Case study:

Arvind mills ltd.

Prepared By:
Kavita Chokshi (04)
Digesh Shah (22)
Pritesh Shah (25)
Chirag Suthar (30)
Industry analysis
 The Indian Textile Industry
• Covers a Gamut of activities (Independent & Self-Reliant
industry)
From production of raw materials like cotton, jute, silk and
wool to providing high value-added products such as fabrics
and garments
• Plays a key role in the economy
Being labor intensive industry, it provides direct employment
to around 38 million people and contributes 5% to GDP.
• Significant contributor to trade
Accounts for eight per cent of global trade in textiles
• Poised for growth
Exports are growing at 11.8 per cent estimated to grow at 15
to 18 per cent
• The industry is dominated by small scale players across the
value chain
Raw materials Spinning Weaving/Knitting
Processing Garment Manufacture

• Presence of capabilities across the entire value chain within

the country reduces lead time for production and cuts down
the intermediate transportation time.
• Government Support
Encouraging engineering colleges to offer courses in textile
engineering,
TUFS (Technology Up gradation Fund Scheme) for textile
sector has been extended till 2011-12 .
Revival of sick mills by National Textile Corporation.
Encouraging public-private partnerships in textiles
• Growth rate of Domestic Textile Industry is 6-8% per
annum.

• Growing domestic demand

Disposable income of consumers has been rising steadily
in India

The consuming class is expected to constitute 80 per cent

of the population by 2011

• India has great advantage in Spinning Sector and has a

presence in all process of operation and value chain.
 Concerns
• Indian Textile Industry is highly fragmented Industry that is
lead by several small-scale industries. Because of this, there
is lack of Industry Leadership. These small companies do not
have fiscal resources to invest in technological up-gradation
that affect the quality, cost and distribution. This leads to
inability to establish a world-class competitive player.

• Though Industry has cheap and skilled manpower but they

are less productive.

• Industry is unable to generate economies of scale, as a

result, it is tough to balance the demand and supply equation.

• Inadequate Research & Development.

 Scenario in Gujarat
Large Composite
Textile/ Apparel/Made- Composite Units/
ups/Garment Fibers &Filaments
Manufacturers manufacturers
Arvind Mills
Welspun Group Ashima Group
Raymond Reliance Industries
Alok Industries Garden Silk Mills
Madura Garments Mafatlal Industries

Ahmedabad Ahmedabad is the leading manufacturer of cotton and blended

textile. It is also one of the largest producer of denim in the
world. Government has taken active steps to develop Apparel
Park for overall growth of textile sector.

Surat Surat is the country’s strongest base for non cotton fabrics.
Porter’s 5-force Model
 Threat of New Entrants - High
• Fragmented industry
• Supportive policies
• Growing domestic and exports opportunities

The sector is competitive and likely to see increased

investment from global players
 Supplier Power - Low
• Abundant supply of raw materials
• Not all companies have complete integration (like
Arvind)
• Well established supplier base
 Competitive Rivalry - High
• Competitive structure ( Fragmented)
• Lack of industry leadership
• Demand Condition (growing)
• No significant exit barriers
Major Competitors Of Arvind Brands
 Buyer Power - Medium
• Growing domestic and exports demand, buyers are large
in number.
• Wide range and variety of products
• Alternative suppliers
• Switching cost from one buyer to the other low
• buyer can integrate backwards and can have captive
supply source.
 Threat of Substitutes - Low
• No significant threat
Company Analysis
 About the Company
• Founded in 1931 by three brothers Kasturbhai,
Narottambhai and Chimanbhai
• World’s third largest producer of Denim (annual capacity
of 110 million meters) has export network of 70 countries
worldwide.
• Concept of Renovision:
In the mid 1980’s the textile industry faced another major
crisis. People, the world over, were shifting from synthetic
to natural fabrics. Cottons were the largest growing
segments. Many large composite mills lost their markets,
and were on the verge of closure.
• The Arvind management coined a new word for its new
strategy – Renovision i.e. a new way of looking at issues, of
seeing more than the obvious and that became the corporate
philosophy. Where conventional wisdom pointed to popular
priced segments, Renovision pointed to high quality premium
niches. Thus in 1987-88 Arvind entered the export market for
two sections -Denim for leisure & fashion wear and high
quality fabric for cotton shirting and trousers.
• has fixed out an aggressive strategy to verticalize its current
operations by setting up world-scale garmenting facilities and
offering a one-stop shop service, by offering garment
packages to its international and domestic customers.
• Diversification and take over of failed firms and thus
converting non-performing assets into productive national
resources.
Critical Success Factors (CSFs)
• CSF are those strategic factors which are crucial for
organizational success.
• When strategists consciously look for such factors and
take them into consideration for strategic management,
they are likely to be more successful while putting in
relatively lesser effort.
 CSFs for Arvind Mills
Probability of
Impact on business
Impact

High Medium Low

Scale of
operations, Brand
Socio - Cultural,
High strength and reach
International
-
(For Apparels),
Economic

Integrated supply
Medium - chain, Regulatory -

Low - - Technological
ENVIRONMENTAL
THREATS
AND
OPPORTUNITY
PROFILE
(ETOP)
WHY ENVIRONMENT APPRAISAL
IS DONE?
• To see how organizations can comprehend
the environment in which they exist.

