Arvind mills

Presented by

Manish Kumar

Manish Rajpurohit
 Type Public (NSE, BSE)
Founded 1931
Headquarters Ahmadabad
Sanjay Lalbhai (CEO &MD)
Key people
Arvind N. Lalbhai
Industry Textiles
Products Denim, Knits, Khakhis
Revenue Rs 20 billion

Website http://www.arvindmills.com/
Concept
The Textile industry (also known in the United Kingdom and Australia
as the Rag Trade) is a term used for industries primarily concerned with the
design or manufacture of clothing as well as the distribution and use of textiles

Before the manufacturing processes were mechanized, textiles were

produced in the home, and excess sold for extra money. Most cloth was made from
either wool, cotton, or flax, depending on the era and location. For example,
during the late mediaeval period, cotton became known as an imported fibre in
northern EuropeThe key British industry at the beginning of the 18th century was
the production of textiles made with wool from the large sheep-farming areas in
the Midlands and across the country (created as a result of land-clearance and
inclosure). Handlooms and spinning wheels were the tools of the trade of the
weavers in their cottages, and this was a labor-intensive activity providing
employment throughout Britain, with major centres being the West Country;
Norwich and environs; and the West Riding of Yorkshire.

Sector Synopsis
With a total market size (2004-05) of US$ 38 billion, the textiles domestic market
comprises US$ 25 billion and exports US$ 13 billion.

The Indian textiles sector has a strong contribution to the Economy

• 14 per cent contribution to industrial production

• 4 per cent contribution to GDP
• 16 per cent contribution to export earnings
• Direct employment to more than 35 million people

The textile industry functions in the form of clusters (roughly 70 in number) across
India, producing 80 per cent of the country’s total textile

It is diverse, with the hand-spun and hand woven sector at one end of the spectrum,
and the capital intensive, sophisticated mill sector at the other.

Major Industrial contribution

Textiles
The Indian textile industry covers a wide gamut of activities. Its production ranges
from raw materials such as cotton, jute, silk and wool to a high value-added
products like fabrics and garments to consumers. The industry make use of
different varieties of fibres, be it natural fibres, man made fibres or blends of such
fibres.

In Indian economy, the textile industry plays a significant role. It provides direct
employment to approximately 35 million people and contributes 4 per cent of
GDP. It fetches 35 per cent of gross export earnings and contributes 14 per cent of
the value-addition in the manufacturing sector.In textile sector,there are various
industries which contributes in the Indian economy in which main industries are:
 Large industry conglomerate, with turnover of USD 279 million and
presence in textiles, retail, engineering goods, personal care and
prophylactics

 Textile products - worsted fabrics, wool and blended fabrics, specialty ring
colour and stretch denim fabric, cotton and linen shirting fabric, readymade
garments, woolen blankets and home furnishings

 One of the oldest textile companies in the country, having turnover of USD
231 million

 Produces suitings, shirtings, sarees, towels, bed linen and men’s apparel;
significant exporter of polycotton blended fabrics and made ups

 One of the largest textile business houses in India, having turnover of USD
400 million

 Significant presence in acrylic fibre, cotton, synthetic and blended spun

yarns, grey and processed fabrics, cotton and synthetic sewing threads

 India’s largest exporter of readymade garments, having turnover of USD 180

million

 Supplies to more than 100 retailers and fashion brands across 39 countries
 Belongs to one of the most diversified business groups in India (Aditya Birla
Group) and has turnover of USD 577 million)

 Key products in textiles include viscose filament yarn and branded apparel;
other interests include insurance, telecom, IT, carbon black

 Leading producer of silk yarns and fabric (mainly for decorative and bridal
use), with annual turnover of USD 32 million

 Other businesses include retailing of home furnishings in India and

manufacture of bed linen products for domestic and export market

 Amongst the top 3 terry towel producers in the world, with annual turnover
of USD 132 million

