Denim makers in pink on healthy Q2 numbers

In spite of a dull market and over supply situation, denim fabric makers have seen rise in their bottom lines for the second quarter this fiscal. While the cotton prices may have slipped down, denim companies attribute growth in net profits to better inventory management this year.

For instance, Ahmedabad-based textile conglomerate Arvind Limited booked a net profit of Rs 62 crore, as against Rs 39 crore in the corresponding second quarter last year, witnessing an increase of 58 per cent.

Similarly, if down south Chennai-based KG Denim registered a 160 per cent growth (at Rs 3.98 crore) in its net profit, up from Rs 1.53 crore for the corresponding period last year, then Ahmedabad-based Nandan Exim saw its bottom line rising by 73 per cent at Rs 7.59 crore for the second quarter of financial year 2011-12 as against Rs 4.38 crore last year.

"Almost all the denim makers who were able to innovate themselves in inventory management have been able to post positive growth in their net profits. Only those who couldn't manage their inventories properly suffered losses or negative growth. Otherwise the market had been dull this year in terms of demand, apart from an over supply situation in the industry," said Deepak Chiripal, chief executive officer of Nandan Exim Ltd., the denim arm of textile conglomerate Chiripal Group.

According to Milan Shah, deputy chief financial officer, Arvind Ltd., while the domestic demand was good, it was the decline in China's competitiveness that helped its denim business.

"On one hand the cotton and yarn prices went down, offering a good cushion, and on the other hand, China's cost competitiveness went down, thereby helping us on export front in denim. However, on the international level there was no major revival in retail demand," said Shah.

The increase in net profits for denim companies comes at a time when the industry is adding another 100 million metres of capacity this year.

"The last two quarters saw an over supply of denim but it was innovative inventory management that helped denim firms book profits. However, moving forward, the next quarter might see further over supply due to capacity additions. This will be a challenge for the industry," added Chiripal.

Meanwhile, Ahmedabad-based Aarvee Denims and Exports Ltd. posted a decline in its net profit from Rs 10.72 crore for second quarter last fiscal to Rs 3.75 crore this year, showing a fall of 65 per cent.