NANDAN DENIM LIMITED INVESTOR PRESENTATION India is favourably positioned to become a global denim fabric and apparel production hub driven by – - Abundant availability of cotton, low cost of production and competitive currency. - Favourable central and state government textile Private and Confidential policies. - China’s decreasing competitiveness due to high domestic demand, rising labour cost and appreciating currency.
DISCUSSION SUM M ARY Industry Overview & Outlook Company Overview Capacity Expansion Plan Gujarat Textile Policy & Strategic Location Benefits Rationale for Capacity Expansion & Integration Summary Outlook & Q1 FY16 Results 2 Nandan Denim Limited
INDIA DENIM FABRIC M ARKET OVERVIEW 2 ND LARGEST DENIM FABRIC CAPACITY IN THE WORLD The global denim fabric market is around USD 17 bn, Asia accounts for ~70% of global denim M M PA China 3,497 fabric production. India 1,200 The Indian denim apparel market (CAGR of Latin America 1,082 14% - 15%) is fast outpacing the global denim 880 Others apparel market (CAGR of 3% - 5%). Set to cross Europe 698 2,000 M M PA by 2018 North America 406 INDIAN DENIM APPAREL M ARKET (USD M N) 164 Africa 2,200 Source: Company Australia 15 1,800 1,200 MMPA: Million Metres Per Annum 2011 2013 2017 Source: Technopak Analysis INDIA IS NOW INDIA IS SET TO ESTABLISH AS THE GLOBAL DENIM FABRIC AND APPAREL PRODUCTION HUB THE LARGEST COTTON PRODUCER IN THE WORLD AHEAD OF CHINA 4 th largest denim fabric exporter in the world. Low cost and competitive currency. Favourable government textile policies. China’s decreasing competitive edge.
DOM ESTIC DENIM APPAREL M ARKET - HUGE UNTAPPED OPPORTUNITY DOM ESTIC DENIM APPAREL M ARKET WITNESSING LOWEST PER CAPITA DENIM J EANS FASTER GROWTH CONSUM PTION IN THE WORLD India Denim 700 US 9 Apparel Sales HOWEVER UK 8 (M M PA) 300 Brazil 7 Denim J eans 200 180 Pairs per person Thailand 7 J apan 6 2009 2013 China 2 Domestic Sales Exports Source: Technopak Analysis 0.3 India Source: Company STRONG GROWTH ACROSS ALL GRADES OF DENIM KEY FUTURE DEM AND DRIVERS 2012 58% 11% 15% 16% 78% of Indian population is less than 45 years of age. Rising demand from womenswear segment. 2017 48% 12% 19% 21% Rising disposable incomes and fashion consciousness. Rising acceptance of denim jeans as an officewear. Rising demand from Tier II & III cities driven by Unbranded M ass M arket M id Premium Premium expanding organised retail industry. Source: Technopak Analysis
NANDAN DENIM HAS ONE OF THE LARGEST DENIM FABRIC M ANUFACTURING CAPACITY IN THE WORLD 4 TH LARGEST DENIM M ANUFACTURING FACILITY IN THE WORLD Denim Capacity in M M PA 230 200 160 110 * 108 Vicunha Textil ISKO Tavex Corporation Nandan Denim Arvind Ltd (Brazil) (Turkey) (Spain) (India) (India) Source: Company LARGEST DENIM M ANUFACTURING FACILITY IN INDIA Denim Capacity in M M PA 110 * 108 85 70 50 50 47 42 40 40 40 30 Industries Denims Nandan Arvind Aarvee Sudarshan Denim Worldwide Uco Denim Sangam KG Denim Denim Denim Oswal Suryalakshmi Raymond Etco Bhaskar eans indal J J Source: CRISIL * Post complete expansion
CURRENT CAPACITY SCENARIO – DENIM FABRIC M ARKET • Current No of players : 32-33 • M anufacturing capacities: 10-110 M illion Current Production Capacity : 1200 M illion meter M eter • Estimated Production : 1000 M illion M eter • Top 3 command 1/ 3rd M arket Share • Domestic consumption: 700-800 M illion M eter • Pricing point: Rs. 80-Rs 300 per meter • Exports : 200-300 M illion M eter • The lower the pricing point, higher the market size and higher the competition Estimated Growth Rate • Dynamics are changing with higher • Domestic M arket CAGR : 18% disposable income. • International M arket CAGR : 3-5% • Currently 7% of population drives 49% At Current Growth Rate, Required Capacity by consumption 2018: • 85% male dominance in consumption, Women & Kids witnessing High Growth 2000 M illion meter • E-commerce has just arrived in India Any Chance of Over Capacity ?
