NEWSMAKER: Rajendra J Hinduja

Stitching a global deal

Rajendra J Hinduja

Six months ago, Gokaldas Exports, with sales of Rs 1,000 crore, was confident that it would continue on the high growth path as India's sourcing story grew bigger every year and fresh quotas were imposed on China. Around that time, when Blackstone, the world's largest private equity fund, evinced interest in Gokaldas, its promoters were surprised.

"Blackstone evaluated several garment exporters and selected us. It was a testimony to how we were running the business," says Rajendra J Hinduja, the 60-year-old managing director of Gokaldas Exports, one of the architects of the deal.

For Blackstone, this was the third major deal in India, after its investment in a BPO company and a media group.

But what made Hinduja accept the offer? Hinduja is candid. "There were two factors. All of us (promoters) are getting old...We have to retire at some stage. But that does not mean that we will completely exit the company. We will continue to run the show as before. Also, we have the freedom to bring our children into the management. Blackstone has assured us that it won't interfere in these matters."

The second factor, says Hinduja, is the need for a strategic partner like Blackstone to compete with the best in the world. "We have to look at the global apparels business. China is at the top...If China can achieve it, why can't we? However, to be the best in the world and achieve the kind of scale the Chinese companies have, we need financial backing."

Another factor in favour of Blackstone was its global brand equity. "If I make a call to the US with the Blackstone brand, it makes a lot of difference. Blackstone has interests in a number of global apparel and retail firms in the US. They are ready customers for us. Our business will improve remarkably."

Gokaldas Exports was started in 1970 when India's total apparel exports were just $5 million. "Prior to that, we were exporting silk fabrics and scarves to the US. The silk market crashed in 1970. That was when our existing clients asked us to supply Indian cotton crepe, which was in demand. We managed it successfully.

"Then a Danish retailer placed an order for 10,000 mens shirts. Since we did not have any manufacturing facility, we outsourced it to another firm. A major mistake by the firm, which instead of placing the label rubber-stamped the sizes of the shirts, turned in our favour as the mistake turned into a big offbeat fashion statement with customers. Immediately, we had another order for one lakh shirts. After that, we decided to set up our first factory in Bangalore in 1971," he recalls.

An engineer by education, Rajendra Hinduja handled the pivotal portfolios of general administration, shipping and finance at Gokaldas. His elder brother Madanlal is in charge of fabric design and supply, while the younger Dinesh looks after marketing and production.

"We never interfered in each other's work. The secret of our success is that we learnt the industry from the basics and did not go by the textbooks."

Gokaldas Exports today has 48 factories and employs 52,000 people producing 2.5 million garments a month. The success of Gokaldas brought many new players to Bangalore. "We can emphatically claim that we are the pioneers of the garments industry in Bangalore. Now we have spread our wings to other states also."

Hinduja feels the Indian garments exporting industry has a lot to achieve by partnering global players. "The rupee appreciation and infrastructure costs should never be hurdles for growth. If it rains, can we fight against nature? We have to wear a raincoat and carry on. We have to be innovative and find solutions. It could be increasing production efficiency or making value-added products which give higher margins. I am sure India has the capacity to reach $15 billion [in apparel exports] in a few years from the present $9 billion," he asserts.

Hinduja anticipates more private equity players in the apparel industry. "This will become a trend. More than apparel, we might witness foreign investment in mills, which are in dire need of capital expenditure."