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Export orientation has led to improved third quarter results for denim companies this fiscal.
While the domestic market is reeling under over supply, major denim makers have looked to tap the growing overseas market in order to garner better margins. This move has reaped benefits for the likes of Arvind Ltd., Nandan Denim Ltd. (NDL) and KG Denim Ltd., to name a few.
For instance, increased penetration in exports market, coupled with capacity expansion has pushed Nandan Denim Limited (NDL)'s net profit for third quarter ended December 31, 2014 of fiscal 2015-16 by 38 per cent. Part of the leading conglomerate Chiripal Group, the denim fabric maker NDL has registered a Q3 net profit of Rs 12.63 crore in FY '15 as against Rs 9.15 crore in the corresponding period last year.
What's more, with a long-term focus on sustainable and profitable growth, NDL has earmarked a capacity expansion plan of Rs 612 crore. While as on November 2014, it has incurred expenditure of Rs .262.53 crore, the capex is scheduled to be completed by March 2016.
"This capacity expansion will enable the company to strengthen its domestic market share, expand its exports business and have an increased focus on value-added segments. The company will be favorably placed to tap the growing domestic and international denim demand. Further, our backward integration process is expected to be margin accretive while improving operational flexibility, execution consistency and quality standards. We believe that with improving asset turnover and operating margins will lead to positive operating leverage and better return ratios," said Deepak Chiripal, chief executive officer of Nandan Denim Ltd.
Further, among the denim industry players, KG Denim too posted a whopping 215 per cent growth in its Q3 net profit for FY'15. As against a net profit of Rs 1.62 crore for the third quarter ended December 31, 2013, KG Denim registered a net profit of Rs 5.11 crore for the corresponding quarter ended December 31, 2014.
On the other, though its other businesses have also registered healthy margins such as brands and apparel retail and textiles, the Ahmedabad-based textile conglomerate Arvind Ltd. too posted a healthy growth in its overall net profit for the third quarter of fiscal 2014-15. The company has been at the forefront of export-led growth in its denim business even as continues to supply to major global brands in regions like the US, Europe and Asia, among others.
Backed by revenue growth in its various business segments, Ahmedabad-based integrated textile and branded apparel player Arvind Ltd has registered a 6.78 per cent growth in its consolidated net profit for the third quarter ended December 31, 2014. The company's Q3 net profit of fiscal 2014-15 grew to Rs 109.10 crore, up from Rs 102.17 crore for the corresponding quarter last year.
Arvind Ltd.'s total consolidated income grew by 17.08 per cent at Rs 2088.73 crore for the quarter ended December 31, 2014, as against Rs 1783.90 crore for the quarter ended December 31, 2013.
According to Jayesh Shah, director and chief financial officer of Arvind Ltd., the revenue growth of 17 per cent is led by segmental growth of 22 per cent in brands and retail business as well as nine per cent in textiles business of the company.
On the standalone basis, the company posted a similar growth of around 5.68 per cent in its net profit of Rs 99.21 crore for the quarter ended December 31, 2014 as compared to Rs 93.87 crore for the quarter ended December 31, 2013. The total standalone income of Arvind Ltd., on the other hand, grew by 10.68 per cent to Rs 1352.88 crore for the quarter ended December 31, 2014. In the corresponding period last year, the company had registered a total standalone income of Rs 1222.32 crore.
However, in near future, the company is expecting strong global demand for textiles, leading to similar revenue growth.
"While see strong global demand for textiles, Indian retail demand is not as expected. We expect revenue growth of 14-15% for this financial year and hope to maintain operating margin at current level," Shah added.
