Financial And

Operational
Analysis of
Arvind LTD.

Group 7
1. Nupur Suri
2. Abhishek Praksash
3. Yash Nandkeolyar
4. Shubham Sharma
5. Gaurav Dhingra
6. Nami Patni

xecutive Summary
Textile Industry - A Snapshot

Arvind Ltd - Company Profile

Operational Analysis

Financial Analysis

Answers to stakeholders

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Textile Industry
The Indian textile industry is 13% of the global textile industry

According to FICCI, the industry is expected to grow at a CAGR of 8.7% to $223 billion by 2021

Indian Textile industry is about 110 billion, 70 billion is domestic and remaining 40 is from exports

The countrys geographic capabilities are well suited for cotton cultivation, which makes it the second largest
producer of cotton and largest in terms of area under cultivation

Organized apparel is expected to grow at a CAGR of 17% faster than unorganized market is expected to grow at
8%.

Branded apparel is expected to outpace industry growth and grow at a

CAGR of 22% in CY16-25

Share of branded garments of the organized apparel industry going up from 27% in CY16 to 50% in CY25

Textile Industry - A
Snapshot
Key indicators (BSE)

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

25-Aug-16

Closing price (Indian Rupee)

307.95

EPS (Indian Rupee)

12.09

P/E (times)

25.47

BV per share (Indian Rupee)

PB (times)

109.81
2.8

Mkt. cap (Rs. Million)

79,525.95

Beta

1.59

Returns 1 mth (%)

1.8

Returns 12 mth (%)

20.68

Excess ret. over Nifty (12 mths)(%)

10.4

Yield (%)

0.78

Avg. daily vol. (30 days)

(Rs. Million)

71.18

Key Personnel

Name

CH & MD

Sanjay S Lalbhai

Exec. Director

Punit S Lalbhai

Exec. Director

Kulin S Lalbhai

Exec. Director & CFO

Jayesh K Shah

Director

Bakul Dholakia

Arvind Limited(formerlyArvind Mills) is atextile

manufacturerand theflagshipcompany of the
Arvind Group. Itsheadquartersis
inNaroda,Ahmedabad,Gujarat,India. It has
units at Santej (nearKalol).
It manufacturescottonshirting,denim,knits&
bottomweights (Khakis) fabrics. It has also
recently ventured into technical textiles when it
started Advanced Materials Division in 2011. It is
India's largest denim manufacturerapart from
being the worlds fourth-largest producer and
exporter of denim.
The underlying theme running across the
broad spectrum of all business activities at
Arvind is that of enhancing lifestyles of people,
across all diversities and demographics. To
serve that end, the corporate vision for Arvind
states:
We will enable people to experience a better
quality of life by providing enriching and

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Timeline

Forayed into textiles in 1930 by setting up a mill with 1,122 looms.

Coined companys philosophy (Reno vision) in 1986 and in the process established first denim
manufacturing plant.

Entered into retail in 1994 by obtaining licensing rights of Arrow and inaugurated Megamart in
1995.

Undertook debt funded expansion in 1997 to setup a 120mn capacity plant and consequently
ended up with a debt of ` 27bn at FY01 end.

Resorted to debt restructuring in 2001 and successfully de-leveraged its balance sheet.

Entered into JV in 2004 with Murjani Brands for licensing Tommy Hilfiger.

J. Suresh, CEO- Brands, initiates revamp of the brand and retail portfolio in 2007

Launched The Arvind store in 2010 for bespoke tailoring.

Acquires 49% stake in CK India by entering into JV.

Adds GAP to its kitty of rich brands in 2015 (specialty retail).

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Segmental
Revenues

Answer to
questions

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Arvind - One stop shop for apparel requirements

1.Diversity in offerings across menswear, womens wear and kidswear;
positions the company as a one stop to shop for all the apparel
requirements of a family.
2.The company is equipped with probably the best portfolio of
brands (both owned and licensed) in the Indian apparel industry coupled
with a nationwide reach that would enable it to reach a large quantum of
customers across various price points.
3.The company has products with a price range starting from as low as Rs
400 to as high as Rs 15000, which provides a variety of choices and entry
points for every customer.

4.Arvind, over a period of time, has strategically built up its brand portfolio
which includes a blended combination of mass brands, entry level brands,
premium brands and super premium brands.
With this combination the company manages to capture the customers
present
across the income pyramid.

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Higher discretionary spending; new stores to take charge

In FY16, Arvind added 119 stores under its brands business whereas 20
stores were introduced for specialty retail. Restructuring of Megamart was
through in FY16 and was re-christened Unlimited. Under Unlimited 48
stores were reduced during the year.
Better-than-expected monsoon and proceeds from Seventh Pay commission
would trigger higher discretionary spending and better earnings for Arvind.
Arvind Internet, to tap opportunity in world of e-commerce
Over the past year, Arvind has been investing prudently to upgrade
customer experience through Omni channel and leverage its global brands
on a digital platform. With recently launched nnnow.com, Arvind attempts
to move away from the discount driven e-commerce market to a brand led
shopping. Online orders would be fulfilled by nearby available stores,
enabling Arvind to save additional logistics costs.
Debt reduction prudent step; remains preferred pick in textile retail
space
For FY17, Arvind has embarked upon its debt reduction plans by monetising
non-core assets. The company has sold shares held as investments in the
current quarter and would continue to dilute non-core assets. The proceeds
would be used to reduce debt and partially fund its garmenting expansion
plans.

