The foremost message that I wish to send out to shareholders is that Nandan Denimstands at an
INFLECTION POINT IN ITS ExISTENCE.
The Company is at a point when with its expansion complete and its businessintegration stronger than ever the Company is poised to realise its attractive potential.It would be relevant to indicate that the Company arrived at its inflection point in spiteof a number of sectoral challenges. A surge in cotton prices compressed margins; theCompany's top-line suffered in the aftermath of demonetisation; the expanded capacity didnot yield revenues for the first nine months of the year under review.
The result was that your Company reported a 5.5% top-line growth which was creditablein the circumstances. Our gross profit margin declined from 33.7% in FY16 to 32.5% inFY17; EBITDA declined correspondingly.
2016-17 under review
The big talking points for FY17 comprised the following points:
One our capacity expansion was completed in the Q3 of FY17. Our spinning capacitywas enhanced to ~141 TPD in FY17 helping us strengthen our backward integration necessaryto reduce our dependence on external yarn procurement and to meet just-in-time productavailability. We believe that the extent of this integration will more than just enhancemargins; it will enhance our ability to absorb inflation or material supply shocksstrengthening our overall business model.
Two the GST implementation from July 2017 (post-Balance Sheet event) was anotherlandmark development. We believe that the implementation of what is widely acknowledged asthe single biggest economic reform since Independence will be significantly beneficial fororganised players like Nandan Denim as it will moderate the cost differential betweenorganised and unorganised players on the one hand while it could trigger sectorconsolidation on the other.
Three the year under review was marked by major global political changes whichcomprised Brexit and US presidential elections. We believe that these events could havefar-reaching consequences even as it is early to estimate the extent of impact on theglobal textile sector in general and on India in particular.
Four cotton prices are likely to soften in current year (owing to an upswing inPan-India acreage and better weather conditions) widening our resource pool.
Five organised competition in the fashion denim segment continued to rise placinga premium on the need to innovate through superior styling and design.
The Nandan response
At Nandan Denim we are competently placed to address the sectoral challenges.
Your Company will address the value-added denim category resulting in higher salesrealisation per unit.
Your Company possesses the largest denim capacity (110 MMPA) in India enabling it toleverage economies of scale on one hand and fully integrated operations / facilities onthe other.
Besides your Company will also focus on domestic sales capitalising on increasing percapita denim spending and higher realisations. The Indian denim market is expected to growat a CAGR of 15% to a size of around $360bn by 2020 catalysed by usage across agesegments growing disposable incomes and fashion consciousness.
Your Company will seek growing opportunities in overseas markets mainly in LatinAmerica Africa and the Middle East widening its global footprint.
The Nandan outlook
Your Company is attractively placed to generate handsome growth from this pointonwards.
Your Company's manufacturing plants are located in Gujarat the textile hub of Indiaenjoying easy access to the core raw material (cotton) availability of labour proximityto fabric dealers and garment manufacturers. Besides the various subsidies offered by theGujarat Textile Policy will help moderate our operating and finance costs strengtheningbusiness sustainability.
Your Company intends to capitalise on a combination of expanded capacities wideningportfolio and improving product quality to address larger requirements.
Following the implementation of GST we expect that positives of a consumption shiftfrom the unorganised to the organised will start reflecting from the second half of FY18.
In view of this I am optimistic that the Company stands at an inflection point in itsexistence attractively placed to enhance value for its stakeholders.