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Arvind: Margins improve - Views on News from Equitymaster
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  • May 31, 2001

    Arvind: Margins improve

    Arvind Mills, the denim major, has reported a lower net loss for the fourth quarter ended 31st March 2001. Net loss for 4QFY01 has come down to Rs 962 m as compared to a net loss of Rs 1,198 m in the corresponding quarter of the previous year. This is primarily on account of a sharp rise in operating margins.

    (Rs m) 4QFY00 4QFY01 Change FY00 FY01 change
    Sales 3,397 3,108 -8.5% 12,160 11,974 -1.5%
    Other Income 256 (30) -111.5% 352 (103) -129.3%
    Expenditure 3,292 2,773 -15.8% 11,374 10,674 -6.2%
    Operating Profit (EBDIT) 105 335 219.2% 786 1,300 65.4%
    Operating Profit Margin (%) 3.1% 10.8%   6.5% 10.9%  
    Interest 1,182 815 -31.0% 2,643 3,226 22.1%
    Depreciation 376 452 20.1% 1,652 1,807 9.4%
    Loss before Tax (1,198) (962) -19.7% (3,157) (3,837) 21.6%
    Extraordinary item - -   442 -  
    Tax - -   - -  
    Profit after Tax/(Loss) (1,198) (962) -19.7% (2,714) (3,837) 41.4%
    Net profit margin (%) -35.3% -31.0%   -22.3% -32.0%  

    Operating margins for 4QFY01 have shown a sharp improvement from 3.1% in 4QFY00 to 10.8% in 4QFY01. Operating expenditure has come down by 15.8% and 6.2% in 4QFY01 and FY01 respectively. However, there has been a degrowth in sales in the current year as well as in the fourth quarter, which indicates the subdued demand scenario in the denim segment. The cloth division of the company contributed to 80% of FY00 turnover.

    Will it sustain?
    (change %) 4QFY01 FY01
    Change in inventory -103.5% -121.2%
    Raw materials -0.1% -1.5%
    Staff costs 1.6% 3.3%
    Other expenditure -1.8% -3.3%
    Total -15.8% -6.2%

    But higher interest and depreciation costs have absorbed higher operating profits, as has been the case for the company for almost three years, resulting in higher net loss for FY01. Net loss has gone up from Rs 2,714 m in FY00 to Rs 3,837 m in FY01. The company's denim capacity expansion has been a drag on its profits.

    Reportedly, Arvind has plans to sell some of its brands, which the markets have been expecting for quite sometime. This will help it tide over a liquidity crunch on account of a downturn in its key denim business and start-up pressures in its newly commissioned textile complex at Santej near Ahmedabad. To repay its high cost debts, the company also plans to come out with a right issue at Rs 10 per share. Given the current state of the primary market coupled with its sagging bottomline, one is not sure about the success of the rights issue.



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