For Madura Coats, the transfer of its garments division to the A V Birla group's Indian Rayon signifies its exit from the premium branded men's wear segment. There are probably two reasons for the sale. One, the company needed the cash. But, more important, it was falling in line with the restructuring its British parent has gone through recently.

The company is a 51 per cent subsidiary of J&P Coats Ltd, UK, a wholly-owned subsidiary of Coats Viyella plc. The rest of Madura Coats' equity is held by financial institutions and the public. Coats Viyella is one of the European companies in textiles, accessories and ready-made garments.

Madura Coats entered the garments business in 1989, and later spun it off into a separate division called Madura Garments. The company first launched Louis Philippe in 1989, Van Heusen a year later, followed by Allen Solly.

Madura Coats is an integrated, broad-based textile company. The company is divided into Coats India (threads), Madura Textiles (fabrics and industrial textiles), and Madura Garments (Louise Phillipe, Van Heusen, Allen Solly, Peter England, Byford and San Frisco). The fabrics and industrial textiles divisions were merged in 1998. Coats India contributes about 40 per cent of the company's total turnover, Madura Textiles 20 per cent and Madura Garments 40 per cent. The garments division grew 40 per cent in 1998.

The reason for Madura Coats' decision to sell the garments business is said to be an urgent need for infusion of capital. The crippling labour strikes at its textile mills in Tamil Nadu in the middle of 1999 are expected to have an adverse impact on the company's bottomline in the year rnding 31 December 1999.

The company, which made a profitable start in the first quarter of 1999, with a net profit of Rs 4.2 crore, plunged into the red, with a loss of Rs 7.9 crore in the second quarter (click here for table) and Rs 5.4 crore in the third quarter. That means a loss of over Rs 9 crore in the first nine months of 1999.

So the sale of the garments division will being in some much needed cash. What it will also do, unfortunately, is take out the value-added garments business, and leave the company with its textiles and threads divisions, with all their problems. Threads have been under pressure due to a combination of high excise duties and competition from other spinning mills. The textile business is subject to the vagaries of fluctuating cotton prices and the whims of labour unions. Madura Coats without Madura Garments may be a tough proposition.

The company, which was known as Madura Coats in the past, had changed its name to Coats Viyella for a while after Coats and Viyella merged overseas. In 1998, Coats and Viyella went through a demerger into Coats plc and Viyella plc, after which the Indian subsidiary became known as Madura Coats all over again. The demerger has resulted in Coats retaining the threads and precision engineering business, and Viyella the fashion retail, clothing and home furnishing lines. Strategically, given the demerger of Coats and Viyella, Madura Coats, a subsidiary of Coats, has no reason to retain its garments business in India. Its entry into garments was, in fact, motivated by the merger of Coats and Viyella over a decade ago. Coats was then, as it is now, a globally present thread company, while Viyella was a UK-based retail clothing company.

The merged group tried to use leverage Coats' global network to market its garments globally. The strategy certainly worked in India. Now it's back to square one for Madura Coats.