for the overall industry, but company specific because Alok’s large-scale integration, top operations, wide product range, we have a very large base of customers and very wide markets actually. Product base is large, markets are large, customers are very broad based. So that strategy is actually helping us.
Are you looking at a build up in your yarn inventory in light of the recent correction that we have seen in prices?
Well whatever yarn that we produce, cotton yarn is all for captive use. As I said our order book is quite healthy for next three to four months. There is no inventory pile up as far as cotton yarn is concerned.
What are the margins for your fabric business and what are the margins for your garment business?
See the fabric and the garment business, we have basically two businesses. One is cotton related and one is polyester. In cotton, we are fully integrated yarn to fabric or garment or bed sheets. In that business typically EBITDA margins are about 35% whereas on the polyester yarn, which is again an integrated model for us, we sell the POY or texturise yarn, there margins are about 17% to 18% at EBITDA level. So averagely our company till last quarter had an EBITDA of about 27%.
What is the current total inventory with the company?
Inventory is a normal course of business for us which is equivalent to about 90 to 100 days of inventory, which includes cotton, fabric, WIP in cotton yarn fabric or processed fabric, bed sheet, towels. So in terms of inventory it is 90 to 100 days which is a normal inventory for an integrated company like us.
How will a depreciating rupee aide your profitability and your top line?
Well, exports are about 35% of our sales and to that extent yes, it will give us some benefit. But mind that we are dealing with the informed buyers. They also track our currency very well and whenever any sharp movement in the currency happens, they start affecting that in the prices. I would not say it is a great benefit and may be for a very small period we would enjoy that, but then it gets factored into the pricing.
But are you seeing any sudden pick up in demand or inquiries in the last few days?
Yes, of course exports are doing well. Our exports are growing and despite the slowdown in the US and Europe that people are talking about, our order book is quite healthy. I would not say there is a sudden pick up, but it is gradual which is the normal business for us.
But the discretionary spend or the discretionary consumer of US is getting tired and the European buyer is confused so why do you think export demand at least in the near term will remain strong?
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What you are saying is may be good for the overall industry, but company specific because Alok’s large-scale integration, top operations, wide product range, we have a very large base of customers and very wide markets actually. Product base is large, markets are large, customers are very broad based. So that strategy is actually helping us.
Are you looking at a build up in your yarn inventory in light of the recent correction that we have seen in prices?
Well whatever yarn that we produce, cotton yarn is all for captive use. As I said our order book is quite healthy for next three to four months. There is no inventory pile up as far as cotton yarn is concerned.
What are the margins for your fabric business and what are the margins for your garment business?
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See the fabric and the garment business, we have basically two businesses. One is cotton related and one is polyester. In cotton, we are fully integrated yarn to fabric or garment or bed sheets. In that business typically EBITDA margins are about 35% whereas on the polyester yarn, which is again an integrated model for us, we sell the POY or texturise yarn, there margins are about 17% to 18% at EBITDA level. So averagely our company till last quarter had an EBITDA of about 27%.
What is the current total inventory with the company?
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Inventory is a normal course of business for us which is equivalent to about 90 to 100 days of inventory, which includes cotton, fabric, WIP in cotton yarn fabric or processed fabric, bed sheet, towels. So in terms of inventory it is 90 to 100 days which is a normal inventory for an integrated company like us.
So for FY12 which is the current year how much of your current EPS will come from the textile business and how much of the current EPS will come from the real estate business?
Well real estate business, it is in a subsidiary company. So it will go on consolidate revenue and P&L. Difficult to say because we are lookout for a buyer for our commercial properties at Lower Parel and depends as and when we are able to exit out of it and at what price we are able to exit. As far as commercial properties are concerned at Lower Parel, we do not expect much profits out of it.
What is the last offer you got for your Peninsula property?
Yet to receive an offer.
You are not getting any offer, real estate market is that bad?
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No, it is not that bad. The building is just got ready now. We got the OC in the month of July only and now buyers are coming, in fact the complex is yet to get into finished shape. It is because the other tower is getting finished. We are very confident about the quality, we have been getting a lot of appreciation from the market that the quality of the building is extremely good. It is one of the few properties which have the complete government approvals. So it is only a matter of time. In fact, we have gone on record saying that before March 2012 we should be able to get a buyer for both the commercial properties that we have at Lower Parel.But do you suspect in this high interest rate scenario finding a buyer not finding a buyer like you are saying you are getting inquiries, finding the right pricing and a profitable one could be a little tough?
That is what we are also saying that we have decided to exit this realty space and even if we have to take a little beating or what we are looking at bringing the investment into the company back and as I said we are not expecting a huge profit etc out of this thing. Even if you have to take a little haircut, we are mentally ready for it.
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