After dismal first two quarters, denim makers see better margins in Q3

Buoyed by growth in domestic as well as overseas market, denim manufacturing firms have either posted better results during third quarter of current fiscal or expect to do so. Companies believe after a dismal first two quarters, the third quarter has brought back some sheen to denim fabric sales, leading to better bottomline.

For instance, for the third quarter ended December 12, 2012, Arvind Limited posted a healthy 15 per cent growth in its textile business and 12 per cent growth in textile net profit which mainly includes its denim business.

Similarly, Tamil Nadu based KG Denim registered a whopping 271.96 per cent growth in its net profit apart from a 36.5 per cent increase in its net income for Q3 of fiscal 2012-13. From Rs 1.07 crore worth net profit for the third quarter in previous fiscal 2011-12, the same increased by 271.96 per cent in the said quarter for the current fiscal at Rs 3.98 crore. "Both the domestic and overseas demand saw a healthy growth in the third quarter resulting in better sales for denim companies. The profitability of denim companies also increased in this quarter because of steady raw material prices and fabric price hike," said a company official of KG Denim.

According to Jayesh Shah, director and CFO of Arvind Ltd., margins for both its textile as well as brands and retail business saw a healthy growth in the said quarter.

"We are pleased that revenue, EBITDA as well as PAT are at all time high. The margin for both textiles and brands & retail are on the rise. We continue to be moderately bullish as far as the overall business scenario is concerned as the demand from domestic and international market for textile continues to be strong," said Shah.

Even Nandan Exim, the denim arm of textile conglomerate Chiripal Group, expects to post a higher margins even as the company awaits for its financial results next week.

"From what we have seen so far, good demand domestic as well as exports has turned around financial results for denim companies in the third quarter. While margins were affected in the first two quarters due to volatile raw material prices and status quo in demand, the same has changed in the third quarter," said Sandip Mistry, company secretary of Nandan Exim.

According to Mistry, it is also the cut in denim production capacity by the US and China which as resulted in better sales opportunities for Indian denim makers.

"Thanks to cut in denim production capacity by the US and China, coupled with capacity addition by Indian denim makers, certain amount of international denim orders is diverting towards India. Hence, better export realisations have also added to the increase in profitability for denim manufacturers," said Mistry.