Aarvee Denims sees 11mn metre rise in capacity

Capacity expansion, debt reconstruction and improved thrust on exports are some of the steps taken by Ahmedabad-based Aarvee Denims and Export Limited (ADEL) to meet the challenges in the post-quota regime of the World Trade Organisation (WTO).

ADEL's capacity expansion plan, which was launched in August, will lift its denim manufacturing volume by 11 million metre from 35 million metre, which includes partial weaving outsourcing.

The expansion plan will cost about Rs 30 crore and the commercial production on the expanded capacity will begin in April 2005. The project is funded through internal accruals.

"We have enhanced our production capacity, restructured high cost debts, and plan to double exports and turnover in the next few years," said Shreyas Parikh, financial controller and company secretary, ADEL.

The company, which prepaid all its high cost borrowings, has long-term debt of Rs 14 crore. This is at an average cost of around seven per cent per annum.

The company has repaid its borrowings to ICICI Bank, which was taken at over 17 per cent. It had also borrowed from Bank of Baroda at 5.5 per cent. The company will save over Rs 2.5 crore through the restructuring of debts.

ADEL has also repaid the high cost borrowings taken from the Gujarat State Financial Corporation. The impact of the debt restructuring will be reflected in fiscal 2004-2005, when the interest cost of the company is expected to go down substantially.

The company targets to close the current financial year with a turnover of over Rs 225 crore. With the expansion hike in April 2005, the company expects to achieve a turnover of around Rs 320 crore in next fiscal.

The company produces a range of denim fabrics. At present around 30 per cent of the company's revenue is generated through exports. Exports revenue in the coming years may go up to over 50 per cent.

The company at present exports to countries such as Panama, Honduras, Guatemala, Chile and Turkey, Venezuela, Mexico, Morocco, France, US and Bangladesh.

Its export in fiscal 2003-2004 was Rs 40 crore. The company eyes to double its export to over Rs 80 crore in fiscal 2005-2006. Exports for the current financial year is expected to be over Rs 56 crore.

The company had posted a net profit of Rs 14.06 crore in financial year 2003-2004 as compared with Rs 12.39 crore in the previous year. It had also declared a dividend of 10 per cent for 2003-2004.

The company has two manufacturing plants. Its spinning plant is located near Bavla and the weaving and processing unit is located at Narol.

The company has an installed weaving capacity of 20 million metre at its Narol plant and a spinning capacity of over 17,000 metric tonne at the Bavla plant.

Apart from utilising the optimum capacity of both these plants, the company receives 10 million metre of weaving job on contract. Both the plants are operating at optimum capacity.

"Cost of power is the highest in Gujarat, which needs to be brought down immediately to enable us to be more competitive in the international market," said Parikh.