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Spinning the Road to Success

By kruti bharadva,

Added 25 July 2021

Cover story - Indo Count Industries Ltd

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Textiles in India go a long, long way back-  right from the ancient Indus civilisation- wherein excavations have yielded cotton strands woven together. Herodotus, an ancient Greek historian, mentions Indian cotton in the 5th century BCE as "a wool exceeding in beauty and goodness that of sheep." When Alexander the Great invaded India, in 327 BCE, his troops started wearing cotton clothes that were more comfortable than their previous woollen ones. Strabo, another Greek historian, mentioned the vividness of Indian fabrics, and Arrian told of Indian–Arab trade of cotton fabrics in 130 CE.

Cut to the 21st century, India’s textiles industry has contributed as much as seven per cent to the industry output (by value) in 2019-20. The Indian textiles and apparel industry contributed two per cent to the GDP, 12 per cent to export earnings and held five per cent of the global trade in textiles and apparel for the same period.

What’s more? The share of India’s textiles and apparel exports in mercantile shipments was 11 per cent and the industry has around 4.5 crore employed workers, including 35.22 lakh handloom workers across the country in 2019-20. Exports of textiles stood at US$ 29.45 billion, as of March 2021.

It is, therefore, no surprise that the textiles sector contributes and plays a significant role in the Indian manufacturing scene. The Machinist caught up with Kailash Lalpuria, Executive Director & CEO of Indo Count Industries who told us how the consumption pattern has changed along with the point of sales distribution and company’s strategies to gain deeper insight into the market requirements. Edited excerpts:

ICIL’s Journey

Established in 1988 and head-quartered in India (Mumbai), Indo Count Industries Limited (ICIL) is one of the leading home textile manufacturers with an extensive product range. Indo Count is a specialised end-to-end bedding provider that is solely focused on creating all-encompassing sleep experiences. The product portfolio spans across bed sheets, fashion bedding, utility bedding and institutional bedding. The manufacturing skill extends across the entire value chain. The company exports to over 54 countries across six continents and the company’s annual capacity is 90 million metres which will be expanded to 108 million meters by Q4 FY 2022.

For over 25 years, Indo Count has been innovating superior quality products that are responsible for its continued momentum and sustainable growth. The company has demonstrated growing volumes, revenues, and profitability due to product innovation through its inroads in new health and wellness category, strong customer relationships, deeper penetration across categories and markets as well as robust balance sheet and financial flexibility.

Indo Count aims to capitalise on India’s edge in the global home textile market due to the abundant availability of raw material with India being the world’s largest cotton producer, Government’s push for Atmanirbhar Bharat for import substitution and capacity building to dominate the global market, access to a skilled, traditional textile labour force, growing global respect for Indian products; dependable long-term partner as well as CHINA + 1 strategy to play out as brands will seek the second source.

Product Portfolio

The company has a vast product portfolio such as bed sheets, fashion bedding, utility bedding, and institutional bedding. There are ten in-house developed brands which include Wholistic, Layers, Sleep Rx, Boutique Living, Pure Earth, Boutique Living Luxury, Colour Sense, Purity Home, Kid’s Corner and The Cotton Exchange. The company has two manufacturing facilities and made-up stitching units at Kolhapur, Maharashtra.

 

Indo Count’s performance has been excellent during the last quarter. How do you see this trend going forward and what is your sustainable EBITDA margin guidance?

FY21 volumes stood at 78.17 million metres as compared to 61.8 million metres in FY20, a growth of 26 per cent. Our Q4 FY21 sales volume stood at 21.65 million metres and the order book continues to remain healthy. We are optimistic and expect volumes for FY22 to be in the range of 85 to 90 million metres.

We have strong momentum and acceleration on the order book position and the same is quite healthy for the next two quarters and that made us provide you with the reason that the guidance is 85 to 90 million meters. We are debottlenecking the capacity, which will be coming into play by Q4 FY22. As you can see the retail sales in the US are growing almost seven per cent to eight per cent. The vaccination drive is also trying to bring in confidence among its consumers. So, we strongly feel that we should be doing good volumes as we have added up some new product categories and some new customers going forward. We expect a sustainable EBITDA margin of 15 per cent-17 per cent as per the guidance provided during our last investor call.

In March this year, ICIL announced the brownfield expansion of existing capacities with a capex of Rs 200 crore. Going forward, how these expansion plans would take the company to a targeted growth?  

To address the growing demand, we announced the expansion of our bed linen capacity by 20 per cent from the existing capacity of 90 million meters. We propose to scale up to 108 million meters by debottlenecking and balancing facilities. This, along with the brownfield investments for adding commensurate cut and sew facilities, along with enhancing the capacity for top of the bed products would entail a capex of Rs 150 crore. We are also modernising our spinning units with compact modern technology. This would entail a capex of Rs 50 crore. These investments are expected to increase the revenue by ~Rs 600 crore over the next two years, post-commissioning. The total capex will be ~ Rs 200 crore and will be funded by a mix of internal accruals and debt and is expected to be operational in the second half of FY22.

