Arvind Ltd Management Discussions.


Readers are cautioned that this discussion and analysis contains forward-looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate," "believe," "estimate," "intend," "will" and "expected" and other similar expressions as they relate to the Company or its business are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results, performances or achievements, risks and opportunities could differ materially from those expressed or implied in these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements as these are relevant at a particular point of time & adequate restrain should be applied in their use for any decision making or formation of an opinion.

The following discussion and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto.

Market context - Global and Indian economy and T&A export situation

2018 started with the expectation of a bumper growth of around 4% in global real GDP growth. However, by second half of the year, several factors collectively impacted the outlook and the year closed at about 3.6% growth. US-China trade tensions, weak macroeconomic situation in countries like Argentina and Turkey, auto sector issues in Germany and tighter monetary policy in China - all contributed to slowing of growth. Most of these factors are still playing out in the first part of 2019, though recovery is expected later in the year and expectations are that 2019 will clock 3.3% growth in global GDP.

India closed fiscal year 2018-19 with a real GDP growth of 7.2% - highest in past 3 years. However, quarterly data indicates that the year started at 8%+ growth in Q1 and has seen growth rate slowing down in successive quarters with Q3 delivering only 6.6%. All eyes are on the election results at this point, which will give direction to the next phase of infrastructure spending, farm support and taxation policies. Jury is still out on the likely economic growth in FY 2019-20 - with estimates ranging from 6.8% to 7.5% by different agencies.

In FY 2018-19, the Indian economy saw several interesting milestones being achieved. Exports are estimated to hit $330 billion - surpassing the earlier record of $314 billion in FY 2013-14. GST collections hit rupees 1 lakh crore per month mark, consistently for many months in the later part of the year. Village electrification got completed in April 2018 and we are now nearing universal household electrification. The stock market ended the fiscal on a strong upward momentum towards historic highs. Rupee depreciated sharply in the beginning of the year, but recovered a portion of lost ground by end of March. Inflation remained low, largely aided by low food prices. Government set export targets for agricultural products for the first time in history.

2018 saw modest single digit growth in overall apparel and textile consumption globally. China continued to shed its market share, but India has been clearly missing the bus - most of the gains have been captured by Bangladesh and Vietnam - clearly the 2nd and 3rd largest exports after China, respectively. Bangladesh clearly accounts for over 6% of the global apparel exports while Indian exports continue to de- grow for a second year in a row. Other than cotton yarn exports, most other categories - especially Indian apparel exports are clearly seeing de-growth. Early part of the year, the competitiveness was hampered by a strong rupee. While it got corrected as the year progressed, the lag effect and other factors, including mixed government support for T&A exports resulted in an overall lack-lustre performance of the sector.

Indian textile industry continues to be dominated by cotton, accounting for nearly 3/4th of the total fibre consumption in the country. Globally fibre consumption is dominated by manmade fibres having 70 per cent of share in total fibre consumption. Contrary to the global trend, fibre consumption in India is skewed towards natural fibres with around 65% share, especially cotton.

Area under Cotton cultivation in India in 2018-19 remained almost the same as previous season at 122 lakh hectares. Cotton production in India is estimated at 330 +/- lakh bales of 170 kg each in 2018-19, down from 360+ lakh bales produced in 2017-18. Reduced production in 2018-19 is primarily due to weaker rainfall pattern compared to the previous year. In 2018-19, total supply of cotton including carry forward inventory from previous year and imports in the current year is likely to be 395 lakhs bales vis-a-vis 410 lakhs bales in 2017-18. Reduced supply in the current year has led to prices remaining firm in the India compared to other Cotton producing countries.

In fact for most of the season, Indian Cotton price traded well above the new MSP level, announced by Government of India based on the recommendation by Commission for Agricultural Costs & Prices (CACP). International Cotton prices remained volatile throughout the year mainly influenced by trade related developments between US and China. Such global volatility also imparted volatility to the Cotton prices in India. Considering the price disparity between India and rest of the world, India is likely to import around 30 lakh bales, which if realised will be the highest volume of imported Cotton by India.

Arvinds business performance summary

2018 was a momentous year in the history of Arvind. The company demerged two of its businesses into separately listed entities - Arvind Fashions (which was hitherto being reported as Branded Apparel in the past disclosures) and Anup Engineering (the heavy fabrication business, which has been a division of Arvind). As such, the remaining portfolio of Arvind Limited is focused around the key textile businesses - Denim, Wovens, Knits and Voiles. In addition, it also includes Advanced Materials, Envisol, Internet and few other smaller businesses.

During this year, Arvinds core textile and apparel business continued implementing its stated strategy of growing around four clear pillars - verticalization, innovation, advanced materials and B2C business growth.

In terms of vertical business growth, the year saw expansion of our factories in and around Bangalore, opening up of new plants in Ranchi and Ahmedabad and scaling-up of our Ethiopia operations. As a result, the proportion of fabrics that we sell as full vertical apparel solution increased to about 9% and is poised to grow rapidly in the coming financial year. The company continued to introduce new innovative products, including knitted indigo dyed apparel - which promises to bring denim like aesthetic in the comfort of a knitwear apparel. On woven products side, the focus of innovation was around experimentation with new sustainable fibres, creative blends and significant reduction in use of dyes, chemicals and in turn, water. The B2C business was re-structured in this year and all channels were brought under one common leadership to drive a concerted and integrated strategy.

