Arvind plans 2 bln rupee textiles expansion
today Jun 21, 2010
Textiles maker Arvind Ltd will spend about 2 billion rupees in FY11 to raise textile capacity in denims and shirting.
"We would be adding about 10 percent in capacity both in denim and shirting fabrics. Shirting would be slightly higher," Chief Financial Officer Jayesh Shah told Reuters in an interview.
The capex would be funded mostly through internal accruals.
Ahmedabad-based Arvind, the third largest maker of denim globally, counts Levi Strauss, Gap Inc and VF Corp as clients.
The firm is expecting a growth of at least 15 percent in consolidated sales helped by a robust brand and retail business, Shah said.
It had reported a consolidated revenue of 32.8 billion rupees for the year ended March 31, a 19 percent rise over the previous fiscal.
"Demand is looking good. Our brand and retail business is growing at a significantly higher pace than the textile business right now," Shah said.
"We think this will grow at 30-35 percent this year."
The company's brand and retail business contributed about 17 percent in FY10. Shah expects the contribution from this business to rise to 21 percent in FY11.
Arvind's profit margins, like many of its peers, will be under pressure due to rising input costs, particularly of cotton, the main raw material for the industry.
"There is one negative that the textile industry is facing, the cotton and yarn prices," he said.
Cotton prices have risen about 10 percent since May 21 when India allowed exports of cotton after a one-month halt. Cotton prices are upto 34 percent higher than those prevailing previous year, prompting textile firms to increase product prices.
"To the extent possible every textile company is trying to pass on the cost push. Through the value chain..all of us are going to take some hit in margins. I don't think customers are going to pay more," Shah said.
Arvind had reported a consolidated net profit of about 500 million rupees in FY10 compared with a net loss of 994 million rupees a year ago.
Shah expects profits to continue growing this fiscal as higher sales and price increases partially offset the impact of raw material costs.
The firm is also planning to unlock value by developing a part of its 1,000-acre land bank situated in and around Ahmedabad.
"We are looking at how best to use this to realise the maximum value. One of the thought process would be to develop some of it, to create higher valuation," Shah said.
Many major textile firms are tapping into realty to diversify and grow its revenues.
Bombay Dyeing & Manufacturing, Century Textiles & Industries, Provogue India and Alok Industries are some of the other firms intent on developing or selling valuable land parcels to boost cash flow and cut debt.
Shares in Arvind were trading down 0.78 percent at 31.75 rupees in a weak Mumbai market.
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