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Interview with Mr Govind Sharda

Mr Govind Sharda
Mr Govind Sharda
Executive Director
Maharaja Shree Umaid Mills Ltd (LN Bangur Group)
Maharaja Shree Umaid Mills Ltd (LN Bangur Group)

Established in 1939 in the western Rajasthan, one of the oldest and most profitable composite textile mills of country boasts of capacities of 110000 spindles, 2300 rotors and almost 500 looms. The Company has enviable record of consistent profit making since inception through its operations. This flagship of the LN Bangur group controls almost 20% of equity stakes of the Andhra Pradesh Paper Mills Ltd, another group company and more than 10% of the tea gardens of the Peria Keramalai Tea and Produce Co. Ltd. The LN Bangur group is one of the few traditional industrial houses who have strongly believed in empowerment of professional talents in industry and has always separated ownership from the management. Though, none of the group companies have gained favours of the stock market, the group companies have built strong financial positions internally to provide platform for the future growth. Mr Govind Sharda, Executive Director of Maharaja Shree Umaid Mills Ltd, is the latest hand-pick of Mr Bangur the Chairman and owner of LN Bangur Group. Mr Sharda joined the Company around 3 years back. Being a finance person at the core, he has been largely responsible for a structured growth in the financial performance of the Company for last 10 quarters on continuous basis. Mr Govind Sharda is based out of Pali in Rajasthan and has worked in past with diversified groups engaged in cement, steel, paper, chemicals, energy and retails. In a talk with Ms Madhu Soni, Sr Editor & Correspondent-Face2Face, providing a gist on industry shaping events for calendar year 2010, Mr Govind Sharda also points up challenges and threats that cloud over the domestic and global textile industry, presently.

Calendar Year 2010 is on the verge of end. Mr Sharda, being a finance fellow at the core, how will you count on major happenings that this year has brought-in to shape the global industry’s fate differently. How would you predict year 2011 for select sector?

Having faced a sluggish economic environment in the big economies, a mere stagnation or no de-growth is growth story. The economic shrinkage has shrunk with symptoms of buoyancy returning back. Weakening of international currencies of USD and Euro has provided impetus to other economies by facilitating exports though at the cost of employment opportunities in the developed economies. The larger economies are moving up slowly and the movement is quite encouraging, sentimentally. However one needs to watch the same carefully before framing any conclusion.

Textile industry has lesser worries attached to it in mid to long term. There have been marginal shocks during recent past but being an essential life style statement, one can’t postpone expenditure towards textile products. Till the strong signs of buoyancy are witnessed consistently in otherwise stagnated economies, the seasonality factor would continue to dominate. In Indian context, the going is good, significantly due to ill-favour of weather conditions in China, Pakistan and the US. We believe, this cotton season year would once again put the Indian textile on front foot in terms of quantity and value as well. However, a strong national currency could be a major threat to sustain the international trade in subsequent seasons when the advantage due to weather may not exist. The Companies with strong focus on technology and dependence on domestic market could continue to benefit.

 

As you too mentioned -'in Indian context the going is good', few other textile veterans ideate next decade to be golden era for Indian textiles industry. What is your say? How will you intensify your domestic presence?

The industry was hit so adversely in sentimental and financial terms that anything from now on can only be considered an improvement. Textile has become a life statement with potential to evolve into other functional applications. The ever increasing leveraging of technology would provide adequate impetus to the growth much beyond decade.

Our company has intentionally built business model to cater domestic requirements and has presence in almost entire country through networking partners. We are working on to further strengthen the presence through a larger product basket for varying needs, differentiated pricing points and in line with the overall growth plan that the Company has laid down.

What Challenges and Threats cloud over the industry in land and overseas, presently?

The biggest issue that I foresee as of now is the dependence of Indian textile industry on export segments. The industrial growth is propelled by the segment that is not really growing in line with the domestic industry. Strength of Indian currency vis-à-vis international currencies of USD and Euro is an area of concern for the long term sustenance of the growth. The higher prices in foreign currency may not be feasible in view of negligible growth / stagnation in US and EU economy. The Fed movement of buying back the bonds could bring inflation in the US economy and buoyancy at the Wall Street to bring a “feel good” factor. Coupled with almost zero cost of short term financing, the US economy could be trying last of its bullets to revive and should it succeed, the demand for the Indian textile could register adequate growth. In the current year, however, Indian textiles can do better than most other textile players due to distinct cotton crop advantage but building up capacities based upon this overnight position could only glut the domestic market in mid-term that could further bring down the curtain on growth engine through consolidation. Also, most of the textile players are into basic or minimum value addition chain of the textile products that means anyone can compete on cost advantage matrix. Unless one raises the standards of deliverance to a new height, it would be difficult to sustain the growth propeller.