 Other products include cotton yarns, polyester filament yarn, bathrobes,

buttons and saw pipes

 Has the largest composite textile mill in India for producing cotton fabric
  Having a turnover of USD 95 million, its products include viscose filament
yarn, viscose tyre/ industrial yarn, denim, cement and pulp and paper

 Having turnover of USD 303 million, company is a major producer of

polyester yarns, fabrics, garments and textiles

Outlets in the country

Arvind also owns and operates India’s largest 70 outlet strong value retail chain
‘Megamart’. The branded apparel and retail business of the company has returned
yet another quarter of solid performance. Sales grew by 40% and the EBIDTA has
grown by 187% during the current quarter. The company added another 50 doors
during the current quarter. The first MegaMart Outlet Centre, the company’s value
apparel retail store measuring about 40,000 square feet was opened to public in
Chennai on the 23rd January 2008.

Present and future

Indian Textile Industry
The Indian Textile Industry is growing at 20% and accounts for 4% of India’s
GDP. It
contributes 14% to the Industrial Production and employs about 35 million people.
It
accounts for 21% of India Gross Export Earning. Foreign Direct Investments
inflows
worth €681.59 million have been received by the industry between Aug 91 and
May 06,
accounting for 1.29% of total FDI inflows in the country.

Position of the Indian Textile Industry in the World Textile Economy

India contributes 20% to world spindleage capacity, the second highest spindleage
in the
world after China. It contributes 6% to the world rotorage and 62% to the world
loomage. However in High-tech Shuttless Looms this industry’s contribution is
only
4.1% to the world Shuttless loomage. 12% to the world production of textile fibres
and
yarns is from India and is the largest producer of Jute, second largest producer of
silk
and cellulose fibre / yarn, third largest producer of cotton and fifth largest producer
of
synthetic fibres / yarns.
India’s key assets include a large and low-cost labour force, sizable supply of
fabric,
sufficiency in raw material and spinning capacities. On the basis of these strengths,
India
will become a major outsourcing hub for foreign manufacturers and retailers, with
composite mills and large integrated firms being their preferred partners. It will
thus be
essential for SMEs to align with these firms, that can ensure a market for their
products
and new orders.
India's textile sector is the second largest industry after agriculture. It
provides employment to about 35 million people. The country's current share in the
world textile trade is only 4%, according to the study done by the World Trade
Organisation. The Indian government says that it can reach to 8% share by 2010.

India is one of the leading producer of cotton, goatskin and cashmere wool. It
ranks top in goatskin and third in cotton after China and United States. The fabric
industry in India accounts for about 20% of total exports of the country and
represent the largest net foreign exchange earner

Company Profile

History

1930 was a year the world suffered a traumatic depression.

Companies across the globe began closing down. In UK and in India
the textile industry in particular was in trouble. At about this time,
Mahatma Gandhi championed the Swadeshi Movement and at his call,
people from all India began boycotting fine and superfine fabrics,
which had so far been imported from England. In the midst of this
depression one family saw opportunity. The Lalbhais reasoned that
the demand for fine and superfine fabrics still existed. And any Indian
company that met this demand would surely prosper. The three
brothers, Kasturbhai, Narottambhai and Chimanbhai decided to put up
a mill to produce this superfine fabric. Next they looked around for
state-of-the-art machinery that could produce such high quality fabric.
Their search ended in England. The best technology of that time was
acquired at a most attractive price. And a company called Arvind mils
was born

Arvind Mills started with a share capital of Rs 2,525,000 ($55,000) in

the year 1931. With the aim of manufacturing the high-end superfine
fabrics Arvind invested in very sophisticated technology. With 52,560
ring spindles, 2552 doubling spindles and 1122 looms it was one of
the few companies in those days to start along with spinning and
weaving facilities in addition to full-fledged facilities for dyeing,
bleaching, finishing and mercerizing. The sales in the year 1934, three
years after establishment were Rs 45.76 lakhs and profits were Rs
2.82 lakhs. Steadily producing high quality fabrics, year after year,
Arvind took its place amongst the foremost textile units in the
country.

