Excess capacity hits denim industry

Over-capacity continues to take a toll on the finances of denim makers for the first quarter results this year. Except for Arvind and Nandan, a couple of the top companies with good export orders, the others have had big losses or a decline in net profit.

Those in the industry and experts say denim makers will have to increase export penetration in the next quarters. Aarvee Denims & Exports had a net loss of Rs 1.6 crore for the June quarter against a net profit of Rs 3.7 crore in the same period last year. KG Denim had a loss of Rs 1.3 crore as compared to a net profit of Rs 3.6 crore for the corresponding quarter.

“The denim industry is facing price pressure, with fabric prices seeing a correction.  This has been the case with those depending mostly on the domestic market. Thankfully for us, over 60 per cent of our denim business comes from exports and the other 40 per cent  from the domestic market, with major brands being our clients. This has helped us maintain 100 per cent capacity utilisation,” Jayesh Shah, director and finance head at Arvind had earlier told Business Standard.  Experts says the oversupply situation is likely to stay for a while. A focus on strengthening of exports and exploring newer markets will help denim makers improve profitability in the next few quarters.

“The revenue and profitability growth has largely been on the back of increased scale of operations in the denim and shirting segment, and improvement in denim fabric sale realisations. The company continues to focus upon strengthening the market share in domestic and global markets,” stated Deepak Chiripal, chief executive officer of Nandan Denim.

The overall denim industry capacity is estimated at 1.2-1.3 billion metres a year and utilisation at 700-800 million metres. And, another 80-100 mn metres of capacity is likely to be added in a year.