Balkrishan Goenka has always loved tennis, catching the sport on television as often as he can. For the past six years, though, the third week of June finds him at the mecca for tennis lovers — Wimbledon. He enjoys the Centre Court matches, the English summer and the chance to eat strawberries and cream at the iconic tennis club as much as everyone, but it’s really a busman’s holiday for Goenka. “I am a stakeholder in the tournament and need to be there as often as possible,” he says.
No, he’s not a betting man who has a bundle resting on the outcome of the men’s single final. Goenka’s company, Welspun India, makes the towels that are handed out to players during the championships. The most prized souvenir from the Grand Slam — even top-seeded players carry away at least a pair or two — have been made by British brand Christy since 1987. In 2006, the ₹20,000-crore Welspun Group paid ₹132 crore to buy CHT Holdings, which owns the brand. “Wimbledon has had a licence arrangement with Christy UK (now Welspun) for over 25 years, so this has been a very long-term and successful partnership,” says Jean Cooke, vice-president, IMG Marketing, which manages Wimbledon’s licensing programming. “Wimbledon works closely with Welspun in relation to the designs and colours — Welspun will look at future colour trends and will incorporate these into the ladies’ towels each year.”
Now, Welspun India supplies over 100,000 brightly coloured towels to Wimbledon every year during the matches, of which around 6,000 are reserved for players. A visibly proud Goenka displays the 2014 range of towels — the trademark purple and green for men, raspberry and bright blue for women — and then says, “Wimbledon is a big story for us, but we do a lot more than just that.”
Indeed, Christy is only one part of the ₹3,697-crore Welspun India, which sends towels and other material from its plants in Gujarat to over 50 countries around the world. “We are now actively looking at new geographies such as South America. We should grow by at least 25% each year over the next five years,” says Goenka. That supercharged pace is evident in Goenka’s schedule as well. Sitting in his large office in Welspun House in central Mumbai at 6 pm, the 47-year-old Goenka has already had a hectic day and shows no signs of winding down. A few hours from now, he has a meeting in the suburbs, before he heads to the airport to take a flight to Davos to attend the World Economic Forum. But ask him about India’s role as supplier to the world, and he sits up to make his point even more forcefully. “Twenty years ago, the ‘Made in India’ tag had no credibility. Our quality was suspect and the fact is, nobody knew India either, at least in the home textiles space. Now, there is some meaning attached to the tag. Things have changed completely,” he declares. They certainly have for Goenka and Welspun.
Hailing from a grain trading business family in Hissar, Haryana, Goenka first struck out on his own, going to London in the early 1980s to understand the import-export trading business. A few years later, on the recommendation of his uncle, he entered the textiles business, setting up Welspun Winilon Silk Mills (later renamed Welspun India) in partnership with his cousin, Rajesh R Mandawewala. The duo set up a yarn texturising unit at Palghar in 1986. The move into terry towels came a few years later, by when it had set up another texturing unit at Silvassa and a polyester filament yarn plant in Thane and gone public in 1991. In 1993, Welspun set up its first terry towel plant at Vapi, Gujarat, with 15,000 cotton spindles. In 1996, the polyester yarn business was leased to a group company with the objective of focusing on natural fibre and in 2000, the cotton yarn unit was hived off into a separate company. Welspun India now has two plants.
While the 1.6 million sq ft Vapi plant has the capacity to manufacture 1,650 metric tonne of towels and 900,000 rugs every month, the one at Anjar, set up in 2005, is spread over 7.7 million sq ft with a monthly capacity of 2,400 metric tonne of towels, 1 million sheets and 6 million quilted comforters. While the decision to focus on exports was clear from the start — the domestic market for towels is largely unorganised, fragmented and small — Welspun’s first breakthrough came a few years after the entry into terry towels, when Walmart placed a $7 million order in 1996. “We had to first get past the made-in-India-means-poor-quality issue. Besides, our brand was unknown,” points out Goenka.
Now, with its business spread across the bed and bath segments, including product categories such as terry towels, rugs, robes, bed linen and bedding, Welspun India has over 40 customers around the world, including big retail players such as Walmart, Target, JC Penney, Ikea and Marks & Spencer. “Most big retailers are our clients,” Goenka says proudly.
Threading it together
Until 2006, Welspun manufactured only terry towels. The decision to diversify its offerings was made in 2007 as a derisking strategy. What also helped was that Chinese exporters were significant players in the apparels segment, but weren’t really focusing on home textiles. From 100% share of revenue in FY08, towels now account for half; the remaining is divided between bed linen (35%) and rugs and miscellaneous products (15%). Similarly, Welspun has also added more customers in the past five years in a conscious bid to reduce its dependence on one retailer or geography. In 2008, for instance, the top 10 retailers accounted for 70% of the company’s revenue; that figure is now down to 35%. Likewise, the US’ share is down from 70% to 55%, with other markets such as the UK, Japan and South Africa growing.
