September 4, 2018 / 11:09 AM / 3 months ago

Indonesian military uniform supplier shrugs off FX turbulence

JAKARTA, Sept 4 (Reuters) - While some Indonesian companies have been buffeted by a volatile local currency, a sliding rupiah has been a boon for Sri Rejeki Isman (Sritex), a textile company that exports military uniforms to 35 countries, including NATO members.

From its humble beginnings as a traditional Indonesian batik cloth seller on Java island, Sritex says it is now the world’s biggest exporter of military uniforms and unlike some has managed to shield its supply chain from currency risks.

Chief Executive Iwan Lukminto said in an interview that half of its garment sales were military uniforms, although it also supplies fashion brands such as H&M.

“We’re benefiting this year. In general, we’re more profitable because our exports grow and earnings in rupiah become bigger. We don’t have any foreign exchange loss,” said Lukminto.

The rupiah is one of emerging Asia’s worst performing currencies this year, having lost 9 percent against the dollar and is trading at its lowest for 20 years, hurt by rising U.S. interest rates and global trade tensions.

While currency depreciation should in theory benefit exporters, it is often not the case in Indonesia where an estimated 70 percent of raw materials used by manufacturers have to be imported, said Rosan Roeslani, the chairman of Indonesia’s chamber of commerce and industry.

Sritex is less exposed to currency risks because it produces its own raw materials in its home base in the town of Solo in Central Java for yarn spinning, weaving and garment finishing.

After starting in a kiosk in Solo market in 1966, the company began supplying uniforms to Indonesian security forces in the 1990s before seeing opportunities overseas.

It launched an initial public offering in 2013 and now makes military uniforms for 35 countries, including members of the North Atlantic Treaty Organization (NATO) such as Germany.

Sritex has a research and development centre in Cologne, Germany, which it says has helped it develop special fabrics for the German military, such as those that are able to offer protection from mosquitoes.

“A lot of research for military fabrics can be used for fashion too,” Lukminto said.

Sales at Sritex jumped 35.6 percent to $544 million in the first six months and net income rose nearly 70 percent to $56.3 million, which would support the company’s plan to invest in a new weaving factory next year.

In contrast, Pan Brothers, another textile company, saw net income up only 2 percent in dollar terms in the first half, despite 97 percent of sales going to export markets.

Vice President director Anne Patricia Sutanto blamed a rise in dollar-denominated costs for wiping out potential gains from the rupiah’s plunge. (Editing by Ed Davies and David Evans)

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