In the mid 1980’s the textile industry faced another major crisis. With
the power loom churning out vast quantities of inexpensive fabric,
many large composite mills lost their markets, and were on the verge
of closure. Yet that period saw Arvind at its highest level of
profitability. There could be no better time, concluded the
Management, for a rethink on strategy. The Arvind management
coined a new word for it new strategy – Renovation. It simply meant a
new way of looking at issues, of seeing more than the obvious and
that became the corporate philosophy. The national focus paved way
for international focus and Arvind’s markets shifted from domestic to
global, a market that expected and accepted only quality goods. An in-
depth analysis of the world textile market proved an eye opener.
People the world over were shifting from synthetic to natural fabrics.
Cottons were the largest growing segments. But where conventional
wisdom pointed to popular priced segments, Renovation pointed to
high quality premium niches. Thus in 1987-88 Arvind entered the
export market for two sections. Denim for leisure and fashion wear.
And high quality fabric for cotton shirtings and trousers. By 1991
Arvind reached 1600 million meters of Denim per year and it was the
third largest producer of denim in the world.

In 1997 Arvind set up a state-of-the-art shirting, gabardine and knits

facility, the largest of its kind in India, at Santej. With Arvind’s
concern for environment a most modern affluent treatment facility
with zero affluent discharge capability was also established.

Year 2005 is a watershed year for textiles. With the mulitifiber

agreement getting phased out and the disbanding of quotas,
international textile trade is poised for a quantum leap. In the domestic
market too, the rationalizing of the cenvat chain and the growth of the
organized retail industry is likely to make textiles and apparel see an
explosive growth.

Arvind has carved out an aggressive strategy to verticalize its current

operations by setting up world-scale garmenting facilities and offering
a one-stop shop service, of offering garment packages, to its
international and domestic customers.
 With the Indian economy poised for rapid growth, Arvind brands with
its international licenses of Lee, Wrangler, Arrow and Tommy
Hilfiger and its own domestic brands of Flying Machine, Newport,
Excalibur and Ruf & Tuf, is setting it’s vision on becoming the largest
apparel brands company in India.

Board of Directors

CHAIRMAN AND MANAGING DIRECTOR

Mr. Sanjay S. Lalbhai

He is a Chairman and Managing Director of the Company. He is a Science Graduate

with a Master’s degree in Business Management. He has been associated with the
Company for more than 28 years. He also holds directorships in Arvind Spinning
Ltd., Mauritius, Amol Decalite Limited, Mahindra Gujarat Tractor Limited, Torrent
Pharmaceuticals Limited, Arvind Worldwide Inc.,USA, Arvind Worldwide (M) Inc.
and Arvind Overseas (M) Ltd.

DIRECTOR AND CHIEF FINANCIAL OFFICER

Mr. Jayesh K. Shah

He is a Wholetime Director with designation of Director and Chief Financial Officer

of the Company. He is a Commerce Graduate and Chartered Accountant and has
been with the company for more than 22 years. He has a distinguished academic
career and extensive administrative, financial, regulatory and managerial expertise.
He also holds directorships in various companies.

OTHER DIRECTORS
 Mr. S. R. Rao (Nominee of EXIM Bank)

He is a Nominee Director of EXIM Bank. He is a graduate from The Indian Institute

Of Technology, Bombay. He is the Chief General Manager of EXIM Bank of India.
He is also on the Board of Global Procurement Consultants Ltd., Global Trade
Finance Ltd., and Nagarjuna Oil Corporation Ltd.

Mr. K.M. Jayarao (Nominee of ICICI Bank)

He is a Nominee Director of ICICI Bank Ltd. He is a B.E. (Mechanical) and a

Senior General Manager of ICICI Bank Ltd. He is also on the Board of Ispat
Industries Ltd., Nagarjuna Fertilizers and Chemicals Ltd., Share Microfin Ltd., and
Aban Loyd Chiles offshore Ltd.

