Consumers accept hefty price rises, more so for branded apparel; demand stays up.
Domestic textile companies reported big growth in revenue and profits in 2010-11 as compared to the previous year, despite rising raw material prices. Experts attribute the growth to a cumulative 20-25 per cent upward revision in readymade garment prices, peacefully absorbed by consumers.
Results declared by the top five companies showed textile manufacturers had an average 54 per cent rise in average net profit, while average turnover was up 37 per cent in the year ended March 31.
Branded apparel makers outperformed their counterparts in the unbranded segment. For example, S Kumars Nationwide, the producer of Reid & Taylor and Belmonte brands of high-end readymade garments, reported 62 per cent rise in net profit to Rs 172.7 crore in financial year 2010-11 as against Rs 106 crore in the previous year. In contrast, Alok Industries posted 52 per cent growth in annual net profit at Rs 376.9 crore as against Rs 247 crore in the earlier financial year.
“Branded apparel manufacturers performed better due to their ability to pass on high raw material prices to consumers successfully. Most important, consumers absorbed the price hike without any hitches, which kept our margins upwards,” said Nitin Kashliwal, managing director of S Kumars.
In the third quarter of the financial year under review, readymade garment manufacturers raised prices of various textile products by Rs 100-150, while mid-end and low-end apparel producers made an upward revision in prices by around Rs 50. Hosiery product prices were raised by Rs 20-30 per piece. A majority of mid-end manufacturers, however, were unable to pass on the rise in costs to consumers. A Fitch Ratings report of December had forecast the negative impact on companies’ financial performance due to a sharp rise in cotton prices globally as prices percolated down the value chain, reflected in high prices of textile and clothing products.
Raw material prices have fallen from April but this will not provide relief to consumers. “We will not lower our prices of our products, although the price of raw material have fallen, as this will help us make better profits,” said Kashliwal.
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Cotton and cotton yarn prices shot up last year to a historic high. These began cooling in November due to extensive use of substitutes, such as blending of polyester with cotton.
D K Nair, secretary-general of the Confederation of Indian Textile Industries (Citi), feels the price decline of major raw materials such as cotton and yarn will affect the performance of companies in the first quarter of 2011-12, as companies procured most of the raw material in the last quarter of the previous financial year.
“Although companies will face a problem in the current quarter and are forecast to report lower profits, the second quarter definitely looks brighter,” said Nair.
After appreciating initially by 90 per cent in the first half from Rs 7,986 a quintal on April 1, 2010, to Rs 17,294 a qtl, the benchmark Shankar-6 variety of cotton cooled to the current Rs 12,092 a qtl. Similarly, cotton yarn prices traded on Thursday at Rs 180-190 a kg after hitting Rs 280 a kg early this year.
Minal Dedhia, an analyst with Networth Securities, said: “The current quarter results for textile companies that produce cotton fabrics and garments will show a correction this quarter, but growth on a yearly basis. Synthetic yarn companies will do well even in the present quarter, as demand is good for manmade fibre, as cotton remains expensive.”