Hela Clothing heralds more growth with Egypt entry

• Becomes first Sri Lanka apparel manufacturer to set up operations in North African country
• Move supplements growing presence in East Africa; investments in past 5 years closer to $ 25 m
• 1991-incorporated Hela capacity expands to 1.2 m man hours with 11 factories and 20% year-on-year growth
• Group’s export growth outperforms industry with July shipments up 92% YTD higher as against 3% drop for local industry; company grows by 79% vis-à-vis 21% growth by SL industry this year
• Despite pandemic, among few to up headcount by 4,000 to 16,000; forecasts base of 17,500 employees by end-FY22
• Soon to be listed on CSE, Hela forecasts FY22 revenue of $ 230 m, up from $ 171 m in FY21 and $ 183 m in FY19; forecast for FY23 is to exceed $ 280 m
• CEO Dilanka Jinadasa confident industry will rebound with double vaccination of workers enabling full capacity to serve growing order book
• Calls for revised COVID protocols in new normal instead of opting for extreme measures

By Nisthar Cassim

Apparel giant Hela Clothing has become the first major Sri Lankan manufacturer to set up operations in Egypt in a bid to serve its customers better and boost revenues.

The foray into North Africa by Hela comes after successful entry and growth in East Africa, with operations in Kenya beginning five years ago, closely followed by Ethiopia.

Hela acquired a distressed asset – an apparel manufacturing factory in Alexandria in Egypt with 1,000 employees previously managed by a far eastern company. It is a vertical plant spanning 220,000 square feet with facilities for fabric and accessories manufacturing.

“Via the venture in Egypt, we hope to harness potential similar to Turkey’s apparel export market which amounts to $ 20 billion. Via Egypt there is quicker access to European and US markets, reducing lead time,” Hela’s Clothing CEO Dilanka Jinadasa said, adding that a “few other leading Lankan apparel firms are likely to follow suit”.

The latest acquisition and entry into Egypt strengthens the 1991-incorporated Hela’s overall offering. At present Hela has two factories in both Kenya and Ethiopia, as well as seven in Sri Lanka (11 factories in total). It employs over 8,000 people in Sri Lanka and an equivalent number overseas.

Dilanka said Hela was also firming up two more strategic moves which would be made public over the next few months.

With the Egypt acquisition, Hela via its Mauritius registered investment arm Hela Investment Holdings has invested close to $ 25 million in the past five years and increased its capacity to 1.2 million man hours with average year-on-year growth of 20%.

Hela specialises in the manufacture of underwear, sleepwear and children’s apparel. Among major clients of Hela are PVH Corp. – the parent company of fashion brands Tommy Hilfiger and Calvin Klein. Operations in East Africa and Egypt also focus on men’s underwear and bras.

Working towards a listing on the Colombo Stock Exchange (CSE) shortly, Hela’s performance so far this year has been impressive.  

In July it saw exports from Sri Lanka grow by a massive 92% year-on-year as against a 3% drop for the local industry as a whole, whilst in the first seven months of 2021 the company’s growth was a substantial 79% vis-à-vis 21% growth by the Sri Lankan industry.

Dilanka said Hela had been able to navigate better amidst the third wave of COVID and resultant lockdown with its contingency planning and creation of back-up capacity. “We were able to demonstrate resilience and proactivity thereby further reinforcing the confidence our customers have in us,” he added.

“Originally we had our historically best month in June this year and it was beaten in July and then again in August,” Dilanka said, adding that the order book was now stretched up to January 2022. For FY22, Hela’s revenue forecast is just over $ 230 million up from $ 171 million last year and $ 183 million in FY19. The forecast for FY23 is to exceed $ 280 million.

“The momentum so far points to exceeding our FY22 target.”

Sri Lankan operations account for around 50% of Hela’s revenue.

Whilst focusing on its core apparel business, Hela also continues to serve the Personal Protective Equipment (PPE) segment but with a more value-added industrial use.

Incidentally, Hela is among the handful of apparel firms which have added more jobs as opposed to cuts. “Our headcount rose by 4,000 since the pandemic and we will end up with around 17,500 employees at the end of FY22,” he added.  

Via the upcoming IPO offering a 20% stake in the company, Hela plans to raise $ 20 million, part of which will go into financing its acquisitions and expansions. 

“In the past our ownership structure has been driven by private equity, local investors and ESOPs. With our ambitious plans, we felt that listing is the best way forward. This will give flexibility to employees as they will now own liquid stock as well. It will also further improve our good governance practices,” Dilanka said.

With plans to enter into strategic partnerships and joint ventures, being listed reduces the reputational risk for international companies concerned.

From a country perspective, Dilanka believes apparel exports will rebound from August onwards. “With the onset of the third wave operating at full capacity was a major industry challenge. However, with 80% of our employees fully vaccinated, there is a greater sense of stability. Demand remains robust and I feel the industry’s exports will rebound,” he added.

With a spike in COVID cases and closures in Vietnam, Indonesia and Bangladesh, Dilanka believes customer reliance on Sri Lanka will also increase in the next few months and that this will augur well to step up exports. 

However, he was of the view that for Sri Lanka to fully capitalise from these new opportunities, health authorities need to come up with a new rule book so that factories with fully-vaccinated employees can continue to operate with revised protocols instead of opting for extreme measures.