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Indian denim fabric sector on an even keel
21
Jun '11
The Indian denim fabric manufacturing sector has been able to brave the storm of the rise and subsequent volatility in raw cotton prices. This has been made possible, due to an improved product mix and better capacity utilizations.

However, the continued rise in retail prices could spoil the party for the Indian denim producers.

“Looking into the sharp decrease in prices of raw material, i.e. cotton in past few weeks, there will be reduction in denims prices in coming times and the prices will ease out. We don't see any problems in price as well as supply”, says Mr Utsav Pandwar, Finance Controller - Aarvee Denims & Exports Ltd.

Mr Rajiv Dayal, MD – Mafatlal Denim says, “The demand is not slackening in fabrics but it is slackening in retail. The denim fabric manufacturing companies supply fabric to Indian brands, garment exporters and also export. If the retail margins go down, the denim fabric manufacturers will focus more on exports because globally the market is very large.

“Indian denim fabric market size is only 600-650 million meters per annum but the global denim market size is five billion meters per annum. So, they have the opportunity of exporting fabric also. It is not easy and correct to link what is happening in Indian retail to the fabric segment. Indirectly, yes but one cannot link them completely.

“Out of the 650 million meters Indian denim fabric market, domestic market is only 400 million meters while exports come up to 200-250 million meters. So there is a sizeable element of export as, Indian denim producers are also competitive globally”.

When asked if continual price rise at retail level would result in narrowing of margins and slowing growth, Mr Dayal replied by saying, “It's a very volatile market. One cannot say that the margins are going down because the cotton prices have also dropped. It is a combination of factors.

“Last year the scenario was different; cotton prices went up and subsequently the selling prices also went up. Whereas, now the people are concerned about volumes and cotton prices have also dropped. So it is not that the profitability may be affected, there are too many factors involved”.

Explaining further, he said, “Basically there are two dimensions. The fabric industry and the garment and retail industry. Both are separate. The denim fabric business moves depending on the cotton price, availability and supply & demand. The second is what is happening in retail or what is happening in brands and what is the profitability of the branded apparel companies & the retail companies”.

Despite the challenges, Mr Pandwar expects the current fiscal to be satisfactory, except the first quarter, in which the inventory of high cost cotton is expected to impact the performance.

Fibre2fashion News Desk - India

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