The Indian denim fabric industry will continue to face margin pressures in 2018-19 due to oversupply. About 15 to 20 per cent of the total capacity will remain underutilized. Additionally, competition will intensify as several players have undertaken capacity additions to add another 150 million meters a year. Denim fabric capacity additions are expected to outpace garmenting capacity additions over the short term, translating into a continued denim fabric surplus in the market. However the long-term demand potential for the segment remains intact due to denim’s versatile fashion appeal among the young populace, a rising disposable income and untapped semi-urban pockets of the country.

India is a leading denim fabric manufacturer in the world. However, the sector’s operating margins are expected to remain in the range of 10 to 11 per cent in the current fiscal. Though the denim fabric industry is cyclical in nature and characterised by periods of excess capacity, the present downturn may be relatively prolonged, partly on account of the regulatory disruptions that the industry underwent in the last two fiscals.

The credit profile of denim fabric manufacturers is likely to moderate over this fiscal amid the continuing contraction of operating margin and debt-funded capacity expansions. <br/