Gujaratâ€™s textile policy has made the spinning sector attractive moreover after observing positive trend in the global market for India, Sintex Industries to get into spinning business also . Sintex is setting up a spinning unit with 0.3 million spindles at a cost of Rs 1,800 crore in Gujarat and later plans to increase it up to 1 million spindles with a total capex of over Rs 5,000 crore over the next five years.
The plant is set up in Gujarat as it is Indiaâ€™s largest cotton producing state and due to its proximity to Pipavav port (just 20 kms away), the plant would have the advantage of lower inward / outward lead distances and freight cost. Additionally, Gujarat state policy renders benefits of lower interest cost on capex (adjusted for 7 percent state subsidy, net interest cost reduces to 2-3 percent), and power subsidy, which make overall profitability healthier.
Acccording to Sunil Kanojia, Group CEO of Sintex, textile is more a finished product, whereas spinning (yarn) is an industrial product. The business model dynamics are totally different. Further, India is becoming more competitive than China in this space.
The company expects to commission the first phase of 0.3 million spindles in Q4FY15 with full commencement in October 2015.
The company is looking ahead for an annualized revenue of Rs 1,800 crore (1x capex) from FY16, with EBITDA margins of 27-30 percent and IRR of 18-20 percent in the spinning business, considering the export to domestic ratio is about 70:30.
Currently, the company is doing about Rs 547 crore in textile which is about 9 percent of the total turnover. However, with the addition of this new capacity of three hundred thousand spindles they will have close to about Rs 1800 crore turnover. So, then the contribution of total textile which would be weaving as well as the fabric as well as yarn will move significantly up.
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