Arvinds Advanced Material Division primarily consists of three business clusters: Human Protection (fire resistant fabrics and garments, work wear etc), Industrial products (Filtration, Conveyor Belt Fabric, Coated Products, auto-interiors etc) and Advance Composites. This business delivered strong growth across all the clusters through improvement of share-of-wallet, distribution expansion and enhanced product range. Several new tie-ups were culminated during the year - the impact of these will be visible over next few quarters.

Arvind Envisol - the Companys water and waste-water treatment division - saw historic growth driven by follow-up orders from Ethiopia and significantly improved traction in India. This business is focused on expanding its foot-print in other international markets, as well as growing its consumables and O&M business across all segments.

Result Review

Overall revenues of the Company grew 5% in FY19 primarily driven by 25% growth in Advanced Materials and sharp expansion in garmenting volumes. Operating Earnings (excluding other income) before Interest Depreciation and Taxes (EBITDA) increased by 6% - erosion in Textile margins was compensated by turnaround of Advanced Materials from negative to +10% EBITDA. Also, there was a strong positive contribution from our fledgling water and waste water solutions business that formed a part of Others segment. Consolidated PBT was down 9% at र 300 crores. Profit after Tax stood at र 239 crores, which was down 8% as compared to previous year.

For the year ended


March 31, 2019

March 31, 2018

Amount % of sales Amount % of sales
Revenue from Operations 7,142 6,794
Other Income 84 74
Total Revenue 7,226 6,868
Cost of Material Consumed 2,915 40% 2,696 39%
Purchase of Stock in Trade 387 5% 480 7%
Change in inventory -41 -1% -1 0%
Project Expenses 103 1% 13 0%
Employee 900 12% 875 13%
Power & Fuel 510 7% 504 7%
Stores Consumption 538 7% 483 7%
Other Expenses 1,114 15% 1,069 16%
EBITDA 800 11% 748 11%
EBITDA w/o Other Income 717 10% 674 10%
Depreciation 235 3% 222 3%
Finance Cost 220 3% 176 3%
Share of profit/(loss) of Joint Venture 1 3
Profit before Exceptional Items and Tax 346 5% 353 5%
Exceptional Items -46 -23
Profit before Taxes 300 4% 330 5%


For the year ended


March 31, 2019

March 31, 2018

Amount %of sales Amount % of sales
Tax Expenses 62 69
Profit after Tax 239 3% 261 4%
Minority Interest 2 6
Net Profit 237 3% 254 4%
Profit/(loss) from discontinued operations -10 55
Profit for the Period 226 3% 309 5%
Other Comprehensive Income (net of tax) -15 -22
Total Comprehensive Income after Tax 211 3% 288 4%

Note : These numbers are rounded off to nearest rupee.

Revenue: Total revenue of the company grew by 5% in FY19 primarily on the back of solid double digit growth in garmenting volumes, as well as Advanced Materials. Denim continued to be under pressure given overcapacity in domestic market and new capacity additions in Bangladesh which traditionally absorbs significant textile volumes. Also demand from some of our key export customers continued to be muted as they come out of inventory correction cycle. Denim volumes recovered substantially in the 4th quarter, but the overall volume for the year was down to 85 million meters compared to 100 million meters in the previous year. This drove down Denim revenues by 12%. Woven volumes grew from 130 to 138 million meters, leading to revenue growth of 9%. Garmenting volumes started to move up as our factory expansion in Bangalore area started delivering increased output. Also, some of our new garmenting facilities in Ethiopia, Ranchi and Ahmedabad area have started delivering customer shipments. Overall garment volumes stood at 34 million pieces for the year and revenues grew by 13% from garmenting. Among other businesses, our fledgling water and waste-water treatment business made strong contribution to the overall revenues given billing done for few large projects. Other Income aggregating to 84 crores mainly consist of interest income, sale of scrap and rent income.

Cost of Material consumed: Average cotton prices for the full year were similar to previous year (higher by less than 1%).

Other direct materials costs which largely consists of cost of Dyes & Chemicals and Spare parts consumed increased by ~11% to र 538 crores. Power & Fuel cost for the year was also up by ~1% and stood at र 510 crores. Our employee cost increased by ~3% to र 900 crores in the year under review, primarily due to labour intensive nature of our fast growing garmenting business. As a proportion to revenue, employee costs were down 20 bps. Other expenses for the year was up ~4% and stood at 1,114 crores. As a percentage of revenue, the other expenses were at 15.4%, a fall of 15 bps vis-a-vis the previous year.

Operating Margin: For the year under review, EBITDA margins were up 20 bps, primarily due to scale up of our garmenting business and continued strengthening of Indian rupee against US Dollar. Reduction in export incentives for our garmenting business also impacted margins negatively. In absolute terms, our EBITDA was up 7% y-o-y to र 800 crores.

