India's leading denim producer, Arvind Mills is spinning off its garments and telecom businesses into two subsidiaries, in an effort to restructure its current business portfolio. The move is aimed at lending a sharper focus to these businesses by segregating them from Arvind's cotton textile business.
Arvind Mills is also planning to decommoditise its cotton textiles business by implementing product differentiation strategies and value-added services like apparel-garment packages for global brands. The garments division of the company currently markets products under brands like Arrow, Lee, Newport, Flying Machine and Excalibur. Its branded garment business accounted for 6% of FY99 turnover. The telecom division of the company manufactures and markets small EPABX machines under the Syntel brand name. It also provides mobile radio trunking services in certain service areas under the brand name Omnitalk.
The move to spin off these divisions is an attempt by Arvind Mills to bring about a sharper focus to these businesses and improve margins. The management is already looking at private equity funds or strategic investors to off load up to 49% stake in its telecom and garments subsidiaries. Analysts expect that the divestment could fetch Arvind between Rs 1 bn to Rs 1.5 bn. 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.
Analysts have rated the stock as a 'SELL' in view of the over capacity in the company's principal denim segment and general down turn in the textiles industry. However, some analysts are beginning to review their ratings in view of the management's recent restructuring moves and efforts to shift from commodity to branded garments category.
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