The Aditya Birla Group's Indian Rayon & Industries Limited Reports Superior Performance for the Second Quarter
Thursday, October 24, 2002 4:40PM IST (11:10AM GMT)
Mumbai, Maharashtra, India:
Indian Rayon (BSE:IRYN)(LSE:IRYNq), a major Aditya Birla Group company, has recorded a turnover of Rs.449.15 Crores up by 11% for the quarter ended 30th September 2002 vis-a-vis Rs. 403.84 Crores in the corresponding quarter of the previous year. Practically, all of the business segments have achieved superior revenues with focused initiatives yielding results. The VFY, Insulators and Carbon Black Divisions have been the major growth drivers. Exports at Rs.108.73 Crores are up by 12% vis-à-vis Rs.96.86 Crores of the corresponding period.
Gross profit at Rs. 64.90 Crores has risen by 49% in comparison to Rs. 43.61 Crores in the corresponding quarter. Net profit soared by 150% at Rs. 37.73 Crores. Given the pressures in the Garments business due to a weak consumer sentiment and higher input costs in the Textiles business, the performance of the Company is indeed commendable.
Under a Scheme of Arrangement proposed in terms of Section 391 to 394 of the Companies Act, 1956, the Insulator Business of the Company is to be de-merged with effect from 1st August 2002 to "Vikram Insulators Pvt. Ltd." after regulatory approvals are obtained. In response to the application of the Company, the Gujarat High Court has directed the Company to call for an extraordinary general meeting of its shareholders on the 28th of October, 2002. As the approval of the scheme is pending, the proposed demerger of the Insulator Business has not been factored in the accounts.
The Company has entered into a Share Purchase Agreement with Oil and Natural Gas Corporation of India (ONGC) for the sale of 41,012,461 Equity Shares of MRPL @ Rs.2 per share. The sale is to be completed only after obtaining the necessary government / statutory approvals. The Company will incur a "loss of Rs.56.9 Crores on the sale of investments" which will be accounted for only after the process is completed.
The branded apparel industry as a whole has been going through tough times, consequent to weak markets, which have not relented now for nearly a year. Heavy discounting has affected all the players in this sector, including Madura Garments. On a positive note, Madura Garments new Festive Collections recently launched is bolstering sales, the benefits of which will accrue in the next quarter.
Madura Garments turnover at Rs. 89.1 Crores is lower by 4%, vis-à-vis Rs. 93.0 Crores attained in the corresponding quarter. As a result operating margins are lower 2.3%.
A slew of initiatives have been launched by the Company to further entrench its market share and to improve operating efficiencies in the light of a tougher environment.
The Company successfully launched Allen Solly Women's Wear, a new range of international quality suits in Louis Phillipe and Van Heusen. In all these categories consumer response has been positive. Alongside in the Peter England brand, Madura Garments has successfully ushered in novel range of knitwear T-Shirts named "Elements". It has also been test marketing its Jeans under the San Frisco brand in Bangalore as well.
To improve upon its operating efficiencies the Company has kick started ERP with SAP R3 in July, this process is well in line with its original time plan and is expected to bring in better controls on business and faster market response times in the near future.
Yet another pro-active initiative taken by Madura Garments to strengthen its bottom line includes maintaining advertisement expenses (Rs.8.8 Crores) at around 9.9% of its revenue, despite the new launches.
All the Madura Garments brands, Allen Solly, Peter England, Louis Phillipe and Van Heusen continue to remain strong. A recent ORG-MARG survey validates this finding.
The long-term outlook for the garments business remains positive consequent to the changing consumer preference for branded products and a better purchasing power. In the short-term the outlook continues to be challenging with discounts being offered in the market. To grow in revenues and earnings, the company will continue to focus single-mindedly on consumer responsiveness, ongoing innovation and enlarging its retail reach and leveraging brands. Building on new businesses such as women's wear, suits and jeans to maximise synergies and ride on the wings of its established brands, forms an important growth plank. Exports business too is expected to continue to grow at an accelerated pace.
