Business Today

Arvind Mills: Wearing the right fit

Sanjay Lalbhai        Print Edition: Aug 5, 2012

Two hundred and forty million metres of cotton fabric, eight million pieces of garments, 10 international apparel brands, and Megamart, the value retail chain. All these are Arvind Ltd today. Arvind's financial performance over the last four years is the tale of a transformation. Since 2008, revenue has grown at a compound annual growth rate (CAGR) of 17 per cent to Rs 4,925 crore (in fiscal year 2012), earnings before interest, taxes, depreciation and amortisation (EBITDA) has grown at a CAGR of 15 per cent to Rs 602 crore.

THE CASE
Arvind had to overcome Rs 500 crore in losses and Rs 2,700 crore in debt
THE STRATEGY
Diversifed into new segments. Restructured some businesses. Monetised surplus land

This transformation is the result of a strategic roadmap we prepared four years ago. It visualised a four-pronged strategy: create a portfolio of diversified businesses, develop a strong business to consumer business model (B2C), expand the share of domestic revenue in the total pie, and achieve growth without using incremental debt.

In 1997, Arvind undertook a major expansion plan. We were setting up a Rs 1,000 crore complex in Gujarat. We borrowed money against the project but it took time to be commissioned and become profitable. There were overruns due to depreciation of the rupee, denim entering a downward cycle and flooding in the area where the complex was being built. This led to an accumulated loss of over Rs 500 crore. To turn Arvind profitable again, the debt of Rs 2,700 crore was restructured. The key learning from this experience was to not leverage the balance sheet. If things no one can plan for happen suddenly, there will be financial problems.

What also contributed to Arvind's return to profitability was that denim had started to come out of its downward cycle. Denim has been the largest business for us for years. It is a lucrative business, but cyclical in nature. As a part of the de-risking strategy, we decided to grow non-denim businesses. We restructured our shirting fabric, khaki fabric and knits business.

Although textile earns higher margins, it is also a capital intensive business. The brands and retail business offers high growth, but relatively low margins. It also requires lower capital. We decided in future, the brands and retail business would be a major growth driver. Here we again adopted a four-pronged strategy: launch new brands to fill market segment opportunities, expand distribution reach, extend successful brands to newer categories and rapidly roll out the Megamart hub-and-spoke model. Thus, the brands and retail business has been growing at a CAGR of 25 per cent since 2008. We also have a strong portfolio of international brands, including Arrow, US Polo, Izod, GANTT, Tommy Hilfiger, and Elle.

We also created a B2C vertical, Arvind Stores, to retail fabrics in India. Today, the share of B2C sales is almost 40 per cent against less than 20 per cent four years ago. Monetisation of surplus land helped in reducing our financial leverage. So far, we have realised cash flows of Rs 255 crore.

Today, Arvind is well poised to seize the huge opportunities before the Indian textile industry.

The author is Chairman and Managing Director, Arvind Ltd


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