Chhatral experiment and Dehgam plans are part of Arvind’s grand strategy to be top B&R company

YarnsandFibers News Bureau, 2015-08-29 10:00:00 - Mumbai

Related Keywords: Arvind, become largest Brand and Retail company, chairman and MD of Arvind, coming up factory and residential compus, curtain raiser to bigger plan, Sanjay Lalbhai, to garment producer, transform Arvind from textile manufacturer

Mumbai
Chhatral experiment and  Dehgam plans are part of Arvind’s  grand strategy to be

Arvind inspired by China’s giant factory complexes that provide residential accommodation for hundreds of thousands of workers is coming up with a 50-acre factory and residential campus in Dehgam, 50km out of Ahmedabad, which will house 10,000 tribal women. For Sanjay Lalbhai, chairman and managing director of Arvind, the Chhatral experiment is a curtain-raiser to the bigger plan. The new factory will be key to Lalbhai’s efforts to transform Arvind from a textile manufacturer to a garment producer. The company currently produces about 282 million metres of textiles, of which only 5% is converted into garments. But then, for Arvind, which branched out from denim to multiple fabrics and paid a heavy price for that adventure, the future is clear, and it is in apparel.

When Lalbhai joined the family business in 1979, Arvind was a successful textile maker, publicly traded since 1931. It was consistently profitable and paid regular dividends. But now, the company has brought top global brands like Gap, Tommy Hilfiger, Nautica and Aéropostale to India in the last four years. It now wants to become India’s largest brand and fashion retail company, overtaking larger rival Madura Fashion and Lifestyle (Madura F&L), a unit of Aditya Birla Nuvo Ltd, an Aditya Birla Group company that is more than double its size. Arvind also wants to be a one-stop shop for its suppliers.

Arvind currently earns 90% of its revenues from textiles, and B&R, but three years from now, it plans to demerge and list its real estate, B&R, engineering, water, technical textiles and e-commerce businesses.
The share of textiles in overall revenues dropped from 72% in 2010-11 to 63% in 2014-15, while that of B&R rose from 23% to 30%. By March 2018,

Arvind plans to reduce the share of textiles further to 48%, while raising retail revenues to almost 35%.
In the next three years, new revenue streams such as technical textiles and e-commerce will increase their contribution from 7% to 18% of overall revenues, according to a company presentation to investors in May.

However, this time too, the management bandwidth to handle the multiple programmes could be a challenge. The change from a textiles manufacturer to garment requires operational excellence. The multiple joint ventures in retail and brands require management bandwidth and capital for their growth and expansion. Likewise, with e-commerce, it’s the future, but requires huge investments and management bandwidth, said Singhal of Technopak Advisors, while pointing out that there is no other company in textile or retail attempting to do so many things at the same time.

Unlike in the past, when the company targeted growth on borrowed money, this time it will be largely through internal accruals, said CFO Shah. Arvind will invest Rs.500 crore every year for the next three years for growth based on an “asset-light model”.

The company will get about Rs.500 crore in operating cash flow by fiscal 2016, said Jignesh Kamani, an analyst at Nirmal Bang Institutional Equities Research, citing better margins in B&R and stable working capital.

In 2014-15, operating cash flow was just Rs.100 crore, thanks to Arvind’s heavy investments in B&R and formats like Megamart, its apparel retail chain.

Arvind has been trying to shift from textiles to garments over the last 10 years, but the move is yet to gain scale. Lalbhai said that they won’t be seeing selling any more fabric; in three years, they will only be selling the final garments.

According to a textile and apparel sector report, the shift is driven by a number of factors. The global apparel market will grow from $1.1 trillion (around Rs.73 trillion today) in 2012 to $2.1 trillion (around Rs.140 trillion today) by 2025. A major share of this market creation is expected to happen in China, India, Brazil and Russia, where the growth of per capita spending on apparel will be higher than economic growth.

According to Harminder Sahni, managing director of Wazir Advisors, companies are becoming vertically integrated across the sector in India and Bangladesh as brands are exploring how to reduce the time to convert cotton to yarn to garment.

As consumption balloons in India, start-ups and online vendors are also looking for final garments, creating opportunities for companies such as Arvind. Also, increasing costs and domestic consumption in China are making manufacturing there unviable. India is well-poised to pick up some of this business.

According to Lalbhai, the two reasons behind garment-making never taking off in India in a major way, it’s come up in major metros, and even if it has come up in Tirupur, it’s all migrant labour coming there. That is constraining. As then, there are competing jobs available and the staff incurs a lot of cost in coming to the workplace, causing large attrition and absentees. In this industry, the biggest risk is attrition and absentees.

Lalbhai sees the answer in the Chinese dormitory model. The Chhatral experiment and the Dehgam plans are part of this grand strategy. Arvind has also taken a major position in Ethiopia for making garments and is building capacity for 2.8 million garments per month over the next couple of years.
The transformation, though, is still to be captured in Arvind’s share value but for Arvind and the women from Chhatral alike, the journey has just begun.

Becoming India’s largest B&R company won’t be easy. Madura F&L, which has an array of brands including Louis Philippe, Van Heusen, Allen Solly, Peter England and People, is 60% bigger than Arvind. In niche segments such as bridge-to-luxury and kidswear, Arvind already has a dominant position, said J. Suresh, managing director and chief executive officer of the B&R business Arvind Lifestyle Brands, adding that it’s looking at a strong No. 2 position in innerwear. Brands such as Nautica, Tommy Hilfiger and Calvin Klein constitute 70-80% of the bridge-to-luxury market. In kidswear, the company has a portfolio including US Polo Kids, Elle Kids, Gap kids, Nautica Kids and Cherokee at the lower end, retailed through Megamart.