Mr. Sudhir Mehta

He is a Non-executive and Independent Director of the Company. He is a Science
Graduate from Gujarat University He was instrumental in the growth and progress
of Torrent Pharmaceuticals Ltd. the flagship Company of the Torrent Group. He
systematically expanded the power business of Torrent Group by acquiring
significant stakes in the Torrent Power AEC Ltd. and Torrent Power SEC Ltd. and
Torrent Power Generation Limited now merged with Torrent Power Limited and
one among the few successful independent power projects in India. He has managed
strategic alliance with leading international giants from U.K., Germany, France and
USA. He is an Executive Chairman of Torrent Power Limited, Chairman of Torrent
Pharmaceuticals Limited and Torrent Private Limited and a Director of The Torrent
Power Transmission Private Ltd.

Mr. Tarun Seth

He is a Non-executive and Independent Director of the Company. He has a master’s
degree in Arts (Sociology) from M.S University and ITP Harvard Business School,
USA. He is a Management Consultant. He was a President of Bombay Management
Association and a member of professional bodies like Indian Society for Applied
Behavioral Science, Indian Society for Training and Development and Bombay
Management Association. He is on Board of various Companies. He is a former
faculty member of Motorola University and has trained Motoral managers in the
US, Europe, Australia, China, Taiwan, Singapore and India. He is an independent
and a non-executive Director of the Company.

Mr. Munesh Khanna

He is a Non-executive and Independent Director of the Company. He is a Chartered

Accountant from Institute of Chartered Accountants of India. He has 21 years of
experience in Investment Banking from across the Industrial spectrum in India in
the areas of M&A, Financial Restructuring and Resource Raising. In addition, he
has also an extensive experience in the Energy, Utilities and Telecom sectors.

Prior to joining Halcyon Resources & Management Consulting Private Limited, he

was the Managing Director and Head of Investment Banking in DSP Merrill Lynch.
Prior to this he was the Country Head and Managing Director of Rothschild India
and Partner- Country Head of Arthur Andersen Corporate Finance. He has advised
Indian Lenders on the Restructuring of the Dabhol Power Project and LNG facility
for a total value of US$ 1.9 billion. AXA on its joint venture with Bharati Group,
Air Deccan on raising funds US$ 40m through Private Equity and IPO and many
other significant transactions.

He is a member of the Young President Organisation (YPO). He was also a Member

of CII and a member of the Executive Committee of Federation of Indian Chambers
of Commerce and Industry ('FICCI') and Co - Chairman of the Finance & Capital
Market committee of FICCI.

Mr. G.M.Yadwadkar (Nominee of IDBI)

He is a Nominee Director of IDBI. He is a General Manager of IDBI, Ahmadabad.

He is also on the board of Ecoboard Inds. Ltd. Pune, SJK Steel Plant Ltd.,
Hyderabad, Gujarat Alkalies & Chemicals Ltd., Vadodara and Gujarat Industrial
and Technical Consultancy Organization Ltd.
Product Offering
 Fabric
 Denim
 Shirting
 Khakis
 Knitwear
 Voiles
 Garment
 Shirts
 Jeans
 Arvind Brands (owned)
 Flying Machine
 Newport
 Ruf & Tuf
 Excalibur
 Arvind Brands (licensed)
 Arrow
 Lee
 Wrangler
 Tommy Hilfiger