Domestic market is showing resilience after a lot of companies had a tough financial performance for quite sometime. This breather would certainly repose the faith of investors into the segment. The robust P/E growth at the bourses is bringing cheers to the spending power of the masses. Continuous growth reflected in the IIP data are fuelling otherwise dormant sentiments. In all, this year is going to be historic for most of the textile players and I personally believe, those who can’t make this year, better should look into the next decade only.

What are the strengths that your company banks on to maintain its record of better performance year on year on growth trajectory?

We strongly believe in keeping our foot firm on internal efficiencies rather than relying on the positive waves alone. The Company follows the balanced approach in that the external factors are discounted based upon the best possible intelligence but internal factors are strongly leveraged. We have long maintained that funds management in textile is a strong pillar for sustainable engine. Right time of funding for right procurement of inputs is the basic success factor that we have practiced over the period of time to maintain almost seven decades of uninterrupted operational profitability of company. We believe in maintaining quality standards in line with the market expectations so as to have automatic pull in the market rather than creating ways of pushing the material. The biggest of all such strengths is that we recognize our weaknesses internally and work on avoidance of the same.

As of now, the Company has identified certain expansion opportunities to move up and horizontally in the value chain. Serious work is going on evaluation part apart from conducting market study.

The Company has also entered into institutional sales to derive a natural hedge against seasonal vagaries and make a robust growth cycle. We intent to expand in this area by having dedicated capacities customized to specific segmental requirement to ensure a regular Return of Investments.

How would you comment on current cotton issues?

The prices are high at Rs 45000-46000 / candy but we will not be surprised if there is hike of another 25% in short to mid-term before having some correction and settlement. The situation is precarious where one needs to balance the diverse interest of the industry and farming community. Politically, the balance is tilted against the industry and therefore, we need to learn to live with the realities. The good point is that the prices of products are moving in tandem with cotton prices. The bad part is that under normal monsoon, one can expect the crop size to reach a new high in subsequent year due to higher cultivation area that would ultimately lead to drop in prices. Better part could always be to keep the buffer stock within the industry to take care at the time of poor or not-so-good monsoon. The balancing between the domestic and external economies need be arrived at keeping in view the fact we have compulsion to ensure growth of both these segments. The average price of cotton for the entire crop season could range between Rs 40000-42000 / candy. The off-take of cotton products would have a beating in market with a significant part of customers shifting to synthetic products as is visible by change in the prices of synthetic materials and fat order books of manufacturers.

Your recent quarter & half year end results (30th Sep 2010) shows that raw material expenses constitute over 68% of your total operating costs. What are your plans to reduce the impact of raw material costs on bottom line?

We believe, external costs would rule apropos the market conditions. We need to derive maximum benefits through internal controls that would include increase in yarn recovery, improvement in quality to fetch higher prices and ensuring correct quality of cotton at the correct prices to take care of any possible correction in input pricing. We agree, the game is tough and gaining uncertainty day by day with lot of grapevine in industrial sector. We intent to focus more on the top line rather than on middle line (Raw materials costs). A higher top line normally would provide adequate opportunities for a fat bottom line in mid to long-term. Increase in value addition could bring down middle line as percentile to top line and we are seriously working on it.

Statement of Asset and Liabilities (30th Sep 2010) also depicts about the Reserves & Surplus. How do you envisage its strategic investment? Would this be inorganic or organic mode of expansion? Is LN Bangur Group likely to venture into diverse sector too?

The LN Bangur group is already present in paper & pulp business apart from tea gardens. We are in the process of building the group based upon the core competence acquired in the chosen streams of businesses. The group flagship, MSUM Ltd has been a source of generating businesses for the group and benefitted by way of appreciation in its value of investments. With a virtually debt free financial position as on 30th September 2010, the flagship unit is poised for an expansion plan that could entail huge capital outlay, the biggest so far in the lifetime of the Company. We are not ruling out our increasing interest in other group companies as long as the shareholders’ value accretion is assured on sustainable basis. We are looking at the options of acquisitions in textile segment if the target is aligned to our value addition statement.

Your Group is leader in Paper sector. Can this business ever be a link to drive your Group to nonwovens sector too?

Well, when we entered into paper sector, we could have never thought about convergence of the two businesses. As of now, we are not working on this direction but over the period of time, the huge capacities of most economical manufacturer of Pulp (i.e. The Andhra Pradesh Paper Mills Ltd) can be added to our competence in textile to provide innovative solution to some functional deliverance and derive some of the dreams that the promoters could not have realized at the time when the two companies were conceived.

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Published on: 15/11/2010

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.