Arvind Ltd Management Discussions.

Economic context and Textile and Apparel market situation

Outlook for global economic growth started on a weak note in 2019 and continued to be weak through the year. Manufacturing activity and trade growth continued to be low key. The year was marked by geopolitical tensions and trade-war rhetoric mainly between the US and China. This clearly reflected in reduced confidence on the future of the global trading system and international cooperation, and impacted investment decisions, and global trade. Several economies signalled and adopted an accommodating monetary policy which cushioned the impact of global tensions on financial market sentiment and activity. Overall, the year wrapped up with World Economic Outlook estimating 2.9% growth in global GDP - tepid by any measure.

From an Indian perspective as well, the Indian economy delivered a mere 4.2% during 2019-20, vs. a revised estimate of 6.1% for the previous year. March 2020 of course saw the start of the Covid-19 pandemic, and the associated lockdowns which brought most economic activity to a grinding halt. The new government had assumed office in summer 2019 with a historic mandate and has been widely expected to take on more difficult reform items. The budget and subsequent announcements presented in 2nd quarter delivered mixed results - while the financial markets continued to hit historic highs, the general economic and job growth continued to be challenged.

Sales of clothing and apparel saw modest growth at an overall level. The momentum had started to build-up by 3rd quarter, but the sudden collapse in March impacted the overall volumes for several leading players. The Indian government on its part has continued to be engaged constructively with the sector. In the recent budget for FY20-21, there were several industry friendly measures announced including removal of anti-dumping duty from PTA, set-up of National Technical Textile Mission and review of Rules of Origin in FTAs to ensure that industry interests are not compromised. Most crucial, the government decided to walk out of the contemplated RCEP treaty, which brought much needed relief to the sector.

Indian textile industry is highly sensitive to cotton market as over 70% of its output is based on cotton - unlike the global situation where articles made of man-made fibres account for a larger share. Cotton prices saw sharp swings during the financial year. The year started with ICE hovering around 77 cents per pounds, Shankar-6 and Cotlook-A quoting even higher. By middle of the financial year, the prices had softened to 60 cents, to bounce back to 70 cents level by Dec-Jan and soften again to 60 cents by April 2020. Players with very high exposure had to suffer large mark-to-market losses as a result during price downturns. Looking ahead, it appears that the cotton demand, and hence the prices will remain soft, though the government may interject and buy at higher MSP to support the farmers.

Arvinds business performance summary


For the year ended

March 31, 2020

March 31, 2019

Amount % of sales Amount % of sales
Revenue from Operations 7,369 7,142
Other Income 55 84
Total Revenue 7,424 7,226
Cost of Material Consumed 3,300 46% 2,915 40%
Purchase of Stock in Trade 366 5% 387 5%
Change in Inventory 69 1% -41 -1%
Project Expenses 74 1% 103 1%
Employee Cost 942 13% 900 12%
Power & Fuel 456 6% 510 7%
Stores Consumption 520 7% 538 7%
Other Expenses 949 13% 1,114 15%
EBIDTA 748 10% 800 11%
EBIDTA w/o Other Income 692 10% 717 10%
Depreciation 290 4% 235 3%
Finance Cost 237 3% 220 3%
Share of Profit/(loss) of Joint venture -2 1
Profit Before Exceptional Items and Tax 218 3% 346 5%
Exceptional Item -50 -46
Profit before Tax 168 2% 300 4%

During FY2020, Arvind delivered a good overall performance, quite in line with its stated business plan until February 2020.

Given the relatively soft market environment since the beginning of the financial year, Arvind has been consistently targeting a modest top-line growth, but sharper improvement on profitability resulting from backend efficiencies, cost management, fixed cost reduction and tighter working capital discipline. Accordingly, significant portion of management attention has been focused on pushing operating and financial discipline throughout the year.