The VFY business has posted a noteworthy performance, reporting a record capacity utilisation of 107%at 4,016 MT and first quality yarn production at 62%. Sales volumes at 4,031 MT have been sustained. Revenues at Rs.86.4 Crores reflect a 14% rise over that of the corresponding period last year. Operating margins have risen from 24.8% to 34.3% due to higher demand and the benefits of first quality.
Developing products to meet the specific needs of distinctive customer segments and launching its products under the name "RAY ONE", has helped entrench its position in markets. The brand "RAY ONE" symbolises quality, strength, reliability and customer service.
The outlook for this business in the short-term remains positive. Changing fashion trends and innovative applications of rayon will lead to better growth in revenues and earnings. The higher cost of water due to the drought, rising wood pulp prices and imports from China remain areas of concern. Tighter cost structures and leveraging the RAY ONE brand to attract premium customers, across the globe, will benefit the division considerably.
Carbon Black Division
The Carbon Black division's performance has been encouraging. Production volumes have increased by 27.6% to 28,873 MT, with a 105% capacity utilisation, which is the highest ever attained. Sales volume at 28,419 MT, is up by 20.4 per cent. Revenues grew by 11% to Rs. 80.4 Crores. Operating margins went up from 20.6% to 21.1%, largely due to operational efficiencies, tighter control over input costs and overheads.
The outlook for this business remains positive with revival in the auto and tyre sector. Domestic realisation however may be constrained on account of the import price parity. In line with the crude oil price movement, Carbon Black feed stock price may increase, impacting the business. The Company is confident of a stable growth through strengthening its position not only in the tyre segment but foraying into non-tyre application segments. With regard to the latter, intensive R&D efforts are on at The Aditya Birla Institute of Fundamental Research in Gummidipoondi.
The Insulator division has shown a remarkable improvement in performance with better realisation from high end products and enhanced sales volumes. Sales volume grew by 29% to 6,467 MT as compared to the corresponding quarter. Production volumes have been marginally lower at 2.5% to 6,109 MT, given the Company's policy to produce only against firm orders and opt for a larger share of high value products. The revenues for the quarter have grown by 31.6% to Rs.50.2 Crores. Operating margins at 23.3% have been maintained.
The outlook for the insulator's business remains promising, given the gaining momentum of the power sector. The capacity additions in the T&D segment, along with planned creation of Transmission Highways will boost demand further. In the global market export opportunities for high rating products offer exciting opportunities. The Company's strategy shall be to leverage synergies from its strategic tie-up with NGK Insulators to improve quality and yield, and the share of high value, high rating products. These moves will boost its domestic market share.
The Textiles Division's revenues at Rs. 85.4 Crores are higher by 17% driven by exports. Exports have grown by 39.6% to Rs. 40.6 Crores. However, input costs have risen during this period and only a partial increase in cost has been passed on to the customer. Operating margins thus declined to 7.3%. The impact would have been higher but for benefits accruing out of flax modernisation.
The outlook for this business remains challenging. Market conditions remain tough, even though select segments show signs of demand revival. Yet the sustainability of the recovery process is uncertain and pricing pressures shall continue to affect margins. The Company's strategy is to focus on Linen as the "Fabric of the Future", and work to change the mindsets of consumers from regarding linen as a `Fashion wear fabric to a 'Regular Wear' one. Towards this end, the Company's retail presence is being increased and brand-building efforts are underway to grow the market. Value added worsted products and dyed yarns are other focus areas. Efforts to explore newer markets to bolster exports will be beefed up.
The performance of all the businesses is expected to improve.
-- Garments will benefit with the onset of the festive season. New segments, new collections and expanded retail reach to help in generating volumes & improve profitability.
-- VFY will ride on the strength of improved quality, new brand image and changing fashion trends.
-- Carbon Black should benefit with the recovery in the auto sector.
-- In Insulators the share of high value products will stand raised. Better profitability from the NGK tie up is expected as well.
-- In Textiles, increased exports and a thrust on linen/ worsted segments will yield positive results.
The overall outlook for the Company's future is positive.
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