Branded garments rake in profits despite odds

It seems like Indian consumers have accepted the rise in prices of branded garments without much protest. As demand continues to rise and the results of top five textile companies have been better than last year. In fact, the results declared

by top five companies have revealed an average 54 per cent rise in net profit, while the average turnover was up by 37 per cent in the year ending March 31. This, despite a hike in raw material prices and the imposition of 10 per cent excise on duty on branded garments. Experts say this cumulative growth of 20-25 per cent is due to the upward revision of readymade garment prices, which has been absorbed by consumers without much ado.

In fact, despite the excise duty, branded apparel makers have outperformed their counterparts in the unbranded segment. Consider this: S Kumars Nationwide (SKNL), the makers of brands like Reid & Taylor and Belmonte, reported 62 per cent rise in net profit to Rs 172.7 crores in the financial year 2010-11 as against Rs 106 crores in the previous year. In contrast, Alok Industries posted 52 per cent growth in annual net profit at Rs 376.9 crore as against Rs 247 crore in the last fiscal.

In the last Q3, readymade garment manufacturers raised prices of various products by Rs 100-150; mid-end and low-end apparel producers increased prices by up to Rs 50; hosiery product prices went up by Rs 20-30 per piece. A majority of mid-end manufacturers, however, were unable to pass on the rise in costs to consumers. A Fitch Ratings report of December had forecast the negative impact on companies’ financial performance due to a sharp rise in cotton prices globally as prices percolated down the value chain, reflected in high prices of textile and clothing products.

According to Nitin Kashliwal, MD, SKNL branded apparel manufacturers performed better due to their ability to pass on high raw material prices to consumers successfully. Consumers absorbed the price hike without any hitches, which kept their margins high. Interestingly, even though raw material prices have gone down since April, the benefits will not be passed on to the consumer by brands, since it will help them keep their profits in place.

Sanjay Lalbhai, Charirman of Arvind Ltd too feels prices will not be lowered. His company has hiked prices by 15 to 25 per cent in last three months alone Lalbhai says they had no option considering the steep hike in prices of cotton over the last few months. And while the initial response to the hike has been satisfactory, if they are able to sail through July with these prices, they should not look back.

Meanwhile, D K Nair, Secretary General, Confederation of Indian Textile Industries, feels the price decline of major raw materials such as cotton and yarn will affect the performance of companies in the first quarter of 2011-12, as companies procured most of the raw material in the last quarter of the previous financial year. He foresees companies reporting lower profits in this quarter however, the second quarter will be better. Agrees Minal Dedhia analyst with Networth Securities as she believes the current quarter results for textile companies that produce cotton fabrics and garments will show a correction. But synthetic yarn companies will do well even in the present quarter, as demand is good for manmade fibers.