Fabric volumes remained steady, and price realizations also moved within a narrow band. Garment volumes saw healthy growth as new facilities started to deliver customer shipments. Despite the set-back in March due to Covid-19, garment volumes for the year moved up from 34 million pieces in the previous year to 42 million pieces. B2B business continued its usual focus on ensuring key account wallet share through product innovation and customer service. The B2C business saw completion of its restructuring program that was started during the previous FY - conversion of company owned stores to franchisee operations was completed successfully. The company also started getting interest from new parties for new franchises.

All three Advanced Materials businesses - Human Protection, Industrials and Advanced Composites delivered strong organic growth as planned. These businesses consolidated their respective market position, expanded wallet share in key accounts, stopped loss-making product lines and maintained high degree of discipline in managing operations and financials.

Arvind-Envisol, the water treatment business shifted its focus on building the Indian ETP business in the industrial and other segments. Envisol also invested significant efforts in augmenting its portfolio of technologies and solutions, that will position it well in the market effluent treatment market over long term. Finally, this business entered into several customer and partner relationships to expand the footprint into newer geographies like China and Bangladesh.

The last two weeks of March led to stoppage of production and dispatch leading to a significant loss of revenue and earnings. The management estimates that the company had to forgo sales to the tune of 250 crores, which translated into a contribution/EBITDA loss of around 75 crores as our costs did not come down commensurate to the revenue loss.

Results review

Overall revenues of the Company grew 3% in FY20 primarily driven by 13% growth in Advanced Materials and 5% increase in textile revenues, in turn coming from expansion in garmenting volumes. Operating Earnings (excluding other income) before Interest Depreciation and Taxes (EBITDA) margins stayed at 9.4%, which were similar to 9.6% clocked last year. Margins in Advanced Materials firmed up from 12.5% to 13.4%. Other businesses include our fledgling water and waste water solutions business, which is a project based business that had a strong base effect during the last year. Consolidated PBT was down 36% and stood at 220 crores. Profit after Tax, excluding the exceptional items stood at 146 crores, which was down 48% as compared to previous year.


Although on 11-month basis, the revenues were up 8%, with both Textiles and AMD delivering 10% and 20% growth respectively, Covid-19 impact changed the picture significantly. As a result, for the full year, total revenue of the company grew only by 3% in FY20 powered by two primary drivers - a sharp increase in garmenting volumes, as well as Advanced Materials. Textile volumes - both Denim and Wovens saw minor declines. Denim volumes for the year reduced from 85 million meters to 80 million meters. Wovens volumes reduced from 139 million meters to 125 million meters. Garmenting volumes increased to 42 million pieces from 34 million in the previous year as our factory expansion in Bangalore area and our new garmenting facilities in Ethiopia, Ranchi and Ahmedabad area have started delivering customer shipments.

Cost of Material consumed:

Although the cotton prices saw sharp swings during the year, average cotton prices for the full year for Arvind were same as that in the previous year and stood at 118 per kg. Other direct materials costs which largely consists of cost of Dyes & Chemicals and Spare parts consumed reduced by ~3% to 520 crores. Power & Fuel cost for the year was also reduced by ~11% and stood at 456 crores. Reduction in power and fuel cost is largely due to converting inhouse facilities in to job work facilities for asset-light model and reduction in power rates at IEX.

Our employee cost increased by ~5% to 942 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 continued to remain at 13% of operating revenues.

Operating Margin:

For the year under review, EBITDA margins reduced by 60 bps to 9.4%, primarily due to pre-operative expenses in new garment facilities earlier during the year, and subsequently because of Covid-19 related disruptions as mentioned earlier. In absolute terms, EBITDA fell 3% to 692 crores for FY2020.

Finance Cost:

Finance cost for the year stood at 237 crores, after considering effect of AS116.


Depreciation for the year was up 24% as we capitalised more units under our garmenting business. As a percentage of revenue depreciation increased from around 3% last year, to 4% this year.

Profit before Taxes:

PBT for the full year was down by 36%, and stood at 220 crores.

