Arvind Mills: On the run - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Arvind Mills: On the run

Aug 11, 2004

Despite a poor show in 1QFY05 and expected pressure on margins, on account of higher raw material costs, likely to continue in the near term, textile stocks have been in the reckoning in the recent past. The buying interest, however, is owing to the big export opportunity that lies ahead of Indian companies post 2005 when global markets would be thrown open with the quota regime coming to end. In this backdrop of the potential for Indian textile majors and the recent run up in stock prices of these companies, we look at Arvind Mills, India's largest denim producer. Rs 100 invested at the end of April 2004...

Arvind's denim (a commodity) business contributes a significant 55% of the company's topline. The company's denim fabric has a presence in both, the domestic as well as export markets. However, if we consider the performance of this segment over the last few quarters, a sustained decline in denim volume offtake (largely affected by the demand from African countries) combined with subdued realisations has affected the topline growth and margins (see chart below). However, with the company now consistently emphasizing on apparel exports, the dependence of the company on the denim business is likely to decrease. This strategy could augur well for its overall profitability in the long term.

Unlike the denim segment, the shirting business (not a commodity like denims) of the company has remained stable with volumes holding ground and realisations improving marginally due to better product mix. Stable shirting revenues have provided a cushion to overall revenues. The company is carrying out a de-bottlenecking exercise on certain key production functions in order to achieve the rated capacity of 34 mm (million meters), which will enable it to meet the enhanced internal requirements for the additional 2.4 m pieces ready-to-wear shirt production capacity.

At the current price level of Rs 79, the stock trades at a price to earnings multiple of 21.4x annualised 1QFY05 earnings. With international markets opening up post 2005, the growth opportunity for a fully backward integrated company like Arvind Mills is promising because of its cost competitiveness. Though the company has reduced some of its debts by converting them into equity, it has led to earnings dilution. Undoubtedly, the company has benefited from the restructuring exercise in the last two years but we believe it will take time for the company's earnings to support the stock price fundamentally. To that extent, one should exercise caution.


Equitymaster requests your view! Post a comment on "Arvind Mills: On the run". Click here!

  

More Views on News

GRASIM Announces Quarterly Results (3QFY20); Net Profit Down 6.2% (Quarterly Result Update)

Feb 17, 2020 | Updated on Feb 17, 2020

For the quarter ended December 2019, GRASIM has posted a net profit of Rs 10 bn (down 6.2% YoY). Sales on the other hand came in at Rs 192 bn (up 4.3% YoY). Read on for a complete analysis of GRASIM's quarterly results.

WELSPUN INDIA Announces Quarterly Results (3QFY20); Net Profit Up 49.9% (Quarterly Result Update)

Feb 17, 2020 | Updated on Feb 17, 2020

For the quarter ended December 2019, WELSPUN INDIA has posted a net profit of Rs 751 m (up 49.9% YoY). Sales on the other hand came in at Rs 17 bn (up 1.5% YoY). Read on for a complete analysis of WELSPUN INDIA's quarterly results.

SRF LTD 2018-19 Annual Report Analysis (Annual Result Update)

Oct 18, 2019 | Updated on Oct 18, 2019

Here's an analysis of the annual report of SRF LTD for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of SRF LTD. Also includes updates on the valuation of SRF LTD.

WELSPUN INDIA 2018-19 Annual Report Analysis (Annual Result Update)

Sep 23, 2019 | Updated on Sep 23, 2019

Here's an analysis of the annual report of WELSPUN INDIA for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of WELSPUN INDIA. Also includes updates on the valuation of WELSPUN INDIA.

More Views on News

Most Popular

Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 (The 5 Minute Wrapup)

Mar 30, 2020

This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...

The Biggest Trading Opportunity of 2020 is Here...

Mar 26, 2020

India's #1 trader, Vijay Bhambwani, talks about a hugely profitable trading opportunity which you must know about today!

A Big Trading Opportunity is Coming Your Way Soon (Fast Profits Daily)

Mar 25, 2020

I see a big opportunity to make fast profits on the horizon.

Coronavirus Sell-off Is a Perfect Time to 'Lockdown' this 'Crorepati' Stock (Profit Hunter)

Mar 24, 2020

Coronavirus crisis and panic selling has brought this quality smallcap to multiyear lows, making it a great bargain.

One Stock that is All Charged Up for the Post Coronavirus Rebound (The 5 Minute Wrapup)

Apr 1, 2020

A stock with strong moat is currently trading near 5-year lows.

More

How to Trade the
Coronavirus Crash

Coronavirus Crash
Get this special report, authored by Equitymaster's top analysts, now.
We will never sell or rent your email id.
Please read our Terms

COMPARE COMPANY

MARKET STATS