ARVIND MILLS LTD.
 
  

 
 

SHARETIPSINFO >>Research Reports >> ARVIND MILLS LTD. (27-12-2008)

 

LISTING
CMP
Rs. 15.90
52 WEEK HIGH/LOW
Rs. 12.5 / Rs. 93
FACE VALUE
Rs. 10
Market Cap.
Rs. 368.5 Crore
Average Volume
1233349

 

COMPANY OVERVIEW:
Company was incorporated on 12th December, 1931 in Ahmadabad. The company manufactures cotton textile. Arvind mill is today one of the largest producer of denim in the world and the largest exporter of textile. It has presence in shirting, knits, khakis, voiles fabrics and wide range of garments. It is integrated player with a presence across the textile value chain. Arvind`s wide product range, scalable capacities and ability to offer specialty fabrics and high end garments make it a preferred vendor in the domestic and to global brands. It is the flagship company of the Lalbhai group, which owns around 35% stake in the company.


VISION:
The corporate vision for Arvind states:”We will enable people to experience a better quality of life by providing enriching and inspiring lifestyle solution”.

REVENUE MIX OF ARVIND MILLS:



SOURCE: COMPANY

RESTRUCTURING PLAN OF THE COMPANY:
Company has drawn major restructuring plan, which involves:
Entry into industrial or performance fabric.
Focus on growing the existing brands and retail vertical.
Unlocking value from the real estate.
De-leveraging of the balance sheet.
Outsourcing of non-core activity.

REAL ESTATE:
Arvind has 1000 acres of real estate at its Santej plant in Ahmadabad, out of which 550 acres of land is non-core. Arvind is hoping to develop this land and unlock value from it as and when real estate market stabilizes.

RETAIL PLAN:
Arvind owns brand Excalibur, Newport, Flying Machine, Ruf N Tuf and Arrow and runs a multi –brand retailing operation under the Megamart banner. Arvind plans to open 30 large format stores over the next five years. The first store got opened in Chennai in January, 2008. The company is planning to add around next 5 stores in this fiscal in Pune, Hyderabad, and Faridabad.

SECTORS VIEW:
Export from China are expected to be severely constrained due to safeguard measures imposed by the US and EU.
India registered robust export growth to the US and EU in the post quota era.
Global buyers are focusing on building vendor partners, who have high product development skills.
There is concern of over capacity in the industry due to extension of the TUF scheme by five years.

KEY INVESTMENT REASON:
All the bad news is discounted at this price. There cannot be anything worst than this.
Vertical integration will help the company as one stop shop for global players.
Can leverage its strong brand.
Cotton price is set to decline from here will increase its operating profit
 Rupee has depreciated in the past 6 months will make it globally competitive and at the same time increase the realization.

KEY CONCERN:
Global recession will dampen the demand.
Depends highly on the movement of cotton and denim price.

SHAREHOLDING PATTERN:

 

 

NO.OF SHARES

% OF TOTAL

PROMOTER

76908767

 

35.24%

 

INSTITUTION

42340700

 

19.40%

 

GENERAL PUBLIC

98980382

 

45.36%

 

GRAND TOTAL

218229849

 

100%

 

FINANCIAL:

 

 

31/03/05

31/03/06

31/03/07

31/03/08

TOTAL INCOME

1686.48

1614.5

1861.16

2675.62

EXPENDITURE

-1290.2

-1193

-1532.1

-2311.06

OPERATING PROFIT

396.28

421.5

329.06

364.56

DEPRECIATION

-149.3

-155.1

-143.3

-175.4

PBIT

 

246.98

266.4

185.76

189.16

INTEREST

 

-117.94

-129.9

-157.9

-156.6

PBT

 

129.04

136.5

27.86

32.56

TAX

 

-1.94

-9.2

-2.4

-7.4

PAT

 

127.1

127.3

25.46

25.16

 CHANGE IN THE TOTAL INCOME: CAGR IN TOTAL INCOME OVER 3 YEAR PERIOD IS 16.63%.



CHANGE IN OPERATING INCOME:
Operating remained more or less same due to the pressure on margin. Increase in the price of raw materials and exchange rate moving adversely created the pressure on margin.



CHANGE IN NET PROFIT:
Due to the lower operating profit and decline in OPM, net profit also came down.

  
RATIOS:

 

 

31/03/05

31/03/06

31/03/07

31/03/08

 

EPS

5.803653

5.812785

1.162557

1.148858

 

OPM

23.49746

26.10715

17.68037

13.62525

 

NPM

7.536407

7.884794

1.367964

0.940343

INTEREST COVERAGE

2.094116

2.050808

1.176441

1.207918

VALUATION:
At CMP of Rs 16.5 it is trading at PE of 22x of trailing twelve month earning. Its price to book value ratio is 0.3, stock is trading much below its book value. We expect earnings to improve from here. Stock is very much undervalued at this price.


CONCLUSION:
Investors with medium to long term interest could start picking stock in small lots. Return on the stock will be 50% as the market stabilizes. The downside risk seems to be limited at this price.
The call on the stock is purely contrarian.

 

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