Arvind Mills – a Turnaround Story

Topics: Arvind Mills, Debt, Brand Pages: 7 (2024 words) Published: March 9, 2011
Arvind Mills – A turnaround story

When the World Trade Organisation removed the quota restrictions on countries exporting garments on January 1, 2005 it opened up a new era for the Indian textile industry, thereby ending forty long years of protectionism by the developed countries. It is estimated that approximately 47% of the restricted markets will be opened up for free trade. Hence it is good news for companies in the textile sector like Arvind Mills which is considered to be the largest textile exporter in India (51% of its revenues) and the fourth largest denim manufacturer in the world. But all was not well with Arvind Mills and it had to really fight its way back to success.

The Background
During the Swadeshi Movement where foreign made fabrics were being boycotted three brothers from Gujrat, Kasturbhai, Narottambhai and Chimanbhai sensed an opportunity for Indian made fabrics and decided to set up a mill to produce super fine fabrics and a company called Arvind Mills was born in 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. 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. Until 1987, like any other textile company, Arvind Mills had a presence only in conventional products like sarees, suiting, low value shirting, and dress materials. Realizing the bleak growth prospects for textiles in general, Arvind Mills identified denim as a niche area and set up India's first denim manufacturing unit in 1986 at Naroda Road, Ahmedabad.

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 its new strategy - Renovision. 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. People the world over were shifting from synthetic to natural fabrics. Cottons were the largest growing segments. Thus in 1987-88 Arvind entered the export market for two sections- Denim for leisure and fashion wear and high quality fabric for cotton shirting’s and trousers. However, in the late 1990s, due to global as well as domestic overcapacity in denim and the shift in fashion from denim to non denims like corduroy, the denim prices crashed and Arvind Mills was hit hard. The expansion had been financed mostly by loans from domestic and overseas institutional lenders and as the business continued to decline. Arvind Mills defaulted on interest payments on every loan, and its debt burden kept on increasing. In 2000, the company had a total debt of Rs. 27 billion, of which 9.29 billion was owed to overseas lenders.Arvind Mills, once the darling of the bourses was in deep trouble. Its share price was hovering between a 52 week high of Rs 20 and low of Rs 9 (in the mid 1990s, the share price was closer to Rs 150). Leading financial analysts no longer tracked the Arvind Mills scrip. The company's credit rating had also come down. CRISIL downgraded it to "default" in October 2000 from "highest safety" in 1997. The Journey from Red to Black

As of March 2000, Arvind Mills’s debt-equity ratio had reached 2.41 and by September 2001 Arvind Mills had recorded a net loss of Rs 5 bn for the previous eighteen months. The stock had...
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