India’s largest apparel exporter, Bangalore-based Gokaldas Exports, controlled by global private equity player Blackstone, has been crossing one major hurdle after another in the past three years — global slowdown, wrong bets on the rupee-dollar swing, a major fire disaster. Rajendra Hinduja, managing director and part of the promoter family, sees some silver lining ahead. In an interview with Raghuvir Badrinath & Debasis Mohapatra, he discusses a range of issues. Edited excerpts:
How is the global apparel market?
Post-October, I see things in a better shape, in volume or value terms. On the currency front, there are also fewer worries. The rupee is stabilised at Rs 46-47. The euro is at Rs 59-60, though volatility concerns remain. However, there is some kind of stabilisation in European economies like Germany, UK, Holland, indicating better prospects.
The US and European retail chains must be readying order books for the Christmas season. How are the negotiations?
Things are better in the US as compared to the past seven-eight months and things can’t go worse than the recent European crisis. Our first quarter (April-June) was bad because we didn’t have any option than to sell on the earlier fixed price. After the slowdown, clients have also reduced prices by 10-15 per cent. That time, we didn’t have any option than to take the order. Now, the volumes are better but clients are not ready to increase prices. They are saying consumers are used to the old prices. While volumes have picked up by 25 per cent, no one can run a firm in such a pricing environment. So, we are asking for better prices.
Hopefully, this better price realisation will reflect in Q3 and Q4 in our balance sheet, as we are putting our foot down and going in for price hikes. Global chains also realize the vagaries of cotton prices and the whole hassle of having to replace an existing supplier with a new one. We are pretty hopeful the price increases will be accepted. The cost of labour and cotton prices has increased dramatically and buyers are now ready to pay more and prices are slowly inching towards the pre-recession level.
The devastating floods in Pakistan and labour unrest on a large scale in Bangladesh must be aiding Indian apparel exports?
Nearly a third of Pakistan’s fertile cotton crop is under water and Bangladesh is going through labour unrest. Sri Lanka buys a majority of its cotton requirement from Pakistan and is now forced to buy cotton from India. This surge in demand from other countries has resulted in planters in India increasing their prices. While the global sourcing machinery is looking to India, we are faced with high cotton prices and are having to increase our prices to global players. It is sort of evening out and we are in constant dialogue with growers and the Government of India to minimise exports of cotton.
With the permission to export cotton from India, how is the apparel industry going to be impacted?
Export will be allowed for five million tonnes from October. The picture will be clear after the harvest. Sri Lanka’s demand will be another factor. Price fixation has already been done on a weekly basis from a quarterly basis. More, the decision to export cotton from October is fuelling the price rise; it has gone up to Rs 35,000 from Rs 30,000 per candy (356 kg) yarn in the past week. The only positive aspect is that we are expecting a bumper crop, hopefully 15 per cent more produce, which may help.
It has been three years since Blackstone acquired majority stake in Gokaldas. One does not see largescale business coming here from their global network.
A PE player has efficiency in planning, financing and budgeting. In that way there is a change in our functioning, in terms of systems and processes and in how the cash flow is maintained.
Blackstone, with the promoter family, own 88 per cent in Gokaldas. Isn’t it better if you take the company private? Else, you will have to bring down the stake to 75 per cent in the new regulations proposed.
Blackstone bought a majority in Gokaldas at Rs 275 per share during August 2007 and now the stock is around Rs 140 per share. If Blackstone gives a buy back offer, that will be at around 20-25 per cent premium to the current ruling price. But those investors who bought at Rs 260 will not sell their shares. On the 75 per cent ceiling on promoters’ holdings, the route will be decided by Blackstone, as they are the majority investors. However, there are various ways to dilute this stake. The preferable way may be to rope in some institutional investors, as and when there is clarity in regulations.
