Arvind Mills

Company Profile: Arvind Mills, the flagship company of the Lalbhai Group, is one of India's leading composite manufacturer of textiles. Its headquarters is in Ahmedabad, Gujarat, India. It manufactures a range of cotton shirting, denim, knits and bottomweights (Khakis) fabrics. It is India's largest denim manufacturer apart from being worlds fourthlargest producer and exporter of denim. In the early 1980s, the company brought denim into the domestic market, thus started the jeans revolution in India. Today it not only retails its own brands like Flying Machine, Newport and Excalibur but also licensed international brands like Arrow, Lee, Wrangler and Tommy Hilfiger, through its nationwide retail network. Arvind also runs a value retail chain, Megamart, which stocks company brands. The original budget for the company totaled $ 55 thousand, at present it is $ 500 million Arvind feature is that its enterprises are equipped with highly advanced equipment of a full cycle from painting the fiber to the finished product. History and Operations: Arvind Mills was established in 1931. It was founded by the three brothers Kasturbhai Lalbhai, Narottambhai Lalbhai and Chimanbhai Lalbhai one of the leading families of Ahmedabad. 1931 Arvind Mills Ltd. is incorporated with share capital Rs.2525000 ($55000) in Ahmedabad. Products manufactured are dhoties, sarees, mulls, dorias, crepes, shirtings, coatings, printed lawns & voiles cambrics, twills gaberdine etc. 1987 The Company took up a modernisation programme to triple the production of denim cloth and to produce double yarn fabrics for exports. The new product groups identified were the indigo dyed blue denim, high quality twoply fabrics for exports, and special products such as butta sarees, full voils and dhoties. 1991 Arvind reached 100 million meters of denim per year, becoming the fourth largest producer of denim in the world. 1992 The Company increased the production of denim cloth by 23,000 tonnes per day by modernising the plant located at Khatraj of Ankur Textiles. 1993 The Company proposed to expand the denim manufacturing capacity by 85,00,00 metres per annum. The Company also proposed to set up a new composite mill for producing annually 120 lakh metres of high quality shirting fabrics to be marketed in the domestic as well as international markets. 1994 The Company's operations were divided into 3 units viz., Textile Division, telecom division and garments division. 1995 The performance of textile division was significantly affected due to an

unprecedented rise in cost of cotton. Garment division launched ready to stitch jeans pack under the brand `Ruf & Tuf`. 1997 The marketing and distribution network of `Newport` brand was strengthened and the relaunched `Flying Machine' and 'Ruggers` brand were strengthened. The Company reported a fire in the goods godown & folding packing department in Naroda Road unit of the company. Arvind Mills sets up the anti-piracy cell for the first time in India to curb large scale counterfeiting of their highly successful brands Ruf & Tuf and Newport jeans. Arvind Mills adopts the franchisee system for the manufacture and distribution of Ruf and Tuf jeans. Arvind Fashions, doubles its capacity in the state-of-the-art manufacturing facility in Bangalore to produce Lee jeans. 1997 was also the year when arvind mills started facing serious troubles financially 1998 Arvind Mills emerges as the world's third largest manufacturer of denim. Arvind Mills goes live with SAP R/3 ERP package in April 1998 in their new manufacturing units. 1999 Arvind Mills sets a two-month deadline for hiving off its garments division into a separate company and sale of its real estate in Delhi. 2000 CRISIL downgrades the debenture issues of Arvind, indicating that the instruments were in default. 2001 Arvind Mills defaults on a $125 million floating rate note issue and puts forward a debt restructuring proposal that could significantly reduce its debt burden and sharply improve its financial health. Arvind Mills posts a net loss of Rs 44.59 crore for the quarter ended September 30, 2001. 2003 For the fourth quarter, Arvind Mills witnesses 280% growth in the net profit Arvind Mills Ltd is assigned a `P1+` rating by CRISIL, which indicates a very strong rating for their commercial paper. 2004 Company turns itself around showing remarkable improvement in financial performance. 2005 For the fourth quarter in a row, Arvind Mills has managed to post a profit

