Textile firms weave a turnaround

About 50 textile companies have registered profits this year. The Indian textile sector has shown signs of revival with about 50 textile companies turning black this year. Of these, at least three-fourth have carried on the performance in the second quarter of FY06. Also, the low-profile firms are announcing multi-crore expansions.

Hindoostan Spinning, which suffered Rs 76.78 crore loss in 2002-03, posted Rs 264.79 crore net profits in the following year. In the first quarter of the current fiscal, it has posted a net profit of Rs 56 lakh against a loss of Rs 1.54 crore in the same period last year.

Similarly, S Kumars rebounded with a net profit of Rs 9.15 crore after losses of Rs 19.14 crore in 2004. It posted a net profit of Rs 17.4 crore in the first quarter of current fiscal against a loss of Rs 33.73 crore in the same period last year.

In the first six months the company recorded a net profits of Rs 38.54 crore. Others scripting the revival stories include Morarjee Textiles, United Textiles, Malwa Cotton Spinning and Maral Overseas.

This turnaround in the textile industry can be attributed to Technology Upgradation fund brought about by the government said Rajnish Rangari, senior vice president, Anand Rathi, a city-based broking firm.

The scheme gives a five per cent rebate on interest rates of loans taken for capacity expansion. Till October this year, the scheme has sanctioned Rs 12,700 crore in response to almost 4,100 applications.

The total cost of these projects is around Rs 28,600 crore. Little wonder that government has extended the scheme for another three years.

Alok Industries was among the first to benefit from the scheme that help ride over the lean period. "The expansion investment for the last ten years would touch Rs 1,100 crore in 2006," says Sunil Kandelwal, chief financial officer. The company diversified into home textiles, where India's exports are set to touch the Rs 45,000 crore mark by 2010, adds Kandelwal.

Eskay K'n'IT, which had reported a net loss of Rs 5. 07 crore in the 2003-04, is set to implement a Rs 300 crore expansion of its spinning, knitting and processing capacities. This year, the company's first quarter net profit itself was Rs 2.64 crore.

Another low profile firm KSL Industries, which is into yarn, fabric and garments, announced a Rs 600 crore expansion plan over next two years. For others such as Mafatlal, Ashima or CT Cottons too, the opportunity may be just right to arrest the spiral down, say industry experts.

Another factor that helped textile companies is the dismantling of quota system for exports to the US.

"Those who were quick to react have reaped the benefits," says Rangani.

Indian exports increased their market share by Rs 9,000 crore since the quotas were taken off this January. "Now the Indian textile companies are facing a sweet problem of how to meet the demand. The only way is to expand their capacities," adds Rangani.