How challenging did FY2016-17 turn out to be for RSWM?
The fiscal gone by was one of the most difficult years faced by the Company in therecent times. With skyrocketing raw material costs the operations of all major yarnmanufacturers were affected irrespective of which textile hub they were operating from Central or North India. During the first two quarters we performed well and werein line with our expected year-end targets. However it was in the second half of the yearthat the spinners really started feeling the heat when the downstream demand subdued. Theresultant overcapacity combined with high fibre prices further squeezed the margins.
What caused this volatility in raw material prices?
Continuation of the direct subsidy-based policy by China and low demands from spinningmills in the country kept the domestic cotton prices under pressure. Chinese cottonreserves directly impacted the quantum of imports within the country and consequently theglobal stock levels outside it. Unexpected seasonal changes manifesting in the form ofdroughts and floods didn't do us any favours either. The rising oil prices may have been agood news for the overall world economy but it didn't have a similar impact on thetextile industry. In fact it led to a rise in the polyester prices as well.
How did you address these challenges?
As cotton prices remained range-bound during the initial months of CY2016 we pursuedan aggressive policy in order to reduce stocks and streamlined our receivable managementprotocols. We cleared our inventory quicker reducing it from 30 days to 10 days.This allowed us to protect our PAT margins to a certain extent. And now with cottonprices returning to normalcy (April 2017) the things are starting to look up for thissector as a whole.
Fluctuations in raw cotton prices were not in the hands of RSWM and so we had to bearthe brunt of the same. But RSWM as a proactive Company tried its best to negate the lossowing to the rise in cotton prices by controlling the factors which were in our control.
Considering the circumstances how well did RSWM perform?
In terms of sheer financial performance the Company didn't perform as per themanagement's expectations. Our topline growth fell from previous year's level. But thereare a few other numbers which I would like the shareholders to take notice of. We launchedmore than a hundred products during the year and amazingly > 70% of them found takersimmediately. This meant we forged ties with more customers and made our presence felt inmore countries. So as far as exports were concerned our performance was more or less inline with our expectations. During the fiscal gone by our revenue breakdown stood at a69-31 ratio in favour of domestic sales.
Following the capacity expansion initiative undertaken in 2015 we today have 504704spindlesamong the largest in the country. We implemented a number of cost saving andefficiency enhancing initiatives during the year which resulted in a saving of Rs 2.5Crores per month. Furthermore we increased our share of value-added products to accountfor 30% of our product mix.
What were some of the key initiatives undertaken during the year under review?
During FY2015-16 we had scaled capacities added resources recruited personnel andfine-tuned our product mix. This year we took this to the next level by introducing a newmethodology of 5-to-25'. This approach entailed showing the client the yarn samplein five days and readying the actual yarn over the next 25 days. The operative philosophywas that the sooner we turn around the yarn to garment' cycle the happier will bethe client. Further we undertook a number of people related initiatives like varioustraining and development programs and functioning of centres under skill developmentmission at Kharigram and Banswara which also helped improve the people relatedefficiency.
What were some of the other ways in which the Company optimised costs?
In a tactical measure we decided to channelise the bulk of our capex towards theupgradation of obsolete machinery and de-bottlenecking of production lines. A considerableportion of our equipment bank was more than a decade old and hence had become economicallyunviable. The influx of automation facilitated a reduction in human intervention andincreased efficiencies.
What makes you optimistic of the Company's prospects?
Going ahead we expect governmental reforms like Make in India' initiatives todrive the sectoral growth. During the past five or six years the industry has witnessedthe trend of piling up of inventory each time the prices drop (in February-March) and thatof selling them when they peaked again (in May). This allowed textile companies to accruetrading margins and profits that were higher than the operating profit. Our productpipeline our relentless emphasis on R&D and strategic energy conservation measureshave consistently bode well for us. Hence despite of rising raw material pricesconstantly threatening our margins we remain confident of holding onto it. Theinvestments we have made in the last two years will begin showing results in the upcomingyear. We are targeting Rs 3500 Crores in terms of topline and a PBDT of Rs 350 Crores inthe next three years. While organic growth has been a key driver inorganic growth is alsobeing looked at as a distinct possibility.