Financial performance: Over the years

 In the past, the company faced financial difficulties due to a downslide in

denim markets and heavy depreciation charges as new projects were
commissioned at Santej. Also, these projects were largely financed by high
cost debt, which resulted in a huge interest cost burden severely affecting its
profitability. The same has been reflected in the FY00 and FY01 results (see
table below). It underwent a restructuring exercise in FY02 which was
approved by a majority of the lenders and which saw the interest costs
reduce by nearly 50% in 1QFY02 itself.
 The company bounced back in FY03. It reported its highest ever operating
profit at Rs 4.3 bn, signifying a CAGR of 108% since FY00. Increased
proportion of value added fabrics in Denim and resurgence of demand
 globally resulted in higher price realizations contributing 63% of the total
revenue.
 However, it could not sustain its stellar performance of FY03 in FY04
largely on account of rising raw material costs (cost of cotton having
increased by 11%), high power and fuel costs (cost of naphtha by 5%).
Operating margins clocked a negative 15% growth YoY and bottom-line
dipped by 25% YoY. Exports revenue, which contributed 49% of the total
revenues, was adversely affected by exchange rate fluctuations, which saw a
significant appreciation in the rupee. The company has recently switched
over to natural gas from the relatively expensive naphtha for captive power
consumption. The benefits of this are expected to accrue from 4QFY05
onwards.

 How the numbers stack up…

(Rs m) FY00 FY01 FY02 FY03 FY04 CAGR 9m FY05
(18m) (6m) since
FY00
Net Sales 11,838 18,541 6,969 14,792 14,353 3.9% 12,339
Expenditure 11,374 16,749 5,596 10,612 10,830 -1.0% 9,570
Operating 464 1,792 1,373 4,180 3,523 50.0% 2,795
Profit
(EBIDT)
Operating 3.9% 9.7% 19.7% 28.3% 24.5% 22.7%
Profit
Margin(%)
Other Income 288 209 145 123 126 15.2% 26
Interest 2,643 4,798 594 1,528 1,133 15.6% 862
Depreciation 1,652 2,219 740 1,481 1,503 -1.9% 1,109
Profit before (3,543) (5,016) 184 1,294 1,013 824
Tax
Extraordinary 442 - - - - 0
item
Tax - - 46 80
Profit after (3,101) (5,016) 20 1,294 967 745
tax/(loss)
Net Profit -26.2% -27.1% 0.3% 8.7% 6.7% 6.0%
Margin(%)

Looking ahead…

At the current price level of Rs 119, the stock trades at a P/E multiple 23.4 times
annualized 9mFY05 earnings.

The abolition of the quota system from the start of this year promises to be very
challenging for the Indian textiles and apparel industry. The industry is projected to
achieve a size of US$ 85 bn by the year 2010 with exports of US$ 40 bn. However,
this is easier said than done, as Indian textiles have to compete with lower costing
products from China, Sri Lanka, Bangladesh and even Pakistan.

Going forward, Arvind Mills with its vertically integrated set-up is poised to
capitalize on the immense opportunities available for export growth post the quota
system and has already undertaken steps to increase its production capacity.
However, an appreciating rupee albeit at a slower pace, volatile cotton prices and
cyclical nature of denim which has assumed the nature of a commodity are the
downside factors to be considered.

Company Strategies
The company's poor financial health in the late 1990s. In the mid
1990s, Arvind Mills' undertook a massive expansion of its denim capacity in spite
of the fact that other cotton fabrics were slowly replacing the demand for denim.
The expansion plan was funded by loans from both Indian and overseas financial
institutions. With the demand for denim slowing down, Arvind Mills found it
difficult to repay the loans, and thus the interest burden on the loans shot up. In the
late 1990s, Arvind Mills ran into deep financial problems because of its debt
burden. As a result, it incurred huge losses in the late 1990s. The case also
discusses in detail the Arvind Mills debt-restructuring plan for the long-term debts
being taken up in February 2001.
 Arvind Mills’ strategy and Programmes for its “Corporate Social
Responsibility”

Mr Sanjay Lalbhai, Arvind Mills’ Managing Director has laid the foundation of the
company’s approach for its “Corporate Social Responsibility.” The organisations
that the company has created for carrying out the programmes for its “Corporate
Social Responsibility”, build their programmes on this foundation. The SHARDA
Trust, and the Narottam Lalbhai Rural Development Fund (NLRDF) are the
company’s two arms for carrying out the Programmes for its “Corporate Social
Responsibility.” Therefore, to appreciate the Programmes of these two
organisations, it is essential to grasp the foundation of these Programmes.

