(This story originally appeared in on Dec 26, 2014)

MUMBAI: Ethnic retail chains Fabindia and Manyavar have emerged as the country's most profitable apparel companies by avoiding discounts, staying away from prime real estate and making products in-house in a market where most international brands are looking to grab share by offering price cuts. Fabindia Overseas posted a net profit of Rs 54 crore in the year ended March 31, 2014, according to filings at the Registrar of Companies.

Kolkata-based Vedant Fashions , which owns ethnic wear brand Manyavar, made a Rs 49-crore profit. Levi's India was the only marquee international brand that could match them, posting a Rs 49-crore net profit. This is the first time Levi's India has made a profit since entering the country in 1994. None of the other overseas brands, including Zara, Benetton and Marks & Spencer, were able to come close to the performance of the Indian companies.

"We didn't get into the trap of discounting even as others did to chase top line. To build a sustainable business, we need profits and cash flow," said Sunil Chainani, executive director at Fabindia, also the largest apparel brand in the country with Rs 604 crore in sales.

"There are instances where we didn't open stores in prime localities or high-footfall zones at malls that guaranteed higher sales as rentals would have impacted margins." Right from local boutiques to established traditional retailers and regional brands, every ethnic wear retailer is vying for a share of the consumer wallet in a market that is governed more by design than brand name.

consumers, a new development in a category restricted to older buyers. Fabindia opened 17 new retail outlets in FY14, taking the number of stores to 175. Manyavar has been more aggressive, adding nearly two stores every week on average, taking the count to 360 now, clocking annual sales of Rs 373 crore.

"There was a lot of disconnect between customers and manufacturers in the occasion-wear segment. We are just trying to fill that void," said Manyavar's founder Ravi Modi. The first outlet opened in 1999 in Kolkata but Manyavar didn't expand at all in the following decade. "Our second store came up only in 2008 as real estate costs became realistic due to the economic slowdown. And, we don't sell a single garment on discount."

In comparison, most apparel brands have been offering steep discounts to move unsold merchandise, resulting in the erosion of retail margins and more than a fifth of sales taking place during end-of-season sales. This is just one reason for the strong bottom line, said both homegrown companies. They also make nearly 95% of their merchandise inhouse, helping to keep inventory tight and costs under control.

In fact, Fabindia runs every store as a profit centre in an effort to democratise operations while Manyavar either donates or destroys unsold stock, adding pressure on the company to keep designs relevant and sell products aggressively. However, experts feel both companies will need to reinvent their portfolio to sustain the top position in their segments.

"While Fabindia is positioned as organic and niche, it still has to compete with western brands for the share of wardrobe and wallet. And Manyavar has to move away from its occasion and wedding-wear tag and tweak its offering with more Indo-Western clothing that can be worn on more occasions," said Ruchi Sally, director at retail consultancy Elargir Solutions. The companies say they are already at work on these lines.

Fabindia has launched its western wear line Fabels while Manyavar has been adding Indo-western merchandise in its collection. Ethnic wear, still mostly fed by the unorganised segment, has demonstrated steady growth over the past few years and is set to expand by 8.4% over the next decade from Rs 61,679 crore now, according to retail consultant Technopak. Leading department chain formats such as Shoppers Stop, Lifestyle and Westside are increasing the width of their private label range and offer contemporary styling in the ethnic space, fuelling growth.