Interview with Mr P Nataraj

We are one of the largest vertically integrated apparel players in India having presence across the entire value chain with an extensive gamut of products yarn, knitted fabric and readymade knitted garments. Backed by world-class equipments and skilled & well trained manpower it has six state-of-the-art production facilities located in Tamil Nadu, with a production capacity of 54,000 MT of yarn from 2,12,064 spindles; 21,000 MT of fabric; 63mn pieces of readymade knitted apparel; 8400 MT Fabric Processing Capacity, per annum and 40 MW of Wind Energy. The integrated manufacturing operation enables us to customize products as per the client specifications and provide consistent and best quality assurance.

The key strengths and salient features of the Company are as follows:-

* A vertically integrated Apparel company, producing Readymade Knitted Garments, Cotton Knitted Fabric and Yarn. * Purchase of single variety top grade raw material at lower prices in the peak season improves procurement efficiency besides quality of Products. * A balanced mix of captive and grid power results in reduced Power costs. Green power generation capacity of 40 windmills at Tirunellveli, Thenkasi, & Coimbatore that can generate 40 MW, sufficient to meet about 75% of its power requirement through captive consumption. * Installation of state of the art machinery and sophisticated quality control equipments assures quality Products that entails market leadership. * Low finance cost through availment of TUF subsidy. * Strong and diversified customer-base. * Affords complete sourcing solutions for many of the international blue chip brands and retailers on account of its Internationally accredited processes with stringent quality control measures * Well known for its quality standards, consistency and timely delivery schedules enabling Premium prices for its Products. * One of the biggest Processing facility in India integrating the fabric processing aspects of dyeing, bleaching and finishing with a massive eco-friendly modern Effluent Treatment Plant with zero discharge system. * Locational advantage by having operations within a 50-Kilometer radius from Tirupur, the Asia’s largest Apparel manufacturing Cluster. * Adherence of best Corporate Governance Policies through strong Board and executing Corporate Social Responsibilities by way of Rural Women upliftment, investment in Green Energy, waste water recycling & irrigation, biogas plant, Accountability and transparency in financial reporting etc.

These features enable distinct competitive advantage over others in the market.

The Knitting sector is growing globally. European and North American markets dominate the Global knitting market accounting for more than 65%. India and China are regarded as major Clothiers of the World. The industry witnessed a continuous growth till global recession, which brought about a marginal slack in sales.

However, post world economic crisis era, the market bounced back with a forecasting to reach US $140 billion by 2015. Urbanization, need for a trendy life style, greater disposable incomes in the hands of consumers triggered a dramatic shift in the traditional knitting market. Technology has been one of the major factors resulting in a change in the hosiery business. Changing life styles has also contributed to the sea change in the product offerings. The fast growing ‘teen’s market’ necessitates novel hosiery products. The manufacturers have to invest more to acquire latest, sophisticated knitting machines that are capable of greater production with varied specifications.

However there are certain impediments like the present historical hike in cotton prices; substantial slowdown in investment in the Sector after the glut due global recession and discontinuance of TUF In India; Power cuts restricting capacity utilisation at the facilities created; Exchange fluctuations; frequent changes in Govt’s EXIM Policies etc.

The focus on yarn market Know-How and trade information brought into light a more demanding but less tapped value added product “Compact Yarn”. Enquiries confirmed that both domestic and international markets were craving for the product due to its unique “Hairiness Free” feature and lesser manufacturing capacity prevailed when compared to huge demand for the product.

Compact spinning is spinning yarn with less hairiness and more strength by aligning the fibres in one line with air suction. It is a modified ring spinning process used in both short and long staple yarn.

Present compact spinning capacity

Tirupur is the Prime Market catering to the yarn and Garment requirements of International Buyers. There are more than 6000 Garment Manufacturers in and around Tirupur, out of which we have 1000 Customers whose yarn / Fabric requirements are met by us. Our Present compact spinning capacity is 12,000 spindles with a production capacity of 2200 Mt per annum. When compared to the demand prevailing for compact yarn, our existing capacity is absolutely insignificant. We presently produce yarn of counts 16’s to 40’s and our present compact yarn capacity does not even fulfill its market demand for a single count. There has been increasing demand in the International Market for compact yarn due to its hairiness free feature. The total compact spinning capacity available in India is only around 10% of the global capacity. The inadequate capacity in the Country made its availability more difficult. Hence, the Exporters buy fabrics made out of conventional yarn and subject it to a further process called “Bio-wash” to remove the hairiness, before Dyeing.

