The management expects its retail business to contribute 50 per cent to the company’s total turnover by 2012 from current 7-8 per cent. It expects the turnover to touch around Rs 4,000 crore in as many four years.
The company’s denim volumes have dropped 22 per cent year-on-year (yoy) to 16.2 million metres – lowest in the past several quarters. Ebitda margins dropped 560bp to a record low of 11.5 per cent due to 20 per cent annual rise in cotton costs and higher power costs due to expiry of the gas contract.
It owned close to 857 acres of real estate and 70 acres of leasehold land in the country, part of which is believed to be developed for retailing. Apart from this, it holds close to 5,863 sq meters (63,039 sq ft) of residential and office space across India. Arvind has 14 brands in its portfolio, including Arrow, Gant US Polo, Lee, Wrangler, Nautica and Tommy Hilfiger (all international brands). Its own brands are Ruf & Tuf, Flying Machine and Excalibur.
K E Venkatachalapathy, business head (Mega Mart), said: “We want to open 30-35 large-format stores in the next four years and some 50 per cent of the total Arvind’ revenues would come from retail.” He said the company will invest about Rs100 crore in retail and around Rs25 crore in brands in the next fiscal.
Meanwhile, the company plans to expand its garment capacities to 42 million pieces by fiscal 2009 from its 14 million pieces garment capacity. It expects garment operations to account for Rs1,000 crore by fiscal 2009-end.
Research analyst Manish Sarawagi of DSP Merrill Lynch said in a note to clients on January 28 that Arvind’s denim performance is unlikely to improve near term due to overcapacity in the domestic market and a strong rupee impacting exports. Higher cotton prices and power cost are likely to keep margins subdued.
Experts say that outlook for denim remains weak and earnings will remain subdued on the back of continued pressure on sales and rising costs. The supply in the denim business continues and the situation is expected to get worse once more projects get commissioned.
Arvind’s principal business is to manufacture denim, shirting, knitted fabric, shirts and garments. It has managed to turn around its operations following a business restructuring exercise last year.
Meanwhile, Arvind Mills said it will invest nearly $100 million in a Bangladesh special industrial zone. It signed a deal to set up a high-end denim fabric manufacturing factory in Comilla export processing zone.
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