Financial Daily from THE HINDU group of publications
Friday, Jul 18, 2003
Mergers & Acquisitions
Welspun seeks tie-up or buy in US
Mumbai , July 17
WELSPUN India, one of the top five manufacturers of terry towels in the world in terms of capacity, is understood to be in talks with a couple of US-based marketing companies for a strategic collaboration or an outright acquisition. Sources close to the development believe that the company would close a deal soon.
It is learnt that the company is also doubling its capacity in anticipation of more orders due to a demand surge in the US and European markets for its sole product - terry towels.
Though Welspun's profit after tax in the first quarter this year has improved only marginally to Rs 5.97 crore from Rs 5.68 crore in the corresponding quarter the previous year, its on-year income has jumped 32 per cent to Rs 73.87 crore from Rs 55.83 crore.
When contacted, Mr Rajesh Mandavewala, Executive Director, Welspun India Ltd, declined to say whether the company is planning an overseas acquisition.
Mr Mandavewala, however, confirmed that the company is indeed expanding its capacity of 10,000 tonnes per annum by about 75-80 per cent. Welspun is adding 74 looms that would be fully operational by the second quarter of next year.
The expansion means the company would be ready to ship more when textile quotas on exports are lifted in April 2005. Meanwhile, the top two global competitors of Welspun, Pillow Tex and West Point Steves, are facing bankruptcy.
While Pillow Tex's July 14 deadline for a restructuring package under Chapter 11 Bankruptcy in the US was extended, West Point has filed Chapter 11 two months ago.
Speaking on the opportunities the bankruptcies throw up for Welspun, Mr Mandavewala said Pillow Tex alone, if it goes down, would leave a yearly business gap of $500 million.
"The market will simply explode as there is just not enough capacity," he said. It would also catapult Welspun to one among the top three positions with supply contracts with all major retailers such as Wal Mart and SHOPKO Stores and designer labels such as Gucci and Tommy Hilfiger.
Given the scenario, this would be the right time for the company to buy a marketing company in the West, industry analysts say.
A company in the US can leverage its existing relationships there to build the brand.
On the Bombay Stock Exchange, the Welspun India stock closed on Thursday at Rs 44.15 or 6.26 per cent lower than Wednesday's close of Rs 47.10.
It may be `U'
WELSPUN may brand its products, including towels and bed linen, sold in the home market as `U'. While `Welspun' would be retained as a corporate brand, it plans to develop a product brand name.
"We are laying a lot of emphasis on domestic branding. We plan to pursue a co-branding strategy that would include the corporate brand also. One of the strong contenders for the product brand name is `U'," Mr Rajesh Mandavewala said.
Welspun would leverage its existing manufacturing, marketing and distribution strength and also diversify into a few other products such as bed covers and sheets, Mr Mandavewala said. "The idea is to move away from being a single-product company to makers of a range of products that have basic manufacturing synergies," he said.
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