Bond with the brands

SMART TALK: Nitin Kasliwal, vice-chairman and MD, S. Kumars Nationwide

Nitin Kasliwal

Remember the famous S Kumars uniform while you were in school? Well, today the company has gone far beyond its mainstay of children's uniforms and workwear. The company went through a facelift and spread its wings in every product category, price segment and consumer level with well known brands like Reid & Taylor (its flagship brand) for suitings, Carmichael House for home textiles in addition to S Kumars.

The Rs 900-crore textile major, which was reeling under huge accumulated losses since the last five years as a consequence of the downturn in the Indian textile industry that began in the late nineties, hopes to wipe out its losses in next two years, thanks to the corporate debt restructuring programme and rebuilding its strategies.

The company has already entered the profit zone since 2004-05 and in the June 2006 quarter, it reported a net profit of Rs 25 crore, one-fourth of Rs 100 crore profit reported in FY06. But it's not that, the company is leaving no stone unturned in its effort to emerge as a branded, retailing and distribution play.

The company has also embarked on a Rs 550-crore expansion plan across its business segments. Nitin Kasliwal, vice-chairman and managing director, S. Kumars Nationwide speaks to Priya Kansara about the company's strategy, the status of its retail foray and its expansion plans. The stock trades at 25.5 and 10.9 times estimated FY07 and FY08 earnings respectively.

Where do you stand in each of your businesses? What are the initiatives that you have taken to enhance your competitive position?

In the consumer textiles business, we are present at two ends of the market: the lower end and the premium segment. We are the number one player and well established in the lower end market with our S Kumars brand for uniform, workwear and dailywear.

For the middle level, we have just launched Belmont suiting and trouser fabrics and we hope to establish ourselves as one of the leading players. In the premium category we have Michelangelo.

In the luxury textiles business, our premium brand, Reid & Taylor (R&T) is one of the most recognised and we have 15 per cent market share in the worsted fabric market. While worsted fabric market is growing at 4-5 per cent, our R&T sales have grown at 30 per cent year on year.

In the garments division, while we already have R&T garments in the premium category, we are also launching Belmont garments at the middle level. In the super premium category which is above R&T, we have signed a licensing agreement with UK-based brand Stephens Brothers to manufacture, sell and retail the brand here as well as sell to their overseas clients.

Further, we are also tying up with another foreign brand for premium plus category, which we will announce shortly. In the domestic home textiles market, we have launched Carmichael House and hopefully in a year, we will become the largest home textile brand in India.

We will also bring one brand each in the upper end and the lower end of the home textile market by the next year. Our high value cotton fabric (HVCF) ivision will mainly cater to the top-end customers which are direct brands in the US and European market.

What is the company's key strategy or focus?

We plan to focus more on the domestic market due to better profitability through strong branding, distribution and retail. We will continue to increase our brands, retail presence, placement in large format stores and improve our market space in MBO (multi-brand outlets) network. In future we also plan to cater to women and children category.

What are your retail plans?

Our wholly owned subsidiary, Brand House Retail, plans to open 550 stores all over the country in the next four years across eight-nine brands. There will be about 150 R&T stores, 100 Belmont stores, 130 Carmichael House stores, 30 Stephens Brothers, 20 stores for another foreign garments brand, over 100 international brand stores, and some S Kumars stores.

We will also have 55-60 R&T franchises. We have already opened 55 stores, which will go up to 130 stores by the end of this fiscal. Another 125 stores will be set up in FY08 and the balance over the next two years. Most of these stores will be in Tier I and II cities in the ratio between 80:20 and 70:30.

How will higher property prices affect your retail plans?

All our outlets are on lease basis. We are investing in the retail business and not real estate. Though higher property prices is not directly a problem for us, higher rentals especially in metros do affect us.

However, we are spreading our outlets in such a way that our average cost of rent per square foot matches the average sale per square foot across most towns and cities.

Why is the ratio of exports to total sales low? How is the future likely to be?

Exports form a marginal share of about 3 per cent of our total sales as we don't have enough capacity. However, when we commence our expansion plans in high value cotton fabric (HVCF), home textiles and garments categories, exports will form over 20 per cent in the next three years.

HVCF alone will contribute Rs 250 crore to our projected exports of Rs 575 crore by then. HVCF will be mainly for exports, consumer and luxury textiles will be mainly domestic, home textiles and garments will be a combination of both exports and domestic.

What is the status of your expansion plans? When will they start contributing to the company's financials?

We have planned an additional outlay of Rs 150 crore to add more capacities in home textiles and HVCF, as well as in captive power, apart from the earlier Rs 400 crore expansion plan in segments like luxury textiles (Rs 90 crore), garments (Rs 50 crore), home textiles (Rs 80 crore) and HVCF (Rs 130 crore).

The production of HVCF, worsted fabrics and home textiles will commence from mid-2007. We are adding more capacities in garments division for exports, the production of which will start by the end of 2006.

What is the targeted growth rate and margins of the company in next couple of years?

We plan to grow our sales and profits at an annualised growth of about 22 per cent and 60 per cent between FY06 and FY10. This would be largely due to higher growth expected from our garments, home textiles and HVCF businesses.

Our operating margins will be in the range of 23-24 per cent by FY10 from the current 17 per cent with higher contribution of relatively high margin businesses like Reid & Taylor and HVCF. The company is in a position to pass on higher costs of raw materials due to selling through brands.