One of the things ICIL values is its E -commerce partnerships. How have these partnerships evolved into turnkey fulfilment programs as well as customised solutions?

We have continued to focus on growing our branded and domestic businesses. For FY21, branded business stood at 10 per cent of sales, domestic business at one per cent and e-commerce at four per cent. We are embarking on increasing the contribution in FY23 of these value-added segments. We expect domestic business to rise three per cent and e-commerce to eight per cent and set our targets accordingly for FY23.

Can you elaborate on the recent brand launches and developments in the space of health, hygiene, and wellness?

To create a strong B2C and D2C foothold, we have established offices and design studios in key cities of the world to understand customer preferences and create products for the future. Accordingly, we have entered various brands through the launch of ‘Wholistic’, a health and hygiene brand, ’Sleep RX’, which is a performance brand, ‘Pure Earth’ on the sustainability side, a brand well recognised, ‘Boutique Living’, mid-market aspirational brand in the domestic market and this year, we had launched ‘Layers’, a value-driven mass brand.

Talk to us about your strategic partnerships, and how they push forward the drive to excel in your product and brand offerings?

Globally, the company has a strong presence and partnership with marquee retailers. Considering the product is positioned in the mid to high segment, it plays an important role in promoting retailers’ brands and private labels. Through its (marquee) omnichannel presence, it also addresses the market needs of B2C and D2C brands and retailers, by forming a joint business plan of marketing strategies.

To enhance the domestic presence, Indo count Industries has conducted various campaigns, devised and executed various marketing strategies including Influencer marketing as well as tied up with online platforms. Indo Count is also creating a pan India distribution network through multi-brand outlets (MBO’s) and large format stores (LFS).

How important is innovation to your overall business plan and how do you incorporate it in your product offerings?

The company has established itself as a preferred partner over the years, through its focus on innovation, branding and sustainability initiatives.

Our innovation, R&D, knowledge capital and superior quality have helped us carve a niche in building a portfolio of value-added, modern, and functional products. We are in a constant endeavour to understand the evolving trends of our customers. We strive to actively adapt the changes required in our product portfolio and launch products that resonate with customer demand. This has helped us gain a competitive edge and engaging relations with our marquee global customers.

Digitalisation is key to success and efficiency. Take us through your supply chain management and ERP installations and how they enable ICIL to be agile and accurate?

We are now focusing on creating more visibility through digital marketing channels. We are trying to create a pan India distribution network to MBOs and LFS formats. Globally, e-commerce omni channels and B2C have become important channels of distribution. Due to this additional channel of distribution, a wider section of people in Tier-II and Tier-III cities have also got an opportunity to buy products, both offline and online. As a company, we have taken the right steps towards adapting new avenues of sales according to the changing customer ecosystems. Our performance during the period has provided us with a renewed confidence in exploiting these new channels of distribution and grow further. We have been investing in digitisation and strengthening our current ERP system so that we can serve our customers with better and quick decisions. The improvements in the supply chain will help us manage our business well and keep pace with technology.

India closely follows China in the home textiles market. In the near term, do you see a change keeping in mind that India is still the world’s largest producer of cotton?

As per the OTEXA data, China is losing ground not only in sheet sets but all other categories. China’s share in US import of cotton sheets decreased to 13 per cent in FY21 from 18 per cent in FY20. So there is a big opportunity in offing mainly because there are only a few countries in Asia which are supplying textiles to the world. Around 85 per cent of textile is supplied by these five Asian countries. With Bangladesh and Vietnam  facing labour arbitrage, and Pakistan’s limitation of cotton and short staples, Indiahas got a versatile supply chain of short-staple, medium staple as well as long-staple. That apart, India also has an established spinning segment. So it’s a win-win situation for India as the country is well-positioned to capitalise on the same. Meanwhile, our company, our peers have performed well in the last two-three decades and have served brands and retailers worldwide.

India no doubt has a global edge in textiles manufacturing – how do you envision ICIL harnessing the advantages India offers – keeping in mind the government’s initiatives to boost domestic manufacturing?

The Home textiles segment has become one of the most attractive segments in the textiles industry in the recent past. It has also emerged as one of the most fashion-sensitive segments in the textiles industry. India is globally recognised for its extensive variety, exquisite designs in home textiles and furnishing fabrics. The country is on the verge of a big boom in the affordable housing sector, and there is a fair share of growth in employment opportunities, especially in the services sector. Thus, leading to high disposable income in the hands of young consumers. A combined result of these factors has seen the demand for home textile products growing by a healthy 15-20 per cent per annum. The market for home textiles and furnishing fabrics in India is extremely wide and varied in terms of prices, designs and colours. While the affluent consumers prefer refined international taste in terms of quality and design, with price no constraint, the mid and economy-segment consumers offer huge volumes for reasonably priced products. With the growing awareness towards sustainability, safety, hygiene and functionality, the demand for better quality home textiles with features like stain-resistance, flame retardant and fragrance, among others is increasing. The health, hygiene and wellness segment which has gained importance in peoples lives in recent times, will further boost opportunities in these categories.

