Arind mills case study


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Arind mills case study

  1. 1. ARVIND MILLS – TEXTILESECTOR INTRODUCTIONHistoryArvind Mills was promoted in June 1931, by Sanjay Lalbhaisgrandfather, KasturbhaiLalbhai, and his two brothers, Narottam andChimanbhai, in Ahmedabad. When SanjayLalbhai took over the reins in1975, Arvind Mills was at the crossroads.By the late 1990s, Arvind Millswas the third largest manufacturer of denim in the world,with acapacity of 120 million metres. Therefore, in the early 1990s, ArvindMills initiatedmassive expansion of its denim capacity.Problems that started in Arvind Mills –A high wage structure, low productivity and surplus labor in the textilemills rendered its businesses unviable in most the products categoriesin which it competed. The emergence of power looms in the 1970sfurther exasperated the problems of Arvind Mills.The governments indirect tax system at that time also reduced theprofitability of its product lines. In the mid 1980s, Arvind Mills switchedto high-quality fabrics requiring technical superiority that the powerlooms could not hope to match.In the late 1990s, due to global as well as domestic overcapacity indenim and the shift in fashion, denim prices crashed and Arvind Millswas hit hard. The expansion had been financed mostly by loans fromdomestic and overseas institutional lenders. As the denim businesscontinued to decline in the late 1990s and early 2000, Arvind Mills defaulted on interest payments on every loan, debtburden kept on increasing.
  2. 2. In 2000, the company had a total debt of Rs 27 billion, of which 9.29billion was owed to overseas lenders. Arvind Mills expansion strategyresulted in the companys poor financial health in the late1990s. In themid 1990s, Arvind Mills undertook a massive expansion of its denimcapacity in spite of the fact that other cotton fabrics were slowlyreplacing the demand for denim.The expansion plan was funded by loans from both Indian andoverseas financial institutions. With the demand for denim slowingdown, Arvind Mills found it difficult to repay the loans, and thus theinterest burden on the loans shot up. In the late 1990s, Arvind Mills ran into deep financial problems because of its debtburden. As a result, it incurred huge losses in the late1990s. Thecompanys credit rating had also come down. CRISIL downgraded it to"default"in October 2000 from "highest safety" in 1997. StrategyIn early 2001, Arvind Mills announced a restructuring proposal toimprove its financial health and reduce its debt burden. The proposalwas born out of several meetings and negotiations between thecompany and a steering committee of lenders.Steps taken -Then Arvind Mills went for debt-restructuring plan for the long-termdebts.The restructuring was overseen by Mr Jayesh Shah, CFO andadvised on by a JP MorganHong Kong team, led by Mr Ahmad Ayaz. New markets were created, technology was upgraded, and looking atrationalising their suppliers and competition was also tackled.In 2003 -For the fourth quarter, Arvind Mills witnesses 280% growth in the netprofitArvind Mills Ltd is assigned a `P1+` rating by CRISIL, whichindicates a very strong ratingfor their commercial paper.In 2004 -
  3. 3. Company turns itself around showing remarkable improvement infinancial performance. This was done only when all the parts of the organisation started backto be insync. The decisions were taken accordingly so that every activityin the organisation area ligned. It was necessary to do so as they don’tface the same problem that they have faced earlier of non-repaymentof loans which they had taken for capacity expansion.In 2005 - For thefourth quarter in a row, Arvind Mills has managed to post a profitgrowth in excess of 80 per cent .History has been witness to the ArvindGroup’s commitment to excellence, innovation, perseverance andundying attention to customer and societal needs.As an organization,Arvind has successfully integrated diversebusinesses, services and products, unified by a common vision - ofenriching lifestyles.Policy of change has fetched the company to welldeserved results. Arvind Mills’s adoptionof new-age fabrics has seen the Companyemerge as one of the largest denim manufacturers in the world, whilealso bringing us global recognition for the manufacture of shirting,khakhi and knitted fabrics.Currently Arvind Mills has a strong Researchand Development focus on process improvement, cost reduction andnew product development. Arvind Mills continuously modifies its production process to enhanceflexibility on the use of various types and quality of cotton. To furthermeet customer needs, Arvind Mills has also introduced a new dyeing and processing methodfor denims.State-of-the-art technology and equipment have madeArvind Mills one of the top three producers of denim in the world,paving the way for the Company to emerge as a global textileconglomerate. This cutting edge position comes to Arvind Millscourtesy technologies such as Open-end Spinning, Foam Finishing,
  4. 4. Mercerizing, Slasher-dyeing, Rope-dyeing, Air-Jet, Projectile and WetFinishing. It’s only natural that Arvind Mills’s quality fabrics are inhighdemand in the markets of Europe, US, West Asia, the Far East and AsiaPacific.