Arvind Mills to shift Mauritius unit to India

With the textile industry gearing up for the quota-free regime from January, Ahmedabad-based textile major Arvind Mills want to leave no stone unturned.

In the last couple of years Arvind Mills has initiated a capacity expansion plan, restructuring of debts, shifting of denim and garment manufacturing facilities from Mauritius to India, and setting up gas-based captive power plant and hiking of foreign institutional investors' investment in the company to 49 per cent.

"Arvind Mills believes that abolition of the quota system will be a turning point for the textile industry in India. The company has taken all steps to move up the value chain and supply garments to international customers. In the last two years the company has integrated all the product groups "" denim, shirtings and knits," said Jayesh Shah, director and chief financial officer, Arvind Mills.

The company has plans to set up a cotton trouser unit and a jeans plant in Bangalore. With this, it will double its production capacity to over 14.4 million pieces on a single-shift basis from 7.2 million pieces at present. The company is eyeing to increase garment production to over 28.8 million pieces on a double-shift in the next three years.

Its new facilities "" the 2.1 million piece per annum jeans unit and the 1.5 million pieces per annum Khakis unit at Bangalore "" are expected to be on stream by the end of fiscal 2005.

Arvind is also expanding its knits garment capacity in Ahmedabad to 4.2 million pieces per annum. "The company's near-term outlook is positive. The current indications on cotton prices are positive. The reduction in energy cost by way of shifting to natural gas will have a positive impact on our financials. The additional material from the capacity addition through debottlenecking would begin soon."

"The company is also positive on the garment volumes in the coming quarters. The demand situation is stable and with the supply side issues being addressed, the margins of the company are likely to improve," said Shah.

The company is also shifting its denim and garments manufacturing facilities from Mauritius to India.

Arvind, through its subsidiary companies, has eight million metre of denim manufacturing facility and two million piece of jeans plants at Mauritius. The total investment in the project is to the tune of Rs 40 crore. The company will augment its denim manufacturing capacity to 105 million metre in India after the Mauritius plant is shifted by December 2004.

Arvind Mills had set up Arvind Overseas (Mauritius) by taking over a defunct denim mill, Shape Fabrics, in 1994 and invested over a period to modernise the plant.

The preparations for accommodating the machinery in India are on schedule. The cost of transfer of the total plant is estimated to be around Rs 12 crore, including retrenchment of 510 employees and transfer of assets. The payback time for this expense is expected to be around a year on account of higher contribution in the Indian operations, particularly in view of the removal of quota.

"Over 50 per cent of the company's turnover of Rs 1,447 crore comes from exports and the company is eyeing to increase its exports substantially with the dismantle of the quota from January next year. The sourcing pattern of key customers have shifted to the Asian and African region and the company is already beginning to witness an increase in order bookings from these customers," said Shah.

Due to higher interest cost, the company registered a profit before tax of Rs 21 crore for the quarter ended September 30, 2004, as against Rs 24 crore for the quarter ended September 30, 2003, a drop of 12.5 per cent. The net margin also dropped from seven per cent of sales and operating income for the quarter ended September 30, 2003, to five per cent of sales and operating income for the quarter ended September 30, 2004.