Gujarat denim mills are being forced to operate at 70% capacity utilization currently
17 February 2022, Mumbai:
With a 30 per cent drop in production due to rising cotton and raw material prices Gujarat denim mills are being forced to operate at 70 per cent capacity utilization currently.
Production costs have surged 30 per cent due to rising prices of cotton and other raw materials. From 36,000 per candy of cotton in September 2020, prices surged have touched Rs 78,000 per candy in February 2022.
Price rise impacts MSMEs margins
The price rise specifically affected denim MSMEs largely supplying to the domestic market, says Sanjay Jain, Chairman, Indian Chamber of Commerce, National Textile Committee. And mills that have forayed into denim business recently are the worst affected, they have been saddled with mounting debts, Jain explains.
The surge in raw material costs has also raised denim fabric prices by an estimated 30 per cent over the past six months; price of denim apparels have increased 20 per cent, say manufacturers.
During the pandemic, versatility and use in casual wear enabled denim fabric to sustain demand. However, the recent Omicron wave led to a 20 per cent decline in order volumes for summer collection, says Rahul Mehta, Chief Mentor, Clothing Manufacturers Association of India (CMAI).
Festive demand, export orders boost Q3 profits
Increased sales and revenues helped domestic denim manufacturers such as Arvind, Nandan Denim, Jindal Worldwide and Vishal Fabrics post sizable profits in Q3 FY 2021-22. Nandan Denim posted a 584 per cent rise in Q3 FY2021-22 profits while Arvind’s profits grew 287 per cen. Jindal Worldwide also posted a 22 per cent surge in profits during the period.
ALSO READ: Denim fabric exports from India have surpassed pre-pandemic levels
Profits of these manufacturers were triggered by a rise in exports orders that helped sustain production and prevented revenue streams from drying up. Industry players also attribute profit rise to pent-up festive demand in the domestic market and increased export volumes.
Gaurav Davda, Head-Corporate Finance & Strategic initiatives, Jindal Worldwide adds, increased export volumes helped manufacturers command better realization on exports and reduce input costs.
Delayed payments hit manufacturers’ competitiveness
However, the surge affected manufacturers’ competitiveness in the domestic market, adds Thadani. To offset rising costs, manufacturers are delaying supplier payments and cutting down production.
For instance, Sangeet Nahata, an Ahmedabad-based denim fabric manufacturer is utilizing only 65 per cent of 6 million mt. per annum installed capacity.
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