growth in excess of 80 per cent. Arvind Mills decides to buy entire stake in Arvind Brands from ICICI Ventures. Arvind Mills does not distribute dividends to its share holders consistently. Arvind Mills changes name, focus, strategy Textile major Arvind Mills which has been recently going through a bad patch owing to rising rupee, reducing exports and falling margins is undertaking a business transformation in a bid to become a billion dollar company. The company has firstly changed its name from 'Arvind Mills Ltd' to 'Arvind Ltd' with a new logo and identity to reflect a company which is diversified with focus on branded apparel and retail. The promoters will increase their stake from 34% to 47% and infuse Rs.188 crore capital into the company. Also, half of the Rs.1400 crore debt which Arvind Ltd has would be repaid by selling off land at Ahmedabad and Bangalore thus positively affecting the company's profitability. Arvind is now giving more focus to brands and retail which uptil now contributes 19% of total revenue. It will also move to become an integrated textile player by producing fabric as well as retailing it. With a combination of its own as well as licensed brands, Arvind aims to become the largest apparel brand in India with focus on Tier II and III cities. Major empahasis would be on the value store format 'Megamart' which is targeted to achieve Rs.1000 crore sales in 3 years. Other than that Arvind plans to setup 250 small format and 30 large format stores by 2012. The strategy may work out to be rewarding for the company as it has a good portfolio of domestic and international, and has been a established national player. The move also helps it to ward off any risk it faces from the recession in export markets. Expansion Strategies of the Arvind Mills Franchise

By ARVIND BRANDS INTERNATIONAL The Arvind Mills franchise since its establishment in the 1930s, has been witnessing significant growth and success. In 2005, mulitifiber agreements were getting phased out along with the disbanding of quotas, and the international textile trade was likely to grow. In the domestic market, the growth of the organised retail industry and the rationalising of the cenvat chain were likely to make textiles and apparel witness an explosive growth. The Arvind Mills franchise had formulated an aggressive strategy to streamline its current operations by setting up top scale garmenting facilities and providing services through a one-stop shop by offering garment packages to all its international and domestic customers. The textile business is likely to become one of the largest apparel brand in India, with its international licenses for Wrangler, Lee, Tommy Hilfiger and Arrow along with its domestic brands. The domestic brands of the apparel franchise include Newport, Flying Machine, Excalibur and Ruf & Tuf. The Arvind Mills franchise has been a pioneer in changing customer demands for textiles across the globe and it has focused on selecting core products. This focus has enabled the textile business to play a dominant role in the world textile arena. With the presence of the Arvind Mills franchise across the textile value chain, it endeavours to be a one-stop shop for all the leading garment brands. Advantage Arvind Mills After considering the various factors which helped Arvind Mills in re-establishing itself in the market, we think that the integration it achieved through foraying into garmenting sector it gained competitive advantage over others. It was backed by huge capacity setup and processes and product innovation. The 'One stop Shoppe' approach was the key to drive down its costs and increase the production efficiencies. This gives it additional advantage in the garmenting segment where the competitors are marred by inconsistent fabric quality due to fluctuating raw material (cotton) quality. In the exports market where both price and quality are the key differentiators, it has given Arvind Mills significant edge. To integrate at such level, any company needs high capital investment and in Indian textile environment where the number of small players is very high, it is not possible for many players to follow this move. Even the big players in this segment would not follow as the risk associated is high due to high capital investment and fluctuating product prices. Procuring such a huge integrated facility is nearly impossible for any player in the world textile industry. Even if somebody wants to take the merger and acquisition route (of small player) the organizational and social costs will be prohibitive. As the small players are using obsolete technology, post M&A will require further investments in technological up gradation. The strategy can only be substituted by following an outsourcing model, but the basic requirement for outsourcing model is to have well developed quality players all across the value chain.

