Few months back, rupee appreciation had been causing eminent players to be on pins and needles but Alok Industries successfully kept uptrend in its profit margins and growth rate. What business strategies and corporate traits made this possible?
Alok is a fully vertically integrated textile company. It has incorporated state of the art technology in its operations provides it with a distinct upper edge vis-à-vis its competitors. The company’s operations being spread across the entire value chain, each of its operating arm is an independent profit center and this spread of margins across its facilities enables competitive pricing.
The company has the largest installation of spindles for cotton yarn out of a single location in the country, which in turn takes care of the raw material requirements in the weaving division. The processing facilities installed are of latest technology and are capable of manufacturing varied qualities of fabrics in a range of finishes. The company has also ventured into specialized finishes like aroma finish, fire retardant finish, anti bacterial finish, water repellent finish etc. The latest foray into the lucrative work wear segment has also widened the customer base of the company apart from enhancing the top and the bottom lines.
There has been an increased awareness of global warming in the recent past. Due to this development, there has been a boost in the demand for organic products. Many large retailers as a social responsibility towards the environment have shifted to manufacturers capable of producing organic cotton products. The company has accordingly ventured into the manufacture of these products and has contracted about 140,000 acres of land in Madhya Pradesh for growing of organic cotton. The venture into organic cotton products has will help the company to further improve margins.
As a strategic decision, the company is also venturing into manufacture of POY from out of PTA and MEG through the continuous polymerization (CP) process. This backward integration into manufacturing of POY through the CP route would considerably boost the texturising operations of the company. The company has also gradually increased its texturising capacities and is presently the second largest manufacturer of polyester texturized yarn in the country.
Alok has its margins spread across a variety of diversified operations within the textile sector. It also has the benefit of economies of scale coupled with modern technology to attract the best names in the sector for their sourcing strategies. In addition, Alok has a robust treasury team to manage the vagaries of currency and interest rate fluctuations under the expert advice and guidance of a reputed forex advisory firm that helps protect business profits.
Inflation in Indian economy has bout up again repeating history of early nineties. What is your say on attendant consequences of this issue on Indian Textile/Garment Industry?
The rebound in inflation rates across Asia has resulted in higher production costs for the apparel manufacturers and exporters. Rise in inflation was a global scenario affecting not only India but also other countries of Asia. In June 2008, the inflation was at its 13 year high of about 13.00% in India. Many countries which till date enjoyed cost advantages have lost their sheen and no longer cost effective to meet price and quality expectations of the western countries. In order to curtail cost of production many small scale garment manufacturing companies had shut down operations, thereby resulting in lay-offs for workers.
But the Government, creditably, is taking / taken various measures to control inflation, which is now below 8%. With the continuation of active steps on their part that includes, lowering of interest rates, the textile industry should receive the desired boost and growth should be stimulated.
So, how do you see Indian Retail industry performing in such a situation? What solutions has your Retail Division formulated to ensure profit margins while drawing a pool of satisfied customers?
While India's expected retail boom is yet to take off, it is a fact that the Indian retail industry clocks around $350 billion a year in sales. That figure is expected to double in the next seven years.
Looking at the shift in consumer preferences and the growth in retailing in the domestic market, the company forayed into domestic retailing under the name “H&A”. As at 31st December 2008, the company had opened 52 stores in Mumbai, Navi Mumbai, Aurangabad, Vapi, Ahmedabad, Silvassa, Amritsar, Mohali, Ludhiana, Jalandhar, Chandigargh, Lucknow, Moradabad, Bangalore, Chennai and Hyderabad. The company has also signed on another 54 stores pan India.
To leverage growth opportunities, the retail operation has been hived off into a separate company called ‘Alok Retail (India) Ltd. The separate company is expected to operate over 250 ‘H&A’ stores by the end of 2008-09.
“H&A” will continue to produce value for money ranges for menswear, womenswear, childrenwear and home textiles. H&A will leverage Alok’s manufacturing expertise and will retail the textile merchandise produced Alok. As Alok’s manufacturing capabilities are spread across the entire chain, right from spinning to garments and made ups, H&A would have the advantage on quality, price and delivery parameters. H&A is positioning itself as a value format store with impeccable quality goods at great prices and has in line therewith coined the phrase, :Spending wisely never felt so good.”
In global context, what do you foresee as resonances of Recession in US economy?
The ongoing financial crisis of 2008 is apparently the worst crisis that the US and the World have seen since the Great Depression of 1929.
US being the biggest consuming economy, any adverse impact in the US economy is bound to cause consequential ripples in economies riding on them. India’s overall exports, while being not so US-centric, would still feel the impact of the recessionary trends, especially in those sectors, which are dependent on a buoyant US economy. The textile sector to a reasonable extent depends on the condition of the US economy and thus the recession is bound to cause a dent. With major retailers in the US announcing drop in sales, they can be expected to reduce their sourcing. In case of Alok, however, we have greatly reduced our exposure to North America (from 65% three years back to almost 30% now) and instead penetrated Europe, Latin America, Middle East, Asia etc as a measure of de-risking our export strategy. Also, we find that global buyers in order to reduce costs are re-aligning their sourcing strategies and choosing fewer countries and fewer vendors, based on their size, technology and quality culture. Our company should be amongst the preferred vendors since we satisfy the above three parameters rather nicely.
DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.