Net Profit:

Profit after taxes and after providing for 50 crores worth of exceptional items, stood at 96 crores for the year. This was 60% lesser than last years number of 237 crores (48% less without accounting for one time exceptional items).

Working Capital:

Gro ss Current assets at the end of the year were down by -13% while the current liabilities were lower by ~2%. Net Working capital reduced for the year resulting into improved Working capital turns.


Our total borrowings (long & short term) at the end of FY20 stood at 2,456 crores. This sharp reduction in our overall borrowing by almost 250 crores was a result of tighter operating and financial discipline that helped reduce working capital requirements quite significantly.


Denim fabric business saw a decrease in volume from 85M meters to 80M meters. Denim business continues to face over-capacity in domestic market and new capacity additions in Bangladesh. For the first three quarters Denim volumes were a healthy 20M meters plus. Especially for Q2 and Q3, they compared well with the previous year numbers as well. Its in Q4 when the shipments came down by 20% to 17.4M meters, and the price realization also softened a bit. For the full year though, Denim realizations remained healthy, and this helped clock revenues of 1,517 crores (about 5% lower than last year).


Woven volumes also were lower by approximately 12M meters, and stood at 125M meters for the full year. Similar to Denim, Woven volumes were comparable to those in the previous year for the first three quarters. Its only as a result of Covid-19 impact in Q4 that we saw a 28% reduction in Woven volumes, which stood at close to 25M meters as against 34M meter level during the fourth quarter of the previous two years. Prior to Covid-19, the B2B business continued its planned performance by consolidating position in key export and domestic brand accounts. Revenue saw a decline to 1,689 crores from 1,763 crores. Our B2C business, which was restructured as a largely franchisee operation during the previous year, saw good market acceptance as we continued to get interest for new franchises. The retail suiting business which was built as a direct to retail business over last 5 years, was restructured to become a wholesaler led business during the year, just like Shirting.


During the year, we completed the implementation of garmenting expansion. This includes modernization and capacity expansion at our Bangalore/Karnataka plants, as well as customer shipment momentum from our greenfield factories in Ranchi and Ahmedabad area. The total garment shipments, excluding essentials jumped from 34 million pieces to 42 million pieces during the year.

Going forward, we are also leveraging close partnership with our garmenting partners to present a virtual integrated package to our brand customers. This will be key to continuing our garmenting capacity expansion in near future, as uncertainty will be hallmark of market demand.

Advanced Materials

Advanced Materials Division (AMD) continued its momentum and delivered another strong performance during FY2020. This business grew its top-line from 486 crores in FY18 to 630 crores in FY19, and despite the March end disruptions, ended the year at 713 crores EBITDA, improved from 10.4% to 12.9% during the 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. Newly introduced sports goods made with carbon-fibre-reinforced composites, got strong customer reviews and saw volumes and order commitments go up. Lastly for AMD, the Industrial products businesses - which include various kinds of liquid and gas filtration, belting, coated fabrics and yarn - also saw nice pick-up on the revenue side, and delivered healthy contributions.

Other businesses

Among other businesses that the company deals in, Arvind Envisol deals in design, erection, commissioning, operations and maintenance of water and waste water treatment plants for Industrial Waste Water & Zero Liquid Discharge Solutions. It provides worlds most cost-effective environmental solutions to protect our scarce natural resources. This business clocked revenues of 283 crores, as compared to 325 crores previous year. This is a project based business which is scaling up steadily, and as such the revenues tend to fluctuate based on billing milestones.

Financial Ratios

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has identified the following ratios as key financial ratios:

Ratio 2020 2019
Debtors Turnover 7-0 8.0
Inventory Turnover 5-8 4.5
Interest coverage ratio 2.2 2.6
Current Ratio 1.0 1.0
Debt Equity Ratio 0.9 1.0
Operating Profit Margin% 9% 10%
Net Profit Margin% 2% 4%
Return on Net Worth 5% 10%

Note: Exceptional items are excluded from Net Profit.