Of course, the US still remains a dominant customer, both for India and Welspun. In 2012, the US imported towels worth $1.46 billion, of which India accounted for $531 million. Welspun’s share: $243 million (46%). In the case of bed sheets, the US’ imports for the same year were $1.75 billion, with India exporting $795 million; Welspun accounted for 25% of this, or $199 million.
The diversification perhaps helped the company somewhat during the 2008 global slowdown, but Welspun India still took a beating. In FY09, the company registered a loss of ₹58 crore on revenue of ₹1,795 crore (this cannot be compared with the previous fiscal’s performance since there was a demerger). Akhil Jindal, group finance and strategy director, points to the reason for the impaired performance: inventory cycles of retailers shrunk and the order book was also down. “The impact of the slowdown was felt in FY09 and that is when the innovation cycle also kicked in,” he says.
Welspun’s approach to tackling the recession was to shift focus from plain vanilla products to creating a portfolio with a little more oomph — from 5% of turnover in 2008, innovative products now account for 30%. “Welspun has never played the cost-competitiveness game. Product differentiation is our USP,” says Rajesh R Mandawewala, managing director, Welspun Group. Accordingly, the company launched products such as the quick dry towel, which weighs less than conventional towels of similar thickness, as well as products made with hygro technology, especially for the US market. Hygro creates yarn with a hollow core that, over time, makes the towel fluffier after washing.
Mandawewala says the US market has takers for bigger and softer towels, which the company was able to offer at cheaper rates because of its technological innovation. “It was a difficult time across the world but we managed to drop the price by almost 60%. That was a significant breakthrough,” he adds. The impact on the bottomline was immediate: in FY10, Welspun India registered a net profit of ₹161 crore on consolidated revenues of ₹1,955 crore.
The emphasis on innovation will continue in the years ahead. “The need to do something differently is critical since we are up against other low-cost markets such as Pakistan, Bangladesh and possibly even Taiwan going forward,” says Goenka. “If we do not give value to our customers, we will be in trouble.”
Not all of Welspun’s decisions have turned out to be winners. While exports have accounted for over 90% of the company’s revenue in the past decade, it also has a small domestic presence that it tried to expand, with disastrous results. Where earlier Welspun’s products were available in India through department stores such as Shoppers Stop and Lifestyle, in 2006, it decided to foray into the retail space on its own. It swiftly opened 250 outlets, which were a combination of franchisee and company-owned formats, investing some ₹200 crore in the process. The concept bombed and all the stores have since been shut down. “It was an expensive mistake. We did not get right issues related to real estate and manpower,” admits Dipali Goenka, Goenka’s wife and a director at Welspun India.
But that doesn’t mean India is no longer on Welspun India’s radar. Over the next five years, the proportion of domestic business will increase significantly, says Mandawewala. And that will be a major part of the company’s strategy to double turnover by FY19. “More growth in existing markets, entering new geographies and slowly increasing the focus on India will help us achieve that target,” he explains.
Increased growth from mature markets such as the US, Japan and Australia will come from tapping new customers, such as the hospitality sector. “We are already working with hotel chains such as Starwood and Holiday Inn. There is huge potential here,” says Dipali. The numbers bear that out: in FY13, this business segment brought in $20 million, $7 million more than the previous fiscal. “This can easily hit $150 million over the next five years,” she adds.
Unlike in many other export areas, the threat from China isn’t that big an issue. “There is no company in China, Bangladesh or Vietnam that is larger than Welspun,” declares Mandawewala. Still, the home textiles space is intensely competitive and Welspun India’s scale should come in handy, a fact noted by other domestic players. “Larger companies with a higher product range can negotiate for better margins with the retailers,” agrees V Ashok Ram Kumar, managing director, Asian Fabricx. The Karur-based ₹250-crore company is one of India’s largest suppliers of bedspreads, kitchen linen, curtains and cushions to Ikea.
The other big issue facing exporters from India is currency fluctuation. About 60% of Welspun India’s export earnings is hedged, while 40% is left open. Still, the management says it is well protected against any serious fluctuations since it is conservative in its approach to currency management. Goenka himself is quietly confident about what lies ahead for Welspun. “We are well placed with a strong cotton crop and a currency that today works well for exporters. The customer wants our products and we have to figure out ways to be innovative and relevant,” he says.
Welspun’s growth engine is interestingly poised at this stage with its strong customer focus and desire to strengthen its position. For Goenka, who has a Wimbledon towel autographed by Roger Federer, the journey ahead will involve getting more people to use his products and come back for more. Much of that will revolve around how innovative he can be with his product offerings. For now, at least, that part looks cut and dried. Towel dried.