Nandan Denim eyes big play in fabric business

Even as Indian denim players are increasingly venturing into garments and retail businesses, Ahmedabad-based Nandan Denim Limited has set its focus on fabric making and emerge as one of the largest denim suppliers in the world.

NDL has increased its denim capacity from 76 million metres per annum in 2014 to 99 million metres per annum by March 2015. "We are expanding our capacity further to reach 110 million metres per day by March 2016. There is a lot of opportunity in fabric business both in India and overseas market. After commissioning of the expansion projects, our exports will contribute about 30 per cent of the overall business in two years," Deepak Chiripal, Director, NDL told BusinessLine.

Besides denim fabric capacity, the company is also expanding spinning and shirting segments. Currently, company's export revenues are 13 per cent of the overall business of Rs 281 crore for the June quarter.

"Our target audience are international and domestic brands. To achieve our target, we have undertaken product development to make popular variety of denim that will attract the mass. Of our total denim production 50 per cent is pure cotton denim, while 50 per cent is a blend with man-made fibre," said Chiripal.

The expansion would require Rs 612 crore of investment, which is 70 per cent met through debt and 30 per cent through fresh equity. Company's debt-to-equity ratio stands at 2:1. "Our financials will become stronger once the expanded capacity will go on stream. The D/E ratio will fall to 1.6:1, while our EBIDTA margins will improve from the current 16 per cent to 20 per cent by fiscal 2017 under constant price condition," said Govind Sharda, president of the company.

With Chinese denim makers facing slowdown amid challenges of high cost and reduced returns, NDL sees good opportunity in export business.

However, brokerage houses maintain a cautious view about the company's export ambitions. "Export incentives given by the Government have declined by around 2 per cent from about 7-9 per cent earlier to about 5-7 per cent now. Therefore, we believe this will have a negative impact on NDL’s export margin," Nirmal Bang stated in its recent Institutional Equities report on NDL.

Notably, with the expanded capacity of 110 million metres per annum, NDL will have similar capacity as that of Arvind Limited (around 110 mmpa). This will put NDL among the top denim makers in the country. However, the average realisation remains the deciding factor for NDL's success. Average realisation has improved from Rs 111.7 per metre in fiscal 2013 to Rs 132.7 per metre in 2015. For the first quarter of current fiscal, the realisation stood at Rs 136.4 per meter.

NDL shares ended positive on the Bombay Stock Exchange (BSE) on Monday at Rs 111.90, up 3 per cent from its previous close.