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Textile firms battle global slump despite rupee fall

By Aniruddha Basu

MUMBAI (Reuters)

Friday December 5, 2008

Textile companies may not benefit much from the rupee’s weakness as a slump in global demand and prior currency hedges trim bottomlines in an industry dominated by exports, officials said.

The partially convertible rupee has fallen almost 21 percent in 2008 and hit a record low of 50.65 rupee against the U.S. dollar on Tuesday. But demand from some large retailers overseas has slowed, company executives added.

"Because of the recession, what is happening is that demand for products are going down," said Jayesh Shah, chief financial officer, at apparel maker Arvind Ltd, which gets half its revenue from exports to the United States and Europe.

Export growth "this year is going to be flat ..next year, its too early to predict," he said, adding he will wait for a clearer picture on demand trends from the West to emerge after Christmas, but is not expecting any growth in exports for FY09.

Others like Bangalore-based apparel exporter Gokaldas Exports have hedged currency risk till early 2009, leaving them with little gains from the rupee’s recent drop.

"Most of the exporters have done forex hedging forward covers, so we are not being able to encash on present rupee levels," said Gokaldas’ Managing Director Rajendra Hinduja.

"In a month or two when people finish their exposures a rupee at this level will definitely help. We will finish our exposure by Feb-March," he added.

Mumbai-based textiles maker Alok Industries which has not "hedged substantially" before is looking to hedge at the rupee’s current levels, said its Chief Financial Officer Sunil Khandelwal.

CREDIT WOES

However, the global credit crisis, which triggered the rupee’s fall in the first place, is also leading to slump in global textile demand.

"The weak rupee hasn’t really given us any advantage, when the rupee became weak, came the subprime crisis," Gokaldas’ Hinduja said, adding that the industry’s exports could drop 15-20 percent this year.

India’s total textile exports for the fiscal year ended March 2008 stood at $22 billion, below the government’s stated target of $25.06 billion.

"The general prediction is that orders would slow down because retail market is not doing too well," Arvind’s Shah said.

The worldwide slowdown has prompted buyers at retail chains to tighten inventory management and slow buying, said Devangshu Dutta, Chief Executive Officer of Third Eyesight, a consultant to textile and retail firms.

"The main fall-outs of this are that they cut back on quantities or delay order placement to closer to the season," he added.

Alok Industries’ Khandelwal said some players may benefit from the recession as US retailers would seek to consolidate their sourcing by choosing fewer vendors.

But Indian firms would have to make products more price competitive as the product mix in the US and European markets have shifted towards cheaper ones, he said.

To cut down their procurement costs the retailers would want to negotiate bulk orders at bulk prices, Arvind’s Shah said

"We may be able to reduce prices…but that may not necessarily result in increased exports," he added.

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