Mumbai-based SVG Fashions Ltd Managing Director Rajkumar Agarwal spoke to Textile Excellence about the integrated manufacturing company’s immediate and future plans. Here are the excerpts…
Please tell us something about your company’s journey…
SVG Fashions Ltd, the original company, was founded way back in 1978 by my father. Initially, it was founded as a trading company. Then we diversified into making polyester yarn because we were consuming a lot of polyester yarn. Somewhere in 1991-92, we thought of making knitted polyester fabrics. Today we have a capacity of 45 tonnes of polyester knitted fabric every day or two and a half lakh metres every day. So starting from woven polyester suitings, we entered polyester yarn after which we entered polyester knitted fabrics. Later we entered schiffli embroidery, multi-head embroidery and home furnishing. After that, we started using the products of these verticals as raw materials for our garment division. This has been our whole journey. We are market leaders in each of these verticals. Among textile firms, ours is perhaps one of the most financially sound companies with the lowest debt-equity ratio.
What are your immediate plans related to texturised yarn?
Texturised yarn is our raw material. We don’t intend to sell texturised yarn. That is not our main business. The core DNA of SVG’s business is value addition. We do embroidery. We make the thread used to do embroidery in-house. We make furnishing fabrics and the thread for that chenille yarn is made in-house. We specialise in purchasing only the very basic raw material and then do all the value addition in-house. So we buy POY which is the most basic raw material and then we sell garments. We convert the POY into texturised yarn. The texturised yarn is converted to grey fabric. Grey fabric is converted to finished fabric, which is printed. Then it is converted into garment and maybe we will get into branding of garments later, which will increase profit margins. That is where the world is going. In the future, customers would want a one-stage profit. They are not willing to pay you ten stages of profit, where one person is making yarn, the other is making grey fabric, another is making finished fabric and yet another person is doing dyeing as well as printing.
How is the home textiles market doing and what are your plans?
We have got a state-of-the-art set up for home textiles and we are doing very well in this area. Now, the next stage for us is to get into branding. You see, we have been selling through distributors. Soon we plan to enter direct retailing by selling to direct retailers. That will be our next move. That is when customers will see our brand. Right now, we sell through distributors and so brand is not very significant. We will stay in the home textiles segment. There are bigger players in this segment and we don’t have the first mover advantage. However, we have a best mover advantage, in the sense that we make the best home textile products. Branding will be our next move.
Do you have any sort of expansion plan lined up?
We are already in the process of implementing our expansion plans. For example, right now our capacity for knitted polyester is 45 tonnes. An additional capacity of 10 tonnes is being added. It should come online by April or May this year. Already the building is under construction in Daman where our fabrics are made. We are also expanding our embroidery set up. We completed our expansion project for home furnishings last year. We have added weaving machines, multi-head embroidery machines etc. We are also expanding our printing capacity. We are expanding in all our verticals every year by reinvesting our profits.
Where do you see SVG India in another five to seven years?
One area where we have lagged behind is branding. We need to have our own (business-to- customer) B2C garment brand. We need to have our own business-to-consumer (B2C) home textile brand. SVG is already a leading business-to-business (B2B) brand of the highest order. Anybody who is a buyer of our products, whether it is a garment factory or a home textile retailer, they all know SVG as the manufacturer of the best and the widest range of products. So we have to graduate to B2C. That is the future. Otherwise, we will simply remain mere convertors. However, I have seen so many stories of manufacturers who tried to get into retail and failed badly. The thought process and my mindset itself have to be different. In fact, I have to stay out of it. I have to set up a separate vertical. I have to set up a separate company. I will have to stay far away from the brand business. Only then it might work. With e-commerce, there is an opportunity to create a brand at a low cost because if you sell a good product on these websites, it is possibility of creating a new brand without incurring losses due to marketing and inventories. Our retail plans are not definite, but they certainly exist. So that is where we plan to go in another five to seven years.
What should the government do about the duty structure?
One of the important steps which need to be taken for the overall growth of textiles and garments sector in India is that we need to have the right duty structures in place. Right now, we have a skewed duty structure which gives protection to raw material manufacturers. There is anti-dumping duty on PTA, there is anti-dumping duty on polyester yarn, there is anti-dumping duty on viscose yarn etc. There is protection for raw materials, but there is no protection for finished fabrics or garments. So, second hand garments and used garments are coming to India. Now, India is a labour intensive country. We need to add value in India. We don’t want to be commodity players. We need to employ our population and that can be done only with value addition within the country. So rather than have anti-dumping duties on raw material, we need to have anti-dumping duties or protection in whatever way possible on finished products. Today, there is rampant duty evasion through under invoicing of fabrics, of garments and of garments which are coming as used garments. Huge volumes of such garments are coming to India. We need to stop this. Once we do that, there will be a lot of employment generation. We will start meeting that demand in India and we will be a winner.
What are your views on monopolies in viscose and polyester?
See, these monopolies won’t go away in a day. Once the market opens up and it becomes possible to import raw materials, these monopolies will vanish. If we can import raw materials freely, monopolies will go. The monopolies will also become more efficient.
How would these issues concern your company?
We have suffered a lot due to these under invoiced imports. I have been talking about it for years. The problem is that to get any anti-dumping duty passed, you need to have representation in place from more than 50% of Indian manufacturers. In India, organising people is a very difficult task. Nobody wants to share their own figures. Bringing together 50% of the manufacturers of this country is very difficult. However, big raw material monopolies can easily make such representations to the government. The raw material people are able to prove that imports are under invoiced or being dumped. Fabrics makers are not able to organise or act likewise. So under invoiced fabrics are imported at 70 cents or 50 cents per kilogram, when the raw material itself costs US $1.50? However, such fabric imports are being cleared. However, now there is some moment on this issue because Reliance has taken it up with the government. There has also been some directive from the Central Board Of Excise & Customs to look into such under invoicing of fabric imports. Yet, there are smaller ports where such under invoicing is still happening.
Have such under invoiced imports begun to at least indirectly affect raw material monopolies?
It will eventually happen. These large monopoly manufacturers of raw materials have to export at lower prices, simply to maintain the higher prices in the domestic Indian market. However, if domestic consumption in India grows, these raw material monopolies would not have to export because they could sell more here in India. If import of fabrics and garments is reduced, local manufacturers will have to produce more. So these local Indian manufacturers of fabrics and garments would have to purchase more raw materials from these big raw material monopolies. India should not be exporting raw materials. We must export finished products like branded garments and made-ups. This ought to be the Government of India’s vision for the future and this is what should be encouraged.
What do you think would happen if these raw material monopolies continue?
Monopolies are not a problem because if free imports of raw materials are permitted, then monopolies will be taken care of. We want raw material imports to be freed as well as restrict under invoiced imports of finished goods like fabrics and garments. It should be possible to import raw materials without any restriction, if it is required. In fact, it is very easy to determine if there is dumping or not because raw material prices are freely available. There are raw material price indexes. If the Customs follows that index, there can be no under invoicing or dumping. Such raw material index prices can be used as reference rates for Customs clearance. However, for finished goods like fabrics or garments, there is no such index. So, there we need some protection or some sort of scrupulous assessment. Similarly, imports of second hand garments should also be stopped. At present, they are coming in huge volumes at grossly undervalued or under invoiced prices. Much of these are actually new garments though they are called second hand garments.