Artistic Denim Mills

Starting production in 1993, Artistic Denim Mills has since become a big name in the textile sector. It is one of the key players in the denim industry, offering premium fabrics with unique colors and shades, and garments with an extensive array of washes. With a market capitalisation of over Rs 7.5 billion, the company is the fourth-largest in the textile sector by market cap.
Artistic Denim's spinning unit is equipped with 18,000 spindles producing 1.6 million kg of yarns per month. Its dyeing mill is the 12th mill in the world to be using Liquid Indigo directly from Dystar Germany. The company's weaving unit consists of Airjet looms from Pinacol, Rapier from Smit and Projectile from Sulzer, giving great flexibility in processing fabrics of different weights. Finally, ADM has its own power generation set-up and water treatment plant; in-house power production capacity is 15MW and the water treatment plant operates with a flow rate of 1,900 cubic meter/h.
With this vertically integrated modus operandi, ADM manages to churn out premium denim fabrics and garments, which it then markets to high-end customers all over the globe. It comes as no surprise then, that the company frequents fashion events the world over.
OPERATIONAL AND FINANCIAL HIGHLIGHTS Artistic Denim Mills has seen a continuous and tremendous sales growth over the past five fiscal years, but this growth has been slowing; from an epic 33 percent burst in topline in FY11 to a growth of little over 5 percent as of FY14.
Meanwhile, margins have been following a different trajectory. While FY11 was the year of phenomenal topline growth, gross and net profit margins fell by 600 and 200 bps that same year. This was due to the abnormal hike in cotton prices that year.
Operationally, Artistic Denim has graduated swiftly towards the right end of the value addition chain. Slowly and gradually, the focus has rightly shifted from being a heavy yarn manufacture to almost quadrupling the garment production in just four years. ADM attributes a lot of success to its superior quality and improved marketing efforts.
The GSP Plus has also definitely helped. The category wise efficiencies are also tilted towards garment production. From just 38 percent capacity utilisation in garment production back in FY11, ADM has achieved a satisfactory capacity utilisation of 80 percent in garment division, in just four years. To top it off, the production has increased fourfold during the period, as the garment capacity has been doubled during FY11 and FY14.
On the other hand, yarn production has slid from 20 million pounds in FY11 to 14 million pounds in FY14, with a capacity utilisation of 64 percent. The fabric production has largely remained stable at 16 million meters, with the utilisation levels hovering around 70 percent.
The company has continuously been working on developing new designs and products to keep up with the growing global demand. ADM has also added new customers to its kitty through these new offering across various new geographical destinations and fresh segments.
In terms of sales growth, Artistic Denim outpaced the market growth quite comfortably, achieving a healthy 21 percent year-on-year growth for the nine month period in FY15. The firm's focus on high end value added finished garments is definitely reaping fruits. In yesteryears, the garment capacity went under-utilised massively, but things have changed and ADM is working on high utilisation levels, which translated well to the company's topline.
That said, there is some pressure from the cost side, which the whole industry is facing for quite some time. The gross margins dipped almost 300 bps year-on-year, as energy, raw material and labour costs have been on the up. That said, the gross margins are still far from very depressing, and with some hope ahead in terms of energy availability, things should improve in this regard.
Looking ahead, ADM seems well poised to continue its smooth run. Although, there are signs of slowing demand in some European markets, Artistic Denim's strong brand and marketing presence should be good enough to get it sailing. In the short-run there might be pressure on the profit margins, as energy prices are likely to go up sizably. But on the operational and business perspective, things seem well in place.

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Artistic Denim Mills

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Rs (mn)                  9MFY15     9MFY14         YoY

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Net Sales                 5,668      4,676         21%

Cost of Sales             4,704      3,733         26%

Gross Profit                964        943          2%

GP Margin                    17%        20%    300 bps

Distribution Cost           165        156          6%

Administrative Expenses      65         51         27%

Other Expenses               50         53         -6%

Other Income                 51         92        -45%

Profit From Operations      735        775         -5%

Finance Cost                102        102          0%

Profit Before Taxation      633        673         -6%

Taxation                      8         14        -43%

Profit After Tax            625        658         -5%

NP Margin                    11%        14%    300 bps

EPS (Rs)                   7.44       7.84         -5%

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