OUR EXPERIENCE TILL DATE • Built capacities over the last one decade (Started from 6 M M PA in FY 05) • Never had machines waiting for the orders; • Never ended with higher inventories • Never defaulted to any lender • Profits could fluctuate, never disappeared • Never faced problems for financing the projects • Lower prices have higher competition • Already started distancing through product matrix change • Focus on Value Added Segment
IM PACT OF COTTON ON DENIM • Denim, predominantly cotton fabric • Cotton prices impact cotton yarn the most • Y arn prices have cascading effect on fabric • The higher the product in the value chain, the higher is the insulation. NANDAN VALUE CHAIN
IM PACT OF COTTON ON DENIM – UNDERSTANDING CHINA • Chinese Cotton Inventory – 58% of global stocks • Catch 22 situation • Release inventory : Global trade declines, building pressure on international cotton prices • Don’t release : Imports increase, impetus to exporters making Chinese textile uncompetitive. • Import quota restriction expected to 5 M io bales only in CY 2015. ( China will not issue cotton import quota at lower tariffs beyond the WTO mandated quota of ~5.2 million bales in Calendar Y ear 2015 as against imports of ~9.3 million bales in 2014 ) • Chinese cotton consumption is up after 4 years’ slide whereas crop is declining beyond Xinjiang due to differential subsidy, However the stock levels in China will continue to remain high • Change in the subsidy system, with China halting its previous policy of buying from producers, now instead paying subsidy directly to the farmers. • In the main growing region of Xinjiang, home to about 50 percent of the domestic crop, farmers receive a subsidy equivalent to the difference between the market price and the target price of 19,400 yuan a tonne. • M eanwhile, producers in nine other regions get 2,000 yuan a tonne, placing them at a disadvantage to Xinjiang farmers, who currently are getting subsidy payments almost three times as large.
INTERNATIONAL COTTON SCENARIO • Global share of cotton in textiles ~ 35%, balance 65% being M M F . • M ovement in crude prices impacts prices of M M F ---> prices of cotton to compete in the market. • Generally, cotton prices have limited triggers for upside. • Global cotton consumption to exceed production this year for the first time in last five consecutive years, however overhang of high stock levels carried from past years will continue • The global cotton production is expected to decline by ~5.2% while the cotton consumption is expected to increase by ~4.5% in CY 2015, driven by low cotton prices. • The cotton production is expected to decline due to decline in acreage as farmers shift to alternate crops. • The increase in cotton consumption is expected to be driven, mainly by China, on account of decline in the cotton prices which has improved the competitiveness of cotton with respect to synthetic fibers.
INDIA COTTON SCENARIO • Expect Production to shrink by 3-5% in 2015-16 • Expect Consumption to increase due to restricted spread between cotton and polyester. • Carry over stock of 30% to provide comfort. • M arket prices remained below M SP . Cotton prices have stabilised with CCI intervention. • The CCI has acquired around 9 M illion bales, 25% of production. • CCI stock liquidation strategy to drive market prices. • If disposal below M SP then exports to go up. • If higher price then exports of yarn to decline ----> reduce demand for cotton ----> bring down prices. • Crop size may not be impacted significantly in next crop season with timely spread of monsoon. In the worst case scenario, stocks would be depleted without impacting carry over stock. • No correction expected in M SP .
DISCUSSION SUM M ARY Industry Overview & Outlook Company Overview Capacity Expansion Plan Gujarat Textile Policy & Strategic Location Benefits Rationale for Capacity Expansion & Integration Summary Outlook & Q1 FY16 Results 12 Nandan Denim Limited
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