X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Arvind Mills: Past and the future - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 25, 2005

    Arvind Mills: Past and the future


    Arvind Mills Limited is the flagship company of Rs 20 bn (US$ 550 m) of the Lalbhai Group. It enjoys the distinction of being the world's largest exporter and Asia's largest producer of Denim. Various brands owned by Arvind include Flying Machine, Newport and Ruf & Tuf in Jeans and Excalibur in shirts. Apart from these, the company has licenses from reputed International brands like Arrow, Lee, Wrangler and Tommy Hilfiger for the Indian market.

    Business profile
    Denim continues to be the mainstay of the business (55.8% of revenues in FY04). However, realisations from denim being uncertain on account of volatility in cotton prices, the company has increased its focus on High Value Cotton Shirting (HVCS) which is a more stable product group and which contributed 21% to revenues in FY04.

    Besides the above, the company also manufactures knit fabrics and yarns. Other peripheral businesses include EPBAX systems. Exports constitute a major chunk of the business; US being the key market accounting for over 30% of the volumes.

    Financial performance: Over the years
    In the past, the company faced financial difficulties due to a downslide in denim markets and heavy depreciation charges as new projects were commissioned at Santej. Also, these projects were largely financed by high cost debt, which resulted in a huge interest cost burden severely affecting its profitability. The same has been reflected in the FY00 and FY01 results (see table below). It underwent a restructuring exercise in FY02 which was approved by a majority of the lenders and which saw the interest costs reduce by nearly 50% in 1QFY02 itself.

    The company bounced back in FY03. It reported its highest ever operating profit at Rs 4.3 bn, signifying a CAGR of 108% since FY00. Increased proportion of value added fabrics in Denim and resurgence of demand globally resulted in higher price realizations contributing 63% of the total revenue.

    However, it could not sustain its stellar performance of FY03 in FY04 largely on account of rising raw material costs (cost of cotton having increased by 11%), high power and fuel costs (cost of naphtha by 5%). Operating margins clocked a negative 15% growth YoY and bottomline dipped by 25% YoY. Exports revenue, which contributed 49% of the total revenues, was adversely affected by exchange rate fluctuations, which saw a significant appreciation in the rupee. The company has recently switched over to natural gas from the relatively expensive naphtha for captive power consumption. The benefits of this are expected to accrue from 4QFY05 onwards.

    How the numbers stack up...
    (Rs m) FY00 FY01 (18m) FY02 (6m) FY03 FY04 CAGR since
    FY00
    9m FY05
    Net Sales 11,838 18,541 6,969 14,792 14,353 3.9% 12,339
    Expenditure 11,374 16,749 5,596 10,612 10,830 -1.0% 9,570
    Operating Profit (EBIDT) 464 1,792 1,373 4,180 3,523 50.0% 2,795
    Operating Profit Margin(%) 3.9% 9.7% 19.7% 28.3% 24.5% 22.7%
    Other Income 288 209 145 123 126 -15.2% 26
    Interest 2,643 4,798 594 1,528 1,133 -15.6% 862
    Depreciation 1,652 2,219 740 1,481 1,503 -1.9% 1,109
    Profit before Tax (3,543) (5,016) 184 1,294 1,013 824
    Extraordinary item 442 - - - - 0
    Tax - - 46 80
    Profit after tax/(loss) (3,101) (5,016) 20 1,294 967 745
    Net Profit Margin(%) -26.2% -27.1% 0.3% 8.7% 6.7% 6.0%

    Looking ahead...
    At the current price level of Rs 119, the stock trades at a P/E multiple 23.4 times annualised 9mFY05 earnings.

    The abolition of the quota system from the start of this year promises to be very challenging for the Indian textiles and apparel industry. The industry is projected to achieve a size of US$ 85 bn by the year 2010 with exports of US$ 40 bn. However, this is easier said than done, as Indian textiles have to compete with lower costing products from China, Sri Lanka, Bangladesh and even Pakistan.

    Going forward, Arvind Mills with its vertically integrated set-up is poised to capitalize on the immense opportunities available for export growth post the quota system and has already undertaken steps to increase its production capacity. However, an appreciating rupee albeit at a slower pace, volatile cotton prices and cyclical nature of denim which has assumed the nature of a commodity are the downside factors to be considered.

     

     

    Equitymaster requests your view! Post a comment on "Arvind Mills: Past and the future". Click here!

      
     

    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    ARVIND LTD. SHARE PRICE


    Aug 21, 2017 (Close)

    TRACK ARVIND LTD.

    • Track your investment in ARVIND LTD. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    ARVIND LTD. - RAJAPALAYAM MILLS COMPARISON

    Compare Company With Charts

    COMPARE ARVIND LTD. WITH

    MARKET STATS