Dear Shareholders,
The year 2010-11 was among the best in five years due to a combination of various factors. The result was that revenues Grew 27.53%, EBIDTA 73.13% and net profit 241.27%. We strengthened our EBIDTA margin by 445 bps, resulting in a volume-value improvement over the previous year.
Our place in the sun
On the one hand, an economic revival in the advanced economies strengthened cotton yarn demand; on the other, cotton fibre became globally scarce following crop failure in the US and China (largest producers), while supply from Pakistan declined. A combination of these circumstances pitch forked India as a prominent global sourcing base, following a bumper crop production of 312 lac bales in 2010-11 as against 296 lac bales in 2009-10, and the country capitalised on more than a 50% rise in yarn realisations.
RSWM was at the right place at the right time, timing capacity addition (36,624 spindles) with the improved industry scenario in 2010-11, resulting in record earnings.
Other number drivers
Additionally, there was an increase in earnings from the spinning unit; RSWM reported improved working across its other businesses as well in 2010-11:
- The denim unit recorded a Rs. 35.85 crore EBIDTA against Rs.16.93 crore in 2009-10, primarily due to an increased share of value-added products in its sales mix (from 2.89% in 2009-10 to 28.25%; increase in exports from 8.96% of revenues in 2009-10 to 62.36%).
- The fabric division registered an EBIDTA of Rs.15.82 crore against Rs.10.32 crore in 2009-10.
- The subsidiary (Cheslind Textiles) posted an EBIDTA of Rs.31.91 crore against an EBIDTA of Rs.16.39 crore in the previous year
The current year
After unprecedented earnings, maintaining the same margins in the yarn business will be a challenge as cotton yarn prices have moderated from their erstwhile peaks. Raw cotton prices are also expected to decline significantly; spinners will purchase cotton fiber only to cover their daily near term requirements and it is only when cotton prices stabilise, then supplies are expected to increase.
This aberration notwithstanding, we will continue to strengthen, as our newly-commissioned capacities will generate sizeable volumes and new products launched in 2010-11 are likely to find new markets. Our launch of natural stretch yarn is expected to accelerate the off-take of value-added yarns, leveraging a strategic alliance with DuPont to exclusively produce natural stretch yarns under the DuPont Sorona brand. Besides, the Company expects to add 70,000 spindles in 2011-12 with an objective to reach 700,000 spindles by 2016.
Following the denim business turnaround in 2010-11, we will focus on international customers and double the global share of this business to about 50% of our overall revenues. We added two globally-respected denim brands (Diesel and Zara), expected to generate sizeable business volumes from 2011-12 onwards. We developed two unique products for Levis Global, emerging as Indias only supplier.
The fabric business is also expected to sustain growth following a stronger distribution network, which will facilitate seamless material flow into Tier-II and III Indian cities.
At RSWM, this is only the beginning of our next growth phase, as our stable business model enhances shareholder wealth through value-accretive initiatives.
Warm regards,
Arun Churiwal
Managing Director |