The first quarter of financial year 2009-10 had left some of the leading denim companies nursing wounds caused by the global meltdown wherein the likes of Chennai-based KG Denim had even posted a net loss of Rs 2.05 crore. But a year ahead, cash registers have begun ringing again for these denim companies due to rising net profits for the quarter ended June 30, 2010 of the fiscal 2010-11.
While KG Denim has earned a net profit of Rs 28 lakhs, Arvind Limited, probably the largest denim maker in the world, has registered 108 per cent growth in standalone net profit for the quarter ended June 30 2010. The company earned net profit of Rs 19 crore as against Rs 9 crore in the corresponding quarter of previous year. Arvind's consolidated net profit grew by 566 per cent from Rs 20 crore as against loss of Rs 3 crore in the corresponding quarter of the previous year.
Similarly, Ahmedabad-based denim fabric manufacturer Aarvee Denims and Exports Limited (ADEL) saw its net profit grow by 205 per cent, up from Rs 2.65 crore in first quarter of fiscal 2009-10 to Rs 8.08 crore for the corresponding quarter this year. The company also reported a growth of 22 per cent sales and operating income for the quarter stood at Rs 101.69 crore, up from Rs 83.22 crore over the corresponding quarter of previous year.
The denim arm of Chiripal Group, Nandan Exim Limited doubled its net profit from Rs 1.48 crore for the first quarter in 2009-10 to Rs 2.97 crore for the corresponding period this financial year.
According to these companies, full capacity utilisation and a robust domestic market, coupled with growing global market share, has helped some of the denim companies remove red ink from their balance sheets.
"The performance in first quarter looks encouraging as the corresponding quarter in previous fiscal was marred by recession, which impacted the margins of denim companies. The noticeable growth in profits is largely on account of growing demand in domestic as well as export market. The domestic demand has seen a rise of 15 per cent this year," says Ashish Shah, managing director, Aarvee Denims and Exports Limited, which is planning to increase its denim capacity from existing 60 million metres to 96 million metres in two phases by December 2011 with a capex of Rs 150 crore. Arvind, too, is expanding its manufacturing capacity by 16 million meters at total investment of about Rs 100 crore.Industry experts also cite political and currency constraints on countries like Pakistan and China which has allowed India to snatch some market share from its competitors in the global market. "Political and other reasons for Pakistan and currency constraints on China has provided India an added advantage to grow further in he global market. However, more than export market, it is the domestic market that is growing," says Rajiv Dayal, chief executive officer of Mafatlal Denim.Seconding his thoughts is Jayesh Shah, chief financial officer and director, Arvind Limited, who says that the domestic market has been growing at a healthy rate of over 15-20 per cent. "The growing consumerism in India and full capacity utilisation by the denim companies have a played a major role this time. Currently, of the 600 million metres of denim fabric produced in the country, around 350-400 million metres is being consumed in the domestic market itself, while the rest 200-250 million metres goes in exports," Shah adds.
Dayal also believes it is the differentiation and innovation in product mix by some denim companies that have also reaped benefits this quarter. For instance, in February this year, Arvind launched a new range of ready-to-stitch denims under the brand name 'Arvind Intellifabrix'. The new range of denims comes in two distinct collections of denim chinos and denim jeans.However, Ashish Shah expressed concern over rising cotton prices in the domestic market.