As a country we have a competitive advantage; we are recognised by the buyers and the retailers that we have a good supply chain, logistics as well as  good raw material support. The regulatory policies in our country - like Make in India or the Atmanirbhar Bharat or the refund on duties/taxes- are all also inclined towards providing the necessary support to the textiles segment.

What was the overall impact of the pandemic on the global as well as the domestic market? Going forward, do you see any paradigm shift?

The consumption pattern has changed along with the point of sales distribution to which the company is adapting quickly through increased communication and gaining deeper insight into the market requirements. Additionally, an experienced management team and a liquid balance sheet strength have kept ICIL in a strong position to navigate through these challenging times. The company is well-positioned to leverage this opportunity with a strong customer base, capital adequacy, wider geographic distribution, extensive sectoral understanding of product development as well as a relatively under leveraged balance sheet to quickly adapt to the changing customer ecosystem. The company complies with all the government rules and regulations to contain the spread of Covid-19. Measures like social distancing norms, wearing of face masks, regular sanitisation of premises and thermal screening before entering the workplace to ensure the health, the safety of workers and staff at the workplace are implemented.

The world is still battling the COVID-19 pandemic and most countries are in the middle of the second wave; however, vaccine rollouts should play a major role in the next round of economic recovery and upheaving business confidence.

Do you foresee retail consolidation in your main market – the USA? How will this benefit Indo Count?

We expect the following retail consolidation in the US market:

Structural Shift:  

Expect the USA market to move to few large players due to a strong balance sheet and increased capacities.

Consolidation:

Increased market share gain could be higher for larger players.

Reduced fragmentation:

Reduced fragmentation in end markets would lead to an increase in share for organised suppliers.

Organised Manufacturers:

Organised manufacturers benefit on the back of increased capabilities.

Increased Efficiency:

Consolidation will lead to increased efficiency and productivity in manufacturing.

What are your plans for the fashion / utility and institutional side?  What would be the contribution of these segments to your overall portfolio? How big is this opportunity for Indian suppliers?

Our focus on offering an integrated bedding solution with innovation and keeping customer preferences of the future in mind has resonated well with all our buyers. Having entered the largest sub-segment of fashion, utility, and institutional bedding in 2016, we have continued to make all-around efforts in terms of innovation, service, delivery, and capacity to grow our brand equity in these segments. These segments today contribute 15 per cent of our revenue.

The home textile size of the US market at retail is $28 billion of which bed linen is $14 billion i.e., bed linen comprises of four major categories in which sheets are $4 billion in value share. The other three are fashion, utility and institutional bedding which is a $10 billion market. Currently, India holds around 60 per cent market share in sheet set. The target market of almost $10 billion in the other three categories can be addressed and capitalised. Currently, China is a dominant player in these three categories and India is still at a nascent stage. The China + 1 strategy will help shift these product categories to India. The Indian home textile industry stands to gain on this potential shift of these product categories. Therefore, the fashion, utility and institutional segment is a large 3x opportunity size for Indian suppliers.

The key philosophy that drives your Corporate Social Responsibility (CSR) initiatives is that “Every Smile Counts.  Tell us about the activities of the Indo Count Foundation.

Indo Count is committed to creating a larger societal value. It stands as a responsible corporate citizen to serve the greater purpose of prosperity in the society it grows.  With a participatory and collaborative approach in CSR, the company continues to improve the lives of the community in the local areas of operations i.e. Kolhapur.

The key philosophy of all the Corporate Social Responsibility (CSR) initiatives is guided by the belief “Every Smile Counts.” For 5 years, the company has carried out CSR activities in the areas of education, healthcare, women empowerment and water and sanitation.

Some notable CSR activities revolve around facilitating the educational needs of children in nearby schools, providing CSR medical help to villagers through proactive mobile health check-up  vans, skill development offerings for women to empower them financially, as well as promoting sanitation by building and maintaining toilet blocks in the areas near Indo Count facilities.

In the sustainability domain, Indo Count’s CSR program ‘Gagan’ is helping farmers to cultivate sustainable cotton through our Better Cotton Initiative (BCI) project. Indo Count has also taken SMART goals for greenhouse gas emissions reduction through the Walmart Gigaton project. Additionally, the company is also taking crucial steps to creating a better world such as installing renewable energy in the premises, the recycling and reuse of water through a modernized ETP plant, conservation of water resources, reduction in the use of plastic and promotion of sustainable fibre products. It has also initiated ratings for ESG and will be reporting this soon.

Awards and Recognitions.

Since the last 13 years, Indocount has been exporting and has reached a leadership position in exports in India. The company has been felicitated with numerous prestigious awards to name a few:

• Honoured with Gold Trophies by TEXPROCIL for highest export performance in bed linen for consecutive two years 2018-2019/2019-2020.

• Executive Vice Chairman, Mr. Mohit Jain, has been honoured with The Economic Times Business Leader - Youth Icon Textiles award 2021

• Pride of Maharashtra Award under the category of ‘Best Company of the year’ in 2019

• Recognized by Walmart Corporation as “Giga Guru” amongst Global Top 20 suppliers

 

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