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Arvind Absolute Analysis

40.00
35.00
30.00
25.00

Percentage Change

20.00
15.00
10.00
5.00
0.00
2013

2014

2015

2016

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Accounting Policies

Answer to
questions

1.Basis of Preparation:
The accounts have been prepared in conformity to generally accepted accounting
principles in India( Indian GAAP), under the historical cost convention and accrual basis.
2.Revenue Recognition :
Sales are recognized based on passage of title to goods which generally coincides with
dispatch and on transfer of all significant risk and rewards of ownership to the buyer.
Revenue from export sales are recognized on shipment basis. The company presents
sales net of returns, excise duty and Sales tax.
3.Valuation of Inventory
The stock of Raw Material, Work-in-progress, Stock in trade and finished goods has been
valued at the lower of cost and net realizable value. However, materials and other items
held for use in the production of inventories are not written down below cost if the
finished products in which they will be incorporated are expected to be sold at or above
cost
4.Fixed Assets and depreciation:
Fixed assets are stated at their original cost of acquisition/revalued cost wherever
applicable less accumulated depreciation and impairment losses. Cost comprises of all
costs incurred to bring the assets to their location and working condition.
5.Investments
Investments are classified as Long Term Investments and Current Investments. Long
term investments are stated at cost less permanent diminution in value, if any. Current
Investments are stated at lower of cost and fair value.
6. Taxes:
Tax expense consists of both current as well as deferred tax. Current tax represents
amount of income tax payable including the tax payable u/s 115JB, if any, in respect of

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Liquidity Ratios
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00

Financial
Analysis

Answer to
questions

Profitibility Ratios
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00

Profit Margin

Profit on Net worth

ROI

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Solvency Ratios- Debt/Equity

1.00

Operational
Analysis

Financial
Analysis

Solvency Ratios- Interest Coverage Ratio

8.00

0.90
7.00

0.80
0.70

6.00

0.60

5.00

0.50

4.00

0.40

3.00

0.30
2.00

0.20

1.00

0.10
0.00

Debt/Equity

Answer to
questions

0.00

Interest Coverage Ratio

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Activity Ratios- Cash conversion cycleActivity Ratios- Capital Employed Turnover

300.00

2.50

250.00
200.00

2.00

150.00
100.00

1.50

50.00
1.00
0.00
0.50

0.00

Capital Employed Turnover

Textile Industry - A
Snapshot

Cash flow analysis

Arvind Ltd Company

Profile

Operational
Analysis

Arvind

Financial
Analysis

Welspun

Answer to
questions

Vardhman

EBITDA

11931.4

16606.4

14728.7

Cash Flow from Operation

10117.9

18931.2

13159.4

EBITDA is known as a proxy of Cash flow from operations. However,

EBITDA does not account for Changes in working capital.
Difference of INR 1813.5 million is on account of:
1. Changes in working capital= INR 1013 million
2. Sales made but cash not received = INR 675.5 million
3. Advances received = INR 125 million

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

DU-Pont Chart

Answer to
questions

ROE
12.56%
ROA

4.25%
Net Profit margin

4.12
Tax burden
0.71

Interest Burden
0.55

Leverage
2.95

Total Asset Turnover

1.03

Ebit margin
10.61%

It can be seen that high interest burden is leading to a fall in the

Net profit margin and hence ROA And ROE. Also low total Asset
turnover is leading to low ROE. The leverage is good and is
contributing to the ROE.

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Market price

Financial
Analysis

Answer to
questions

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Will you Recommend Investment in the shares of the Company?

Around 60% of revenue of arvind is from Branded retail and
woven clothes, and both are expected to grow at a significant
rates as per market expectations in the next 10 years.
Furthermore the firm has also ventured into the E- commerce
field, thus enhancing the revenue and taking a shift from the
discount model o to a brand led shopping. Furthermore company
is divesting from Non Core businesses to expand its garment
business and reduce debt. Furthermore the stock in the last one
year has outperformed the market significantly and hence
demands a high P/E, signifying the trust in the brand.
Thus we will give it a BUY recommendation
Will you recommend a Long Term Loan to the company?
The company is in a expansion phase.It has divested from Non
Core businesses to fund its expansion schemes. Thus even though
the Debt/ Equity ratio is low, a long term loan is not
recommended.
However it is also seen that due to its presence in retail sector, its
inventory turnover is very low, only 2.28 times. Thus it may be
advised of a enhancement in Cash credit facility with the bank so

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Will you recommend that the supplier extend credit?

Creditors turnover rate is 2.62 times, implying payment is
made only once in 4.5 months. Thus payment rate is very slow
as compared to Vardhman Textiles. The reason being the cash
available with the company is not very high at INR 650 million
for a company having a sale of about INR 85000 million.
However such high periods of credit is common in the textile
industry and Arvind Ltd, using its high purchasing power is
able to command a higher lag in payment for its supplies.
Thus suppliers can try and negotiate and reduce the
payment period, by giving cash discounts etc.
What will your advice be to the management and its
employees?
Advice to the management would be to continue expansion
in the branded and organized apparel segment as the
industry trends confirm a high growth rate, thus taking
advantage of the economic situation to enhance the profitability
of the business

Textile Industry - A
Snapshot

Arvind Ltd Company

Profile

Operational
Analysis

Financial
Analysis

Answer to
questions

Questions and Answers