The underdeveloped value chain in India makes the outsourcing model infeasible. Thus Arvind mills integrated facility gives it the sustained competitive advantage. Arvind Mills: Future Strategy Looking at the distinctive competencies achieved by Arvind Mills through vertical integration, diversification and huge capacity setup, the future strategy for Arvind Mills can be described based on strategy development framework. Nearly 50% of the Arvind Mills revenue is generated from the exports market. In Europe the capacity build up in Turkeyposes a huge challenge and the countries like Pakistan and Bangladesh are showing as new threats in this market. Arvind Mills need to defend this market by focusing on process innovation and following a cost player strategy. Improving its supply chain and inventory management through further tying up with farmers, usage of ERP system and increase in the plant efficiency with the use of technology are some of the process innovations it should follow. Expected competitor response: These moves are implemented by most of the companies as an ongoing improvement initiatives, thus we don't expect any dedicated response by competitors to most of these initiatives. But the tying up with farmers is readily visible and is expected to be imitated by other players. Arvind Mills will enjoy a first mover advantage and by maintaining a better relation this can result in longterm sustainable competitive advantage by securing quality cotton supplies. In the exports market it should deepen its base by supplying new products through product innovation like in the denim category manufacturing ring denim and product mixes with Lycra, which will establish it in new categories. It should also work on improving its existing client base by following a client development strategy. As most of the apparel brands in US and Europe are outsourcing manufacturing, further alliance with establish brands will help it sustain the competitive edge. Expected competitor response: Competitors will also try to expand its client base. As most of the apparel manufacturers favor only 2-3 suppliers and follow a long-term relationship there are considerable first mover advantages here. Arvind mills here have advantage as it has established its credibility and has been successful in maintaining a long-term successful relationship with some of the big names. It can also leverage its huge capacity. In product innovation Arvind mills is at disadvantage to its Chinese counterparts who have bigger sales and profits, which can result in frequent product innovations and faster imitation in meeting the demands. In the domestic market the growing Indian economy and hitherto explored rural market, provide it with opportunities to spread its legs. Its strategy to establish itself in two different segments niche and mass market would help it in capturing these markets. Affordable brands like Newport can be a good start to penetrate the rural market and the middle class segment in the urban market. While the niche brands like Arrow will cater the needs of the niche consumers. Expected competitor response: There is expected to be fierce competitor reaction to this move. With increasing number of players in urban garments market, players will move and explore the rural market. Established players like Madura garments already have product range, which it can aggressively market to counter this move. In the Indian apparel market, retailing and branding was never considered by the Indian garment manufacturers except by a few major players like Raymond and the woman formal wear section is mostly ignored by the manufacturers. Arvind Mills through ABL should concentrate on domestic retailing and branding which could give it higher margins and a brand image, also as the number of working woman in India is increasing, developing the women formal wear market could give it a significant edge.

An established brand will be able to command a brand loyalty and will give it a sustained competitive advantage. By building prime locations brands can be further exploited while giving additional competitive advantage. Arvind Mills is an acknowledged leader in the denim world. Could you trace the roots of its successes or failures that have endured so far, since its establishment almost 75 years ago? Mr. Lalbhai 1930 was a year the world suffered a traumatic depression. Companies across the globe began closing down. In UK and in India the textile industry in particular was in trouble. During the Swadeshi Movement of boycotting fine and superfine fabrics, the Lalbhais sensed an opportunity for Indian made fine and superfine fabrics. The three brothers, Kasturbhai, Narottambhai and Chimanbhai decided to put up a mill to produce superfine fabric. And a company called Arvind Mills was born in 1931. With the aim of manufacturing the high-end superfine fabrics Arvind invested in very sophisticated technology. With 52,560 ring spindles, 2552 doubling spindles and 1122 looms it was one of the few companies in those days to start along with spinning and weaving facilities in addition to full-fledged facilities for dyeing, bleaching, finishing and mercerizing. Steadily producing high quality fabrics, year after year, Arvind took its place amongst the foremost textile units in the country. In the mid 1980's the textile industry faced another major crisis. With the power loom churning out vast quantities of inexpensive fabric, many large composite mills lost their markets, and were on the verge of closure. Yet that period saw Arvind at its highest level of profitability. There could be no better time, concluded the Management, for a rethink on strategy. The Arvind management coined a new word for it new strategy - Renovision. It simply meant a new way of looking at issues, of seeing more than the obvious and that became the corporate philosophy. The national focus paved way for international focus and Arvind's markets shifted from domestic to global. People the world over were shifting from synthetic to natural fabrics. Cottons were the largest growing segments. Thus in 1987-88 Arvind entered the export market for two sections- Denim for leisure and fashion wear and high quality fabric for cotton shirtings and trousers. By 1991 Arvind reached 100 million meters of Denim per year and it was the third largest producer of denim in the world. In 1997 Arvind set up a state-of-the-art shirting, gabardine and knits facility, the largest of its kind in India, at Santej. With Arvind's concern for environment a most modern affluent treatment facility with zero affluent discharge capability was also established. Year 2005 is a watershed year for textiles. With the mulitifiber agreement getting phased out and the disbanding of quotas, international textile trade is poised for a quantum leap. Arvind has carved out an aggressive strategy to verticalize its current operations by setting up world-scale garmenting facilities and offering a one-stop shop service, of offering garment packages, to its international and domestic customers.

With the Indian economy poised for rapid growth, Arvind brands with its international licenses of Lee, Wrangler, Arrow and Tommy Hilfiger and its own domestic brands of Flying Machine, Newport, Excalibur and Ruf & Tuf, is setting it's vision on becoming the largest apparel brands company in India.