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Vardhman Textiles net profit doubles
May '11
Vardhman Textiles Ltd. has registered a strong growth of 84 percent in profits amounting to Rs. 1.395 billion during the quarter ended March 2011. The net profit of the company for fiscal year 2010-11 has shown more than 100 percent rise and a 32 percent increase in revenue.

One of the country's largest yarn manufacturers, the company gained from the upward trend of yarn prices during the quarter. The rising yarn prices helped the company to register a high growth in profit even during the month of March 2011 when most firms were hit by the rising inflation rate.

The rise in the cost of cotton was compensated by the increased realizations in yarn and fabric sales of the company. The rising demand led to a 20 percent surge in net revenue for the quarter ended March 2011 on a year-on-year basis.

The increase in expenses, including employee costs did not upset the equation as the operating leverage of the company also improved.

All this resulted in a 730 basis points (bps) surge in operating profit margin compared to the previous year. Similarly, there was an increase of 190 bps compared to the quarter ended December 2010.

The operating profit for quarter ended for March 2011 is the highest since the end of prolonged recession in textiles in March 2009.

All these improvements in profit margins have been accrued to the yarn segment, in which profit before interest and tax doubled compared to the previous year.

The company's decision to wind up its steel business segment, which accounted for less than ten percent of its revenue, also had a positive impact on the results.

In order to meet the surging demand for yarn, Vardhman has planned capital expenditure of Rs. 10 billion in the next two years, which is to be met through internal accruals. Major portion of this amount will be utilized in increasing spindlage. Looms and dyeing capacity will also be increased using this amount.

In case yarn realizations fall in the next two quarters owing to less demand, operating profits of Vardhman are likely to be adversely affected. It could happen because the company is at present holding high-cost inventory of cotton, the prices of which have fallen by about 30 percent since April.

Fibre2fashion News Desk - India

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