We met up with someone who has looked at several textile/infantwear/innerwear companies especially in the southern belt - both listed and unlisted entities.
Following are some of the key takeaways, which we will try to dig into more:
1). Stringent customer process for supplier selection - usually takes 6-9 months the first time. There is also lot of scrutiny on labour processes and compliance norms - especially Effluent/Discharge treatment plant.
2). Post that the accent is on Quality at the right cost and on-time delivery
3). Many customers want to operate on near-zero inventory and require suppliers to supply direct to the Showrooms - in show-room ready condition - with branding and bar-coding tags, etc.
4). While there is negotiations on margin front it is unlike the Auto OEM situation- where perforce every year there is a squeeze. Infact most have contracts that allow room for increase in RM, Cotton and even Power to be passed on with a lag.
5). Labour/ Scaling up is the main issue given the current rural wages/MNREGA situation
6). 10% EBITDA levels is the norm. He was of the opinion 20% plus EBITDA levels are not sustainable (price points are mostly same, people supply to similar customers)
7). Main Process Components
Spinning/Yarn making >>>Dyeing/Bleaching>>>KnittingWeaving>>>Fabric>>>Cutting m/c>>>Sewing m/c. Dyeing/Bleaching requires alongside the effluent treatment plants
8). Knitting : Inner wear and Infant wear ( products have elasticity properties); Weaving: Shirting/Suiting etc
9). Yarn making is complex Capital Intensive. Knitting/Weaving is capital Intensive. Most capital intensive is Dyeing/Bleaching/Effluent treatment plants - easily 120-150 Cr investment according to him. Norms are very strict today. There are many plants in Erode area which had to close down because they couldn’t meet the effluent treatment norms. Cutting & Sewing machines are easier to set up.
10). There are some companies like BEST Corp - which is a completely integrated operations - no process is outsourced. 1000 Cr plus turnover; supplier for Hanes and other innerwear companies
11). Role of Automation/can come in where the process is Labour Intensive. Yarn making is labour intensive. Dyeing/Bleaching there is limited labour so role of automation is limited. Garmenting is labour Intensive. Cutting machines can be completely automated - where part-wise specs can be fed and the machine optimises the cutting completely, there is very little wastage. Stitching also there are advanced machinery.
12). Technology upgrades are necessary usually in 8-10 years. There are people who continue to use for 20 years
13). Utilisation levels are very high in spinning. Also high in Weaving machines. But utilisation levels are usually low in Knitting machinery - couldn’t explain why - maybe due to changeover processes, etc. He has seen utilisation levels being as low as 30-40%. In that way utilisation levels of Kitex being 60% seems good. Management had mentioned they can take utilisation levels to max 70% - cant be more.
14). He was of the opinion while there is room for process optimisation and assembly-line efficiency improvements, this isn’t rocket science. You are not like re-inventing the wheel here. There cannot be very drastic efficiencies over the next guy
15). Processes are not very complex. Anyone with the resources can set things up. Scaling up will be an issue - but not something that is not being managed. Why an Arvind doesn’t enter the field could be to do with the size of the infantwear niche. He doesn’t buy that Arvind wanted to but failed while trying to enter this segment because of some technical complexity!