Arvind Mills’ Foundation for its approach to “Corporate Social

Responsibility”

Corporate Social Responsibility (CSR) is the latest buzzword in India today.

Almost everyone is charging the Indian corporations to be alive to their ‘Social
Responsibility’. But more the noise, less the clarity might be the reality.

We in the Lalbhai Group make a sharp distinction between a corporation being

‘Socially Responsible’ and a corporation undertaking ‘Social Responsibility’. By a
corporation being ‘socially responsible’, we mean that the corporation must
conduct its operations in a socially acceptable way—in ways that honour ethical
values and stakeholders’ concerns, and not merely stockholders’ interests. Its
financial statements should be truthful and it must operate within the law and
accepted norms of the society. In other words it must be a ‘good citizen.’ But when
we say that a corporation is undertaking ‘Social Responsibility’, we mean that the
corporation, besides being a 'good citizen’, is also addressing societal issues on its
own volition. We believe that a corporation’s being a ‘good citizen’ is a
prerequisite for its undertaking ‘Social Responsibility’. ‘CSR’ goes much beyond
‘good citizenship’.

This view of ‘CSR’ is based on our conviction that corporations and society are
interdependent. Though distinct, they are not mutually exclusive. They exist
together and function together. Social issues affect corporations and the
corporations’ actions in turn affect the society.

Obviously, no corporation can address all the societal issues. It has to make a
choice about the societal issues it would address; still more important is the
decision about the issues to be left for other organisations to resolve. How should a
corporation make its choice? A good criterion for doing so, is what Professor
Michael Porter calls the ‘shared value’. This suggests that a corporation should
address only those societal issues that would create benefit for the society and the
corporation both.

Once we accept the view that corporations and the society must exist together and
work together, the debate whether corporations should accept ‘Social
Responsibility’ becomes futile. Social Responsibility then gets integrated with the
corporation’s total
functioning—results in what Professor Porter calls ‘corporate social integration’.
Translating ‘CSR’ into ‘corporate social integration’ would result in corporations
treating ‘CSR’ as an integral part of its strategy and stop treating it as an act of
philanthropy.

Arvind’s CSR programmes have been informed by these considerations.

1. SHARDA Trust’s Programmes

2. Trust’s first educational programme for skill upgrading in the financial

year
2006-07

3. Trust’s Programme for upgrading the education in the city’s municipal

schools.

4. Trust’s Programme for helping the urban poor, get secondary and
tertiary health care

5. Programmes of Narottam Lalbhai Rural Development Fund (NLRDF)

for helping the rural poor.

6. Vocational Programmes for rural poor.

7. Upgrading the infrastructure in a rural primary school.

 8. Helping the rural poor in improving the yields in their farms

Global existence

 Top 10 buyers in India (Gap, Wal-Mart, Li & Fung, The Children’s Place,
JC Penny, H&M, Federated, Fifth Avenue, Carrefour and Synergies India)
account for 35% of total textiles sourced from India
 Other major companies include El Corte, Ecko, Kellwood, VF Corporation,
Tesco, Next, Karstadt-Quelle
 VF Arvind Brands - joint venture between Arvind Brands and VF
Corporation to manufacture and sell latter’s brands in India

PHILOSOPHY

THEY BELIEVE
In people and their unlimited potential.
In content and focus in problem solving.
In teams for effective performance.
In intellect & its power.
THEY ENDEAVOUR
To select, train and coach people to obtain higher responsibilities.
To nurture talent to build leaders for tomorrow's corporation.
To reward, celebrate and activate all intellectual business contributions.

THEY DREAM
Of excellence in all endeavors.
Of mutual benefit and prosperity.
Of making the world a better place to live in.
We Make Things Happen

Achievements

 By 1991 Arvind reached 1600 million meters of Denim per year and it was
the third largest producer of denim in the world.

 Arvind took its place amongst the foremost textile units in the country.

 Asia’s first fabric manufacturing unit to receive an ISO 14001 certification