The country's largest apparel exporter, Bangalore-based Gokaldas Exports [Get Quote] (2006-7 turnover Rs 1,045 crore or Rs 10.45 billion), sprang a surprise last year when leading global private equity firm Blackstone acquired a 50.1 per cent stake in it. Currently, an open offer from Blackstone to buy another 20 per cent is on. Gokaldas Exports began in 1970, employs 52,000 in 46 factories spread across south India and went public in 2005.

Executive Director Rajendra J Hinduja spoke to Business Standard. Excerpts:

How are India textile exporters coping with the rupee appreciation?

We in the apparel business have to work out strategies to continue in business while fighting neck-and-neck with Vietnam, China and other far eastern countries. There are three ways to do this. The first is to seek higher price from customers.

We cannot force the US customer to shift out of the US dollar. But the European customer can buy in euro. Most apparel exporters from India are convincing European customers to change over to the euro. Two of our biggest clients in Europe are now paying us in euro.

The second is to get a price increase of 5-7 per cent. If we are satisfying customers on quality and timely delivery, I don't think asking for 5 per cent more is too much. Satisfied customers are sticky.

The third is to improve productivity in which we are lacking. Improving productivity while maintaining quality is the name of the game.

What are you asking the government for?

We can look to the government for additional relief on duty drawback. So far, we have been given relief of 4 per cent against a requested 6 per cent. Hopefully, it will be approved in the Budget. If the relief is 6 per cent, plus price increase is 5 per cent and some improvement in productivity occurs, we can be back in business instead of blaming the government.

The country has become attractive for others to invest in and, therefore, dollars are flowing. In fact, this is an enviable position to be in. We can't be selfish and say, exporters are losing profit. We have to fight to be back in the game.

So the textile industry has to set its house in order?

I agree. In 2005, when quotas ended, we grew by 35 per cent. Expansion was on for every apparel maker. However, the rupee appreciation hit us badly.

How is Indian competitiveness vis-a-vis other countries?

We had expansion plans fully ready but had to cut down from April. This year, there will be a dip in exports. India will hardly achieve $8.5 billion as against $9.5 billion last fiscal.

In April-December, Vietnam has grown 21 per cent, China 19.5 per cent, Indonesia 9 per cent, Pakistan 3 per cent, whereas Indian growth was flat or negative. The bigger players have a good market to grow by increasing productivity. Smaller players have to have some kind of an outsourcing arrangement with the bigger players.

The country's textile machinery sector is hardly any help in modernising.

Chinese textile machinery commands the market in India. Chinese machinery is cheaper and works better than the global brands.

Where does India stand globally in spinning, processing and apparel production?

Globally, we are still among the cheapest yarn producers. However, the profitability has eroded because of the rupee appreciation. The weaving sector depends on the offtake of the export sector. Our export of fabric is poor. Processing houses are also hit as part of the link.

Under the Technology Upgradation Fund Scheme, during 2006-07, Rs 15,000 crore was drawn and used by the firms. But in 2007-08, against an allocation of Rs 21,000 crore, only 50 per cent has been utilised. However, one good thing is that the domestic industry is holding. It has come as a relief at a crucial time.

What is the current momentum in Gokaldas?

Our expansions earlier were at a faster pace, though we have not brought them to zero. Our Hyderabad plant will open in April; we plan to move into smaller cities. We may close two Bangalore factories and take them outside the city. After we regain some stability in terms of bottomline, we may grow aggressively again.

We will slightly cross last year's turnover, but in margins, we will be lucky if we maintain last year's level. We hope to be out of the woods next fiscal if the rupee is where it is today. We are adopting new methodologies to improve productivity.

What do you expect the new partner to bring in?

We expect the Blackstone investment to flow in February. Then we will take advantage of their contacts in Europe and elsewhere to improve our client base. Blackstone is bullish. They have done extensive research before deciding to invest in Gokaldas. They were attracted by our practices. We will retain the management since we have grown the company to such a huge level and only we can manage so many workers and factories.

How are you training the younger generation (among the promoters)?

They have already been with us for the last five-six years. They are doing the major portion of the work while seniors are involved only at the policy level.

We brought Blackstone in only to ensure that the future of the employees is not dependent on the management. What if, a few years down the line, one cousin does not see eye to eye with another? What if they decide to change their line of business?

Is there a buyback clause in your agreement with Blackstone?

Of course, there is a buyback clause. If the management feels it is time to buy back, we will do it. It is a positive agreement with win-win options for both (Gokaldas and Blackstone). They (Blackstone) want to stay with us for at least seven years. Right now, they are in an aggressive mood to buy and achieve growth outside India.

They may eventually buy a retail player in the US or Europe and use Gokaldas as the supply chain. They are sending us to other countries looking for similar plants. The process was smooth but the rupee scenario has upset things somewhat.