Contrarian in industry: Maharaja Mills does it again

19 Jun '09

8 min read

F2F: Most striking figures in your financial results for FY09 are PBT and PAT; a dramatic rise of 1100% & 1600% respectively! What helped achieve this? In your opinion, why most of the other textile players could not have done so?
Mr Govind Sharda: Procurement of cotton at right time helped us reduce the incidence of input costs. The pragmatic approach and analysis of the available survey reports enabled the company to accumulate stocks for balancing the overall input costs in terms of per Kg of cotton.

Power and Fuel, the second largest component, was another target with specific mission. Partially supported by favourable crude prices, it reduced the cost of procuring the power significantly and the in-house conservation measures enabled it cut the costs by more than 200 bps.

During the downturn of economy, we have been taught to reduce the costs. Contrarian views taken by our company is to increase the business rather than reducing the costs. One needs to enhance productivity and derive benefits out of available resources. Cutting costs could render many resources idle that pulls down the profits. Textile sector needs a very strong control on working capital and it could differentiate an efficient company from others.

F2F: On studying the interest column of both the years, we can see around 94% reduction in interest this financial year (2008-09). Can you help us understand this?
Mr Govind Sharda: The Company accounts for the benefits of TUFs on conservative cash basis. During the year, as a part of the release of old dues, the benefits accrued to reduce the cost of borrowing of term loans. On the working capital part, the Company used the arbitrage available within the money market to its advantage by sourcing economical finance rather than using expensive borrowings. Specific efforts were made to reduce the gross working capital blockage to release funds from within the system so as to reduce the overall borrowing scales. Lower borrowing at economic rate (again contrary to the market conditions) enabled the company to reduce the costs.

F2F: Mr Bangur, Can you share with us some information on Capital Structure of the Company? Any capital issue plans in hand?
Mr Yogesh Bangur: The Company had issued the share capital of Rs 16 lac in the initial stage of its incorporation.
Over the period of last 70 years, after multiple bonus issues, today's issued share capital is Rs 864 lacs. Our company is the flagship of the LN Bangur group and promoters are controlling almost 84% of the capital.

The Company has got a healthy balance sheet leaving adequate space for leveraging. In the near short term, we don't intent to enter capital market.

F2F: What all are the strategic plans on anvil for the following financial year in offing?
Mr Yogesh Bangur: The Company has a significant brand following ably supported by a distribution network. During the current year, we are in the process of building additional capacities in yarn and fabric business at the same location. Capital budget has been approved by the Board and we are in the process of execution of the same. We are considering the option of buying or leasing processing plants at different locations preferably in the states of Rajasthan / Gujarat, as a non-conventional method of growing business. At this point of time, an inorganic route of growth is also a part of the growth agenda. As a part of the Change Management Initiative driven by our group Patriarch, Mr LN Bangur, the focus of the company is on enhancing the value addition though the means are certainly going to be different. Induction of younger management team has brought in the required aggression in otherwise stable composite textile mill. Costs are not being spared with specific focus on avoidance of wasteful costs. We are working towards rewarding the shareholders and bringing more predictability in the business outcome.

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