Nandan Denim Limited (NDL) is the worldâ€™s fifth largest integrated denim fabric maker. The company forayed into textile manufacturing in 2004 and engages in the manufacturing of denims, cotton fabrics, and khakis. NDL is a part of a leading conglomerate, Chiripal Group, established in 1972 and is currently diversified across several businesses such as textiles, petrochemicals, chemicals, packaging, infrastructure, and education. Headquartered in Ahmedabad, Gujarat, NDL has expanded its capacity from 6 MMPA to the intended capacity of 110 MMPA over the past decade. Further, the company has earmarked a capacity expansion plan to strengthen its domestic market share, expand its exports business and have an increased focus on value-added segments. Post the expansion, NDL will become the largest denim manufacturer in Asia and the fourth largest in the world. The company has a state-of-the-art manufacturing facility unit near Ahmedabad, Gujarat and exports its denim fabric to over 28 countries. A team of 3,000 passionate and motivated individuals drive Nandan Denim Ltd.
Replying to Yash Ved of IIFL, Deepak Chiripal says "Going forward, with better market response, efficient capacity utilization, and cost savings on captive yarn, along with capex of Rs. 612 crore, EBITDA margins are expected to improve further."
What are your expansion plans?
The company is expanding its denim fabric capacity from 71 MMPA to 110 million meter per annum. Currently, operational denim fabric capacity stands at 99 MMPA.
It is also expanding spinning capacity from 54 tons per day (TPD) to 124 TPD; at present, operational spinning capacity is at 70 TPD.
The company has created product diversity in its portfolio through addition of Yarn Dyed shirting business with an initial capacity of 10 MMPA.
It is also working on enhancing its profitability through multifold strategic initiatives, including market-customer diversification and uplifting the value addition drive within the well established denim business.
Are you planning a foray into garments and retail businesses?
As of now, there are no immediate plans to expand in to garments and retail. We are contemplating product diversity to work on the next growth engine, wherein we are creating cotton shirting and bottom-weight manufacturing facilities. It surely is going to be an exciting journey albeit the learning curve for the business.
Nandan Denim explores and innovate products that are forward looking and those which bind us to different apparel brands. The companyâ€™s strategy is to have a portfolio of hybrid brands straddling across consumer segments and price points. Trendy color option, stretchable fabric, printed denim are currently in demand these days. Having said so, denim being a fashion fabric, has lesser predictability when it comes to defining the trend. It is a trend breaking and youthful fabric where the manufacturers with the most flexible set up of machines can continue to flourish since history is only for academic purposes.
Post the completion of current expansion, the company will breathe for a while as it optimizes its operation, works on improving operational efficiency, and focuses on structuring customer and product strategy. Having reached a global scale in less than a decade, the company would be capitalizing on its competence before taking a call for future expansion. The company has been one of the most influential players in making denim a popular fabric in India and we would like to build upon the strength that we have acquired over the last one decade.
What is your EBITDA margin?
There has been constant improvement in EBITDA and other return ratios of the company. EBITDA margin has risen from 13.4% on FY11 to 15.1% in FY15, while PAT margin too improved from 3.4% to 4.7% in the same timeframe. EBITDA margin further improved to 16.7% for the quarter ended December 2015 compared to 15.7% in December 2014, jump of 100 basis points.
Going forward, with better market response, efficient capacity utilization, and cost savings on captive yarn, along with capex of Rs. 612 crore, EBITDA margins are expected to improve further.
Can you throw some light on your fund raising plans?
The ongoing expansion plan of Rs. 612 crore, which is to be completed by H1 FY17 is funded with a debt to equity ratio of 2.4:1. There are no immediate plans for raising any funds for the ongoing projects.
The company has recently issued 25 lakh fully convertible warrants to UK-based foreign institutional investor, Polus Global Fund, for a total consideration of Rs.50 crore in November 2015. The warrants will be converted into equity shares at Rs.200 per share within 18 months time.
Give us an overview of your financials?
The company has reported a net profit of Rs.15.65 crore for Q3 FY 2015-16 as against Rs.12.63 crore in the corresponding period of 2014-15, a rise of 23.8%. Net sales for third quarter ended December 2015 was at Rs.287.37 crore, higher by 3.5% over previous fiscalâ€™s same quarter net sales of Rs. 277.60 crore. The company reported healthy EBITDA and PAT margin in Q3 FY16 at 16.7% and 5.4% respectively. EPS for Q3 FY16 stood at Rs.3.44 (Face value of Rs.10 per share).
What is your growth target for the fiscal year?
In view of multiple external factors, it is difficult to assign any specific number. However, once the capacities are added and operationalized, product-market diversities are realized, we expect to get back the growth rate that we have recorded in the recent past. However, the profitability is expected to grow at a disproportionately higher number.
What percentage of revenues comes from exports?
Nandan Denim exports its denim fabric to over 27 countries across the globe through its strong global dealer-distribution network. The company continued to increase its penetration of international markets to drive the exports business forward, as revenues from exports grew 75% yoy to reach Rs. 136.3 crore in FY2015 from Rs. 77.7 crore in FY2014. For FY 2015, exports constituted 12.7% of the total sales, improving from 9.2% in FY 2014. Domestic sales for FY 2015 stood at Rs. 87.3%. The company is working on optimization of geographic diversities over next 1-2 years.
What is your current debt equity ratio?
For FY 2015, the debt equity ratio was at comfortable level of 1.8:1. Despite major expansion, leverage ratio was comfortable and improved further from 2.2: 1 in FY 13. With most of the expansion over and company not requiring further debt, the ratio will improve once the benefit of the expansion starts coming in from FY 17. As of March 2015, total debt outstanding debt was at Rs. 470.9 crore on equity of Rs. 258.8 crore.
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