Denim industry goes through blues again

With the Singhania Group’s flagship company, Raymond putting its loss-making denim business on the block, several eyes have turned back to the denim industry. It all began with denim exports taking a hit due to a rising rupee and skyrocketing global as well as domestic cotton prices caused by supply shortage since almost couple of years.

Ever since, denim players have been witnessing a downward slopes in their profit. While denim manufacturer KG Denim Ltd. has been registering losses, others like Aarvee Denim and Exports Ltd. and Nandan Exim have been earning meagre profits.

“The slump in denim industry began for the past couple of years when overseas market were hit due to rupee appreciation and rising cotton prices. Since then the market has been tough for us and we are able to survive only due to domestic sales,” says S Gopinath, general manager (exports) at KG Denim which manufactures close to two million metres of denim fabric per month.

 

Since the denim and textile industry on the whole, have been going through a tough phase, players are wary of Raymond’s business finding any takers. According to Nayan Parikh, a textile consultant, the 600 million metres denim industry has already shied away from expansion since almost a year.

“There have hardly been any expansion since almost a year. In such a scenario, it is less likely for any denim manufacturer to buy someone else’s business unless Raymond offers the right price,” notes Parikh.

“Denim manufacturers are wary about investing in expansion of capacities in these times. They are, therefore, less likely to even consider buying Raymond’s denim business. I don’t think they will find any takers for its offer,” says Ashish Shah, managing director of Aarvee Denims and Exports Limited.

While officials of Arvind Limited were not available for comment, Deepak Chiripal, chief executive officer of Nandan Exim Ltd, the denim arm of Chiripal Group opines, “No denim player would even think of expanding his/her capacity by way of buying out others’ business. Maybe, a multinational company would is interested to enter the denim industry might think of going for the offer.”

After much speculation, denim players have finally resigned to a continued oversupply in the market. While a bumper crop of cotton is likely to bring down prices of the commodity, the demand doesn’t seem to be lifting up, feel denim manufacturers.

“The oversupply in denim industry seems to be a never-ending ordeal. As against our expectations, the industry will have to go through another tough phase throughout the next year. Only a rise in demand can now bring some respite. Moreover, while the dollar is back in its position it needs to stabilise for atleast six months,” says Chiripal.

Denim manufacturers feel the demand has not been increasing due to continual price rise since past couple of months. “Almost everyone had been incurring losses. We ourselves had to bear a loss of Rs 10-12 per metre for a long.

This had forced the industry to increase its fabric prices by atleast Rs 10-15 per metre. So while our losses have reduced, the price rise has acted as a disincentive among consumers,” says Shah.

Yet, there is hope among these players. According to Gopinath, all eyes are now fixed on upcoming elections in the US. “Both the US and Europe markets are crucial for Indian denim industry and these very markets are very slow currently.

The US market is anticipated to improve after elections in mid 2009. Meanwhile, Europe is also showing signs of improvement,” he adds. While the players disregard competition from other denim exporting countries like Vietnam and Bangladesh, they have been expecting export orders to improve by early 2009.