Finance Cost: Finance cost for the year stood at र 220 crores, a -25% increase from the previous year. Finance cost came down as we reduced our debt post stake dilution in our brands business. Lower average interest rates vis-a-vis previous year also impacted our finance cost positively.

Depreciation: Depreciation for the year was up 6% as we capitalised more units under our garmenting business. As a percentage of revenue depreciation was at 3.3%, in line with last year.

Profit before Taxes: While our absolute EBITDA was up marginally, Profit before taxes and exceptional for FY19 fell by 2% and stood at र 346 crores due to higher finance costs in the year under review. Our PBT margin for the year was 4.8%, a fall of 35 bps from the previous year.

Net Profit: Profit after taxes and minority interest for the year stood at र 237 crores, down 7% vis-a-vis the previous year. Our net margin for the year stood at 3.3%.

Working Capital: Current assets at the end of the year were down by 39% while the current liabilities were lower by 33%. Working capital requirements in the business went up post GST implementation as trade channel struggled to cope up with new tax regime.

Debt: Our total borrowings (long & short term) at the end of FY19 stood at र 2,700 crores. Our debt went up during the year by 0.8% in line with the increase in the working capital requirements in the business and delayed GST refunds.

Business Review and Developments Denim

Denim fabric business saw a decrease in volume to 85 Mn meters from 100 Mn meters. Over-capacity in domestic market became worse as recently added capacities started producing new volumes and new capacity additions in Bangladesh made imports from India less attractive to Bangladesh garmenters. Also demand from some of our key export customers continued to be muted as they come out of inventory correction cycle. Denim volumes saw a sharp decline in the 3rd quarter, recovered to a degree in the 4th quarter, but closed the year at 15% lower than previous year. This drove down Denim revenues by 12% to र 1,701 crores, even though the price realization was broadly stable.


Woven volumes were up +6% to 138 mn meter with strong growth in our export business. We consolidated our position in our top export accounts that gave us a double digit growth in our export business. Among domestic segments as well our key brands accounts fared well, though trade channel was relatively softer. Revenue grew in line with volumes to reach र 2,490 crores (incl retail) as average realisation per meter remained largely stable. During the year, we completed restructuring of our B2C business - which is now aligned along clear segments of Shirting and Suiting, across all 3 channels - EBO, MBO and Direct To Retail. The Shirting retail market was challenging, but our Suiting range got very strong market reception and helped us reinforce our presence as a serious player in the overall fabric retail market.


Garmenting is an integral part of our verticalisation strategy and continues to grow strongly. During the year under review, garment volumes were up 13% to 34 Mn pieces. Modernization and capacity expansion at our Bangalore/Karnataka plants got completed this year. Our recently established facilities in Ethiopia delivered 2.4 million pieces. Our greenfield factory in Ranchi started small customer shipments towards the second half of the year and is gearing up for sizable numbers in FY20. Of the two new facilities in Ahmedabad area, the sports-wear lines started delivering customer shipments. The Indigo knit factory is under commissioning.

Advanced Materials

Advanced Materials Division (AMD) delivered a strong performance in FY19. This business grew its top-line almost 30% from र 486 crores in FY18 to र 630 crores in FY19. EBITDA, which was negative in previous year became +10% in this year, clearly reflecting the maturing of some of the AMD businesses which have started having operating leverage. Human Protection segment, that makes and sells specialty functional apparel such as Fire Retardant, Work Wear, Abrasion Resistant suits, Low temperature clothing etc., signed up several large international customers. Composites business consolidated its global position at a major supplier of cooling tower sections, radomes and other glass- reinforced-composite products. During the year, AMD also started producing sports goods made with carbon-fibre-reinforced composites.

Other businesses

Among other businesses that the Company deals in, Arvind Envisol is a specialized Company for the supply of water and waste water treatment plants for Industrial process, Waste water & Zero Liquid Discharge Solutions. It provides worlds most cost-effective environmental solutions to protect our scarce natural resources. The Company registered a sharply increased revenue of र 326 crores - this was a result of some large overseas projects executed by this business.


Arvind Limited will continue to scale-up and solidify its core textiles business on four large pillars of growth as shared earlier. We will continue to grow our asset light garment business model as part of our vertical integration strategy. Our first round of expansion of garmenting facilities will conclude in this year and enable us to enhance our position as key supply partner in our top customer accounts globally. We expect new product lines such as sportswear and indigo knits to gain market traction and volumes during the year. Advanced materials will continue to expand its product portfolio and generate robust double digit growth in top-line, while maintaining its margin model.

Financial Ratios:

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, the Company has identified the following ratios as key financial ratios:

Ratio 2019 2018
Debtors Turnover 8.0 7.6
Inventory Turnover 4-5 4.5
Interest coverage ratio 2.6 3.0
Current Ratio 1.0 1.0
Debt Equity Ratio 1.0 1.0
Operating Profit Margin% 10% 10%
Net Profit Margin% 4% 4%
Return on Net Worth 10% 11%

Note : Exceptional items are excluded from Net Profit.