0

Related Keywords: Arvind, become largest Brand and Retail company, chairman and MD of Arvind, coming up factory and residential compus, curtain raiser to bigger plan, Sanjay Lalbhai, to garment producer, transform Arvind from textile manufacturer

Mumbai
Chhatral experiment and  Dehgam plans are part of Arvind’s  grand strategy to be

Arvind inspired by China’s giant factory complexes that provide residential accommodation for hundreds of thousands of workers is coming up with a 50-acre factory and residential campus in Dehgam, 50km out of Ahmedabad, which will house 10,000 tribal women. For Sanjay Lalbhai, chairman and managing director of Arvind, the Chhatral experiment is a curtain-raiser to the bigger plan. The new factory will be key to Lalbhai’s efforts to transform Arvind from a textile manufacturer to a garment producer. The company currently produces about 282 million metres of textiles, of which only 5% is converted into garments. But then, for Arvind, which branched out from denim to multiple fabrics and paid a heavy price for that adventure, the future is clear, and it is in apparel.

When Lalbhai joined the family business in 1979, Arvind was a successful textile maker, publicly traded since 1931. It was consistently profitable and paid regular dividends. But now, the company has brought top global brands like Gap, Tommy Hilfiger, Nautica and Aéropostale to India in the last four years. It now wants to become India’s largest brand and fashion retail company, overtaking larger rival Madura Fashion and Lifestyle (Madura F&L), a unit of Aditya Birla Nuvo Ltd, an Aditya Birla Group company that is more than double its size. Arvind also wants to be a one-stop shop for its suppliers.

Arvind currently earns 90% of its revenues from textiles, and B&R, but three years from now, it plans to demerge and list its real estate, B&R, engineering, water, technical textiles and e-commerce businesses.
The share of textiles in overall revenues dropped from 72% in 2010-11 to 63% in 2014-15, while that of B&R rose from 23% to 30%. By March 2018,

Arvind plans to reduce the share of textiles further to 48%, while raising retail revenues to almost 35%.
In the next three years, new revenue streams such as technical textiles and e-commerce will increase their contribution from 7% to 18% of overall revenues, according to a company presentation to investors in May.

However, this time too, the management bandwidth to handle the multiple programmes could be a challenge. The change from a textiles manufacturer to garment requires operational excellence. The multiple joint ventures in retail and brands require management bandwidth and capital for their growth and expansion. Likewise, with e-commerce, it’s the future, but requires huge investments and management bandwidth, said Singhal of Technopak Advisors, while pointing out that there is no other company in textile or retail attempting to do so many things at the same time.

Unlike in the past, when the company targeted growth on borrowed money, this time it will be largely through internal accruals, said CFO Shah. Arvind will invest Rs.500 crore every year for the next three years for growth based on an “asset-light model”.

The company will get about Rs.500 crore in operating cash flow by fiscal 2016, said Jignesh Kamani, an analyst at Nirmal Bang Institutional Equities Research, citing better margins in B&R and stable working capital.

In 2014-15, operating cash flow was just Rs.100 crore, thanks to Arvind’s heavy investments in B&R and formats like Megamart, its apparel retail chain.

Arvind has been trying to shift from textiles to garments over the last 10 years, but the move is yet to gain scale. Lalbhai said that they won’t be seeing selling any more fabric; in three years, they will only be selling the final garments.

According to a textile and apparel sector report, the shift is driven by a number of factors. The global apparel market will grow from $1.1 trillion (around Rs.73 trillion today) in 2012 to $2.1 trillion (around Rs.140 trillion today) by 2025. A major share of this market creation is expected to happen in China, India, Brazil and Russia, where the growth of per capita spending on apparel will be higher than economic growth.

According to Harminder Sahni, managing director of Wazir Advisors, companies are becoming vertically integrated across the sector in India and Bangladesh as brands are exploring how to reduce the time to convert cotton to yarn to garment.

As consumption balloons in India, start-ups and online vendors are also looking for final garments, creating opportunities for companies such as Arvind. Also, increasing costs and domestic consumption in China are making manufacturing there unviable. India is well-poised to pick up some of this business.

According to Lalbhai, the two reasons behind garment-making never taking off in India in a major way, it’s come up in major metros, and even if it has come up in Tirupur, it’s all migrant labour coming there. That is constraining. As then, there are competing jobs available and the staff incurs a lot of cost in coming to the workplace, causing large attrition and absentees. In this industry, the biggest risk is attrition and absentees.

Lalbhai sees the answer in the Chinese dormitory model. The Chhatral experiment and the Dehgam plans are part of this grand strategy. Arvind has also taken a major position in Ethiopia for making garments and is building capacity for 2.8 million garments per month over the next couple of years.
The transformation, though, is still to be captured in Arvind’s share value but for Arvind and the women from Chhatral alike, the journey has just begun.

Becoming India’s largest B&R company won’t be easy. Madura F&L, which has an array of brands including Louis Philippe, Van Heusen, Allen Solly, Peter England and People, is 60% bigger than Arvind. In niche segments such as bridge-to-luxury and kidswear, Arvind already has a dominant position, said J. Suresh, managing director and chief executive officer of the B&R business Arvind Lifestyle Brands, adding that it’s looking at a strong No. 2 position in innerwear. Brands such as Nautica, Tommy Hilfiger and Calvin Klein constitute 70-80% of the bridge-to-luxury market. In kidswear, the company has a portfolio including US Polo Kids, Elle Kids, Gap kids, Nautica Kids and Cherokee at the lower end, retailed through Megamart.

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Arvind become largest Brand and Retail company chairman and MD of Arvind coming up factory and residential compus curtain raiser to bigger plan Sanjay Lalbhai to garment producer transform Arvind from textile manufacturer

 
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