Interview with Jindal Worldwide Ltd

In conversation with Gaurav Davda, Head-Corporate Finance & Strategic Initiatives at Jindal Worldwide Ltd. 

We have seen that the pandemic is yet to put a full stop as the virus is said to be mutated making a new variant Omicron. Assuming its severity is lower than the delta variant, how is it going to impact your sales and profitability in the quarters to come?  

The Covid-19 pandemic has taught mankind a lesson that the human race can come to a stand-still, crawl, sit and then walk again. The businesses are recovering almost everywhere with daily average cases going down, though the government is cautious owing to Omicron. Few cases are being reported here and there, but we believe the government and business are fully prepared to deal with new the variant unlike what we witnessed in case of the delta variant. Also with more inoculations, the impact of Omicron is likely to be less severe as per medical experts that we are coming across. Though it is difficult to predict the impact on sales and profitability, we think that with businesses normalizing and domestic and export orders coming back to the pre-covid level, our sales and profitability will have a minimal impact due to the new variant.  

What are your expansion plans for the next few years and how are you going to fund them?  

Our expansion plan is spread over two phases. In the first phase, we are expanding our denim capacity to 190 MMPA from 140 MMPA, currently. We are also augmenting our spinning capacity. Both these expansions will entail the cost of around Rs 300 crore, which we expect to complete by FY23. In the second phase, we will be further adding to our spinning capacities which will make us less reliant on external spinning partners. This will result in a further capex of approx Rs 400 crore. We have estimated a total expansion cost of around Rs 700 crore for both phases over the next 4 years. If you look at our EBITDA, we are witnessing good cash flow and improving margins. Combined with lower debt to equity, we are planning to fund this expansion with a mix of internal accruals and debt. However, even after the new debt is taken, we believe we will be in a comfortable position as far as revised Debt/Equity is concerned. We are also in talks for potential equity fundraise but the same is at an initial stage.  

Who are your top clients and what has been the trend in their contribution to your overall revenue in the last few years?  

We do not report the same but what I can tell you is that our top 10 clients do not contribute more than 20% of our business.   

The cash conversion cycle of the company has jumped around 49% (comparing March 2020 with March 2021) and is also higher than the last 12 years average. What is the reason for such a rise and what are the steps taken by the company to reduce the same?  

Comparing the past year is not a fair estimation as the numbers will look skewed on account of a full lockdown in Q1 FY21. Else we are on a comfortable path and a slight increase given a higher base is not worrying at all.   

The government has notified the Production Linked Incentive (PLI) scheme for the textile sector worth Rs 10,683 crore. So, how will this benefit the overall industry in general and the company in particular?  

The PLI scheme announced by Government is aimed at the promotion of man-made fibres. As per information available, the product lines include 40 in man-made fibre apparel, 14 in man-made fibre fabrics, and 10 in technical textile products. This is definitely going to encourage the manufacturing of man-made fibres in the country since textiles have a good export share in the country’s basket. But since the last few years, the sector has been reeling under severe cost pressures and labour issues. The scheme will also encourage the technical textiles segment, which, though in a nascent stage in India has a bright future.   

As far as Jindal Worldwide is concerned, the scheme will have negligible benefit, since our product range is based on natural fibre, which is cotton. Close to 80% of our overall revenue comes from Denim and the rest is spread across bottom weight fabric, premium shirting, yarn-dyed fabric and bedsheets.

The Goods and Service Tax (GST) on the textile trade has been hiked from 5% to 12%. How would it affect your revenue growth?  

The hike in GST is unfortunate. Because more than 75% of the units in the textile industry belong to the MSME segment, this move will adversely impact the overall industry’s growth, which is trying to stand up after a lull period of more than four years. Though for the man-made fibres, the Government has resorted to a common tax of 12%, the hike for man-made fibres and apparel from 5% to 12% would actually bring down the benefits of the PLI scheme as higher GST would impact the final price paid by consumers. The major impact will be on to MSME segment as they are unable to pass on price hikes due to thin margins. The organized sector players would pass on the GST hike, but it will have some impact on revenue growth.

Do you see ‘China + 1’ strategy helping the Indian textile industry and if yes can you give a sense of how much growth we can expect in coming years?  

‘China + 1’ strategy has definitely helped the Indian textile industry, which is evident from rising revenue growth and increasing share of exports of key players. As per the recent report by Confederation of Indian Industry (CII) and global consulting firm Kearney, India’s textile exports are likely to grow to US$ 65 billion by 2026 from US$ 36 billion in 2019 and a large chunk of around US$ 16 billion is expected to be the outcome of ‘China + 1’ sentiment. Also, this strategy is likely to be long term in nature with benefits spread over four to five years. We believe that due to ‘China + 1’ strategy, organized players are shifting focus to exports and hence the growth is likely to be in the early teens for the next couple of years at least.

With rising technology adoption, what kind of disruption do you expect in the textile industry?  

Technology has reshaped almost all sectors and textile is no exception. The Covid-19 pandemic has accelerated the pace of technology adoption and has offered a growth prospect for digital adoption to meet rising demands and data-driven customer operations. Automation and artificial intelligence are driving factors now for the majority of players and the good part is even MSMEs are focusing on technology advancement to gain a competitive advantage. Larger corporates are moving to capital-intensive production from labour-intensive production through the use of data analytics and automated manufacturing. We believe the digital disruption has propelled the growth of the textile industry with ‘China + 1’ strategy boosting further growth prospects.