The process of bio-wash to remove hairiness in the conventional yarn results in:

1. Additional cost of Rs 20/kg 2. Additional process thereby reducing the longevity of Fabric. 3. Additional time for Processing. 4. Additional Dyes and Chemicals in fabric

Whereas the usage of compact yarn involves only an additional cost of Rs 8-10/kg, thereby saving Rs10-12/kg, to the Customers, besides eliminating the other constraints. These special features, have kept the demand for compact yarn on the rise.

To cater to the growing demand, owing the following benefits, both at Domestic and International Market, it has been decided to enhance the compact spinning capacity:

i. Value addition ii. Better realization iii. High end Market - hairiness free. iv. Elimination of additional processes of “Bio Wash” vis-à-vis its additional cost.

Hence, expansion of ‘Compact Spinning capacity’, a value added and quality-oriented forerunner is considered to be an ideal and more feasible venture that is expected to enhance the revenue by 25% and EBITDA by 3-5 % upon completion.

Cotton accounts for 65% of the cost of production of cotton yarn. There has been unprecedented rise in cotton prices during current year. Average price of sankar-6 during October 09 was Rs.23,000/- per candy whereas it has shot up to Rs.45,000/- per candy in November 10, recording around 100% hike. Low global cotton stocks, continued demand by spinning mills and the panic induced by fear of defaults in contracts resulted in high volatility of cotton prices. Against clearance of Rs.55 Lakhs cotton bales by the Govt, of India, so far Rs.25 Lakhs bales have been exported.

Its export should be permitted only after ascertaining the projection of cotton consumption of Domestic Mills Vis-à-Vis expected cotton production, availability of surplus cotton to calibrate its export and ensuring availability of the prescribed carry over stock at the end of season. This can be possible only by maintaining strong database. Stipulation of actual user condition for purchase of cotton may avoid hoarding of cotton by middle man and the speculators. Unless its prices are regulated with proper mechanism, it shall continue to be a cause of concern for the Textile Industry that is already facing stiff competition from the neighboring countries, which are supported by various incentives extended by their Governments.

Unlike past, the prices of Yarn and cotton now travel together; hence, the additional cost could be passed on to the Yarn. However, this shall become a matter of concern for other Non- integrated Garment Exporters.

That is true. Changing life styles coupled with greater disposable incomes in the hands of young generation and growing urbanization in the country, have created a growth in demand for novel products. The Technology up-gradation in the Textile Industry is offering new products of innovative Designs that infuse further demand. Products focusing on ethnic young generation consumers will boost sales and profits. The highly competitive Textile market has geared itself to meet out the aforesaid new segment of demand.

In the total revenue of the Company, the domestic sales constitute 70% and export 30%. Our capability of meeting the demand of high quality conscious customers at Tirupur, one of the largest apparel hubs in Asia and that too commanding Premium prices for the Products ensuring delivery on time, itself would speak for our credentials.

Prevailing uptrend in the domestic market manifested by the rise in the prices of high quality yarn produced by the Company; Continuous growth at International Market reflected by persistent demand for Garments; our unique strengths; sustained and expanded profit making ability; further expansion and modernisation activities under implementation more particularly in value added Products; increase in capacity utilisation by the improved power scenario would certainly boost KPR‘s top line in the Fiscal 2011.

Definitely it is! The company has 40 wind mills with a total generation capacity of 40MW for captive consumption at Tirunellveli, Thenkasi and Coimbatore districts with an objective to become self - reliant in power consumption needs. To support its expanding operations, the Company is adding up a further 22 MW to its wind power capacity.

Being one of the largest in-house power capacities in India, the company achieves substantial competitive advantage in power costs. The windmills are sufficient to meet about 75% of its power requirement through captive consumption. With every capacity expansion plan, the company strategically plan to invest in wind energy towards captive consumption. Hence, KPR’s power cost as a percentage of revenue stood at 3% as compared to industry’s average of 9%.

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