Arvind Mills likely to report higher growth

Arvind Mills need no introduction. For all of us are familiar with the image of a tough looking man in cowboy's clothes and hat set at a jaunty angle so that the eyes are not visible at all leaping at us out of all the old magazines and the legend Arvind Mills emblazoned at the bottom of the page.

The company has of course come a long way since this old ad, with Newport and Excalibur being its new brand ambassadors, but the fact that Arvind Mills is the largest manufacturer of shirt material in India and they are the world leaders in denim production has still not changed.

While the firm's fortunes took a little dip a few years ago, they are looking up again, with debt restructuring on its side and an improvement in the business environment.

Also, denim prices have shot up while cotton prices have taken a severe beating. And this is not all, with the quota regime set to be done away with in 2004, Arvind Mills is set to reap good dividends from value-added garment business.

The denim business is very buoyant with price realisation having improved over the last year. Operating at maximum capacity, the buoyancy is likely to continue for at least two years.

In the shirt business, productivity has improved. Order flow, which was hit on account of the question mark on its survival, has also improved.

Capacities for denim and shirting were booked till December 2001. Over the past two years, Arvind Mills has received accreditation from large buyers such as Marks & Spencer, Tommy Hilfiger, Gap, Nike, Reebok, Banana Republic, Levi's, Lee and Wrangler, amongst others. These brands typically buy 30 per cent of its denim production.

Arvind Mills also spent the last two years improving the value of its brands. Total ad-spend of Arvind Mills and its subsidiaries is about Rs300 million. Its brands - Newport, Flying Machine, Excalibur and Ruff and Tuff, have become quite popular as these have been active in 1200 multi-brand stores. It has a large number of exclusive stores to promote its brands.

Customers like Gap, Levi's Tommy, etc are asking Arvind Mills to supply garments. India is among the most cost-effective sources for garment packages.

For Arvind Mills, contribution per metre is 250 per cent higher if it sells garments instead of fabric. It intends to make 5 million shirts (40 per cent of shirting capacity), 5 million knitted garments (50 per cent of denim capacity). This is expected to earn an additional Rs750 million for the company.

While KSA Technopak's projections, on which Arvind Mills's debt recast was based, expect it to be in losses till 2004, the improved business scenario has made it possible for the company to move into the black from the current financial year.

Arvind Mills is expected to report net profits of Rs250 million and Rs730 million in 2003 and 2004 respectively at current prices. In view of the turnaround, the company could be expected to achieve higher growth. A good medium term bet.

R. Dyes is a journalist based in New Delhi.