High input costs hit Indian denim makers' Q2 net

10 Dec '13

2 min read

Denim makers continued to feel the heat of rising input costs in second quarter ended September 2013. Higher input costs as a result of rise in cotton prices have dented the net profits of major denim players like KG Denim, Aarvee Denims and Exports, and Raymond in the Jul-Sep 2013 period as they failed to pass on the burden to buyers at a time when demand was already under pressure due to slowdown.

Rise in short staple cotton prices, which accounts for almost 50 per cent of input costs for denim makers, saw KG Denim’s ‘Cost of materials consumed’ rising by as much as 30 per cent year-on-year at Rs 100.74 crore in Q2 FY’14 as compared to Rs 77.8 crore a year ago. KG Denims, which manufactures over 20 million metres of denim per annum, said its net profit plunged over 40 per cent to Rs 3.31 crore in Q2 FY’14 from Rs 5.58 crore in Q2 FY’13, mainly due to higher input costs.

In similar fashion, Aarvee Denims and Exports Ltd reported a decline of sharp 56 per cent in net profits for the quarter ended September 2013 at Rs 7.5 crore versus Rs 17.28 crore in the year ago period. The company said its bottom-line was hit by both rise in input costs as well as pressure on sales.

Raymond Ltd, which manufactures denim in joint venture with UCO NV of Belgium, said its EBITDA margins from this business slipped 20 per cent to Rs 23 crore from Rs 28 crore in the year ago period, on account of high input costs.

Sustained input price increases, coupled with rising interest rates over the last two years against the backdrop of global economic slowdown, has put significant pressure on denim makers ‘margins. Against this backdrop, the depreciation of the rupee has further pushed up input costs and is forcing companies to minimize their losses while increasing sales in an intensely competitive environment.

Fibre2fashion News Desk - India

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