Weaving a successful diversification strategy

Two years back, the textiles industry thought Arvind Mills (AML) will not be able to recover from the burden of its huge debts and will die a natural death like many other textile mills in the country, specially in Gujarat. However, Sanjay Lalbhai, the managing director of the company, thought otherwise.

With the help of a young team and using the right management system, Arvind Mills has not only settled its liabilities but has also reported an impressive profit.

The key to the turnaround has been the decision to join other segments of the textile industry, rather being confined to the world of denim fabrics.

The debt restructuring programme of the company has been one of the most complex exercises undertaken by any Indian corporate. Arvind Mills has reduced the debt by around Rs 1350 crore over the last two years, bringing its debt equity ratio from 4:1 to less than 1.5:1 by end of FY03.

During the current year, Arvind Mills has reduced the debt by another Rs 117 crore.

The company reported its highest-ever operating profit, cash accrual and net profit for the year ended March 2003. Sales were at Rs 1,491 crore, operating profit Rs 418 crore, cash accruals Rs 277 crore and net profit stood at Rs 129 crore.

The company's strategy of enriching its product and client mix for its denim fabrics and optimising operations of the shirting business has paid rich dividends.

Seeing the growth in consumption of denim fabrics in the last two years due to the resurgence in the fashion world and the emergence of new women's and children's segments, Arvind refocussed on this segment.

Arvind Mills is the only company having noticeable presence in all continents. Today the company's exports account for 52 per cent of its turnover. For the first half ended September 2003, sales were at Rs 740 crore and profit before tax was at Rs 52 crore.

On the development in his company and future prospects for Arvind, Lalbhai, said: "The abolition of quota with effect from December 31, 2004 will be a turning point for the textile industry in general and Arvind Mills in particular. The opportunity throws a challenge for the industry to become among the most competitive in the world. Having established itself as a quality supplier of fabrics to leading brands of the world, Arvind is planning to move up the value chain and supply garments to international customers. To this effect, the company has already initiated steps to integrate vertically in all garment segments like denim, shirtings and knits."

During the current year, Arvind reworked its strategy in shirtings, one of the fast growing segment in the industry. It is now the largest domestic player in shirtings.

Having worked towards enhancing the capacity utilisation to 100 per cent in the last two years, the company is replicating its denim division strategy of differentiating the product mix and enhancing the client base in the shirtings business.

"This strategy has resulted in a growth in business development volumes from international clients like Marks & Spencer, Banana Republic, Liz Caiborne, Ann Taylor, The Gap, Zara etc. As a forward integration exercise, the company established its shirts manufacturing facility at Bangalore with a capacity of 2.4 million pieces per annum," said a company official.

In addition to its stress on shirtings, in knits, the company has been supplying to major sports labels like Nike, Reebok, Fila, GAP, Old Navy, Capital Mercury etc. besides to most of the domestic premium brands like Wills, Colour Plus, Madura, Parks etc.

The potential for knits apparel category is said to grow by at least 5 per cent in future.