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Arvind Mills: Revised estimates - Views on News from Equitymaster

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Arvind Mills: Revised estimates

Oct 5, 2007

Arvind Mills, India’s largest denim manufacturer and exporter, with a total capacity of 120 mm of denim, has been concentrating on its garment and brand businesses that have been showing promising signs for the future. In this direction, the promoters of company recently opted to infuse some additional capital to accelerate the growth process and tide over the problems seen in the denim business. The company will be issuing 50.6 m warrants to its promoters that will be convertible into an equal number of equity shares within a period of 18 months, in one or more tranches, at a price of Rs 52 per share. On conversion, the promoter group holding in the company would increase to 46.8% from the current level of 33.9%. We have factored in the same in our estimates for FY10. Further, the company has clarified that it is looking forward to expand its retail and brands business and at the same time trying to manage the challenge in its core fabrics and garments business against the backdrop of rising rupee. It thus evinced the requirement of funds for the growth of the business as well as a need to augment the net worth. We have accordingly assumed that the additional capital will be invested in the brand and retail businesses.

The garmenting business, which has been the second largest revenue generator for Arvind Mills following denim, after the initial hiccups in the scale-up phase, has started showing signs of placid growth. This is notwithstanding the fact that the company continues to face some pricing pressure in this segment. However, with new capacities coming on stream in phases, the company is deriving the benefits of scale. Arvind Mills is targeting a capacity of 12 m pieces in the garment business by 9mFY08 (9 m pieces currently) and would follow that up with an addition of 50% of the capacity over the next 3 fiscals.

The own brands business of Arvind Mills has suffered recently due to supply chain issues and not being able to achieve the correct price value equation. The company has decided to run down the current inventory in the system before re-launching the brands with better price value equation and new brand image. It is also investing in new stores for its own brands. The same is expected to improve volumes and margins going forward.

View our revised estimates for the company.

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