MUMBAI: Some 16 months after its first European buy, Welspun India is close to acquiring another home furnishings and textile firm in the continent as it tries to reduce dependence on the US market and combat the rupee’s appreciation against the dollar.
The company is likely to announce the deal, which is estimated to be in the range of Rs 80-100 crore, by the end of this month. The name of the company it buying and other details were not disclosed.
However, Akhil Jindal, president, Welspun India, denied any such plans. Welspun acquired Christy, the UK’s largest terry towel brand, in July 2006.
The flagship company of Rs 2,500 crore Welspun Group exports products mainly to the US; 70% of its revenues comes from exports of which Europe contributes only 5%.
Welspun is among the top four terry towel manufacturers in the world and accounts for 30% of the country’s terry towel exports to the US and 8% of the US imports of terry towel.
It is a vertically integrated company with activities starting from cotton farming to branding and retailing. It is one of the largest exporters of terry towels in Asia, exporting products to global companies like Costco, Wal-Mart, Kohls, Target, Springs, Nautica and Umbra.
It is targeting a sales of $1 billion by 2011. Manish Sarawagi, a research analyst with DSP Merrill Lynch (India), said in a note to clients on June 15 that bed linen margins are expected to improve sharply in this fiscal, as the business has now started stabilising.
He expects the volume growth for both towels (27% per annum) and bed linen (over 40% per annum) to remain strong, driven by new capacities coming on stream.
Sarawagi further wrote that textile exporters have witnessed sharp correction in the recent months following the rupee appreciation though India enjoys greater competitive advantage in this space.
Welspun has a far stronger earnings growth trajectory underpinned by strong volume growth (over 30%) on the back of new capacities coming on stream.
According to a recent Citigroup report, India is the largest supplier of terry towels (25% market share) and the third largest supplier of bed linen (17% share) to the US.
Indian home textile exports are in a growth zone although India has lost some market share to Pakistan and China due to aggressive shipments at low prices, it continued to grow at a healthy pace in higher value-added segments with high realisations compared with peers.
Its greater presence in the decorative bed set segment has also been a step forward in India’s strategy to enrich its product mix.