• To identify the environment

• Classify the environment into specific

environment sectors.
ENVIRONMENT SECTORS
• Market Environment
• Technological Environment
• Supplier Environment
• Economic Environment
• Regulatory Environment
• International Environment
TECHNOLOGICAL ENVIRONMENT
• STATE OF TECHNOLOGY
– Mills with obsolete and old machinery.
– Spinning and weaving became two different split
operations ,disturbing the integrated plants.
– Spinning the capital intensive part was handled by the
automatic mills
– Labor intensive component outsourced by textile
companies.

• SOURCES OF TECHNOLOGY
– International markets with remarkable, sophisticated ,
electronically controlled textile machineries.
– The technology ensured good quality product with
minimum labor input.
 Contd…
• TECHNOLOGICAL DEVELOPMENTS
– No developments in Indian Market.

– REASON:
• Protected domestic market.
• Import of capital goods was controlled by
rigid licensing and high import tariffs.
 Contd...
• IN INTERNATIONAL MARKET

– Major technological developments:

• Development of sophisticated,
electronically controlled textile machinery.
• Such machineries ensured good quality
product with minimum labor inputs.
ECONOMIC ENVIRONMENT
• Economic Stage of India:
– Textiles comprised 33% of India exports.
– Textile exports were to the tune of Rs29,000.
– India had the largest area under cotton
cultivation i.e. 24%
– India had the lowest textile yield(12% of
global production)
 Contd..
• Industrial policies
– High wage structure
– Poor I.R relations resulting into long strikes
in Mumbai textile units.
– Government controlled inputs like power,
coal, freight etc.
– High indirect taxes, excise duty.
 Contd..
• Macro economic view of India
– Mounting deficit in budget
– Balance of payment position was extremely
difficult.
• Rupee is appreciating and thus exports are
being discouraged in cotton industry.
• Government policy would always be
favorable to exporters.
REGULATORY ENVIRONMENT
• Import of capital goods was controlled by rigid
licensing and high import tariffs.
• Government controlled inputs like power,
coal, freight, etc.
• High indirect taxes, excise duty.
MARKET ENVIRONMENT
• DOMESTIC MARKET ENVIRONMENT
– Protected domestic market
– The products of Arvind Mills were not up to
the international standards
– The lower end market was dominated by
power looms.
– The upper end market was dominated by
major mills and spinning mills set up as 100%
EOUs.
DOMESTIC MARKET ENVIRONMENT
• CONSUMER DEMAND
– The consumer in the household sector
demanded better quality fabric.
• TRADE CHANNELS
– The trade channel comprised of agents and
wholesalers which were very slow to change
and continued to demand conventional
products.
– These trade channels held a very powerful
position in the textile distribution.
 Contd..
• EMERGING COMPETITIVE DOMESTIC
MARKETS
– The power loom sector had less entry and exit
barriers .
• Very less capital investment
• Labor was unorganized and poor.
 Socio-cultural Environment

• World’s largest democracy with 2nd largest

Population
• Variety of
– Economic levels
– Social status
– Cultural Group
• Co-existence of poor and middle class
 Contd..

• Consumers tastes and preferences are

transforming to western
• Larger portion is young population so denim is
favorable
• Increasing shopping habits specially of women
 International Environment

• Textile is an International or Global Industry

• The Company has got Global opportunities
• Mergers and Acquisitions abroad
• Third largest denim producer in the world
• Low cost of domestically produced cotton
• Low cost of labour and weak currency
 Contd..
• International textile industry had advanced
technologies in use.

• Produced high quality product.

• Certain companies like Dominion Textiles and

Mitsubishi entered into private branding
practice.
 Nature of
Environmental Sector Impact of Each Factor
Impact
a. Protected Domestic Market.
Market b. Emerging competitive power loom
sector.

Indian textile market less advanced

Technological
technology oriented.

Economical Rupee appreciation.

Government controlled inputs, high taxes,

Regulatory
controlled import of capital goods.

Political Politics had no great role in the industry

2nd largest population. Transforming

Socio - Cultural consumer preference and shopping
habits.

Low cost of labor.

International Low cost of production
Unexplored global textile markets.
 STRATEGIC
ADVANTAGE
PROFILE (SAP)
 Financial capability factors
• Major changes in financial strategy from 1987-88
• For modernization Company went for large
borrowings in 1988
• Again in 1991 the Company changed to equity
financing
• Growth and potential of the company attracted
foreign institutional investors, e.g. Int’l Finance Corp.
invested Huge capital in Arvind ltd.
• Large fund mobilization through capital market
• Readiness of domestic investor to invest as well
• Received long term loan from ICICI
 Marketing Capability Factors

• Marketing capability factors could be

segregated into four basics categories:
– Product
– Promotion
– Price
 Contd..
• Product
– Unisex leisure/fashion fabric both for int’l and
domestic market
– High quality fabric for men’s formal shirts and
bottom both for int’l and domestic market
– Fashion fabric for women primarily for
domestic women
– Readymade garments for men- shirts and
jeans
– Wide range of textile products and brands
 Contd..

• Promotion
– Creating awareness : An initial challenge
– Creating customer orientation
– Focused on encouraging awareness of denim
and high premium garments
– Goal of developing long term trusting
relationship with patients
 Contd..

• Price
– lower prices in comparison to the competitors
due to the availability of low cost domestic
cotton and labour.
 Contd..
• EMERGING SHIFT OF INTERNATIONAL
GARMENT BUSINESS
– Reason:
• Low cost of domestically produced cotton.
• Low cost of labor
• Weak currency
Operational capability factors

• Production System
• Operation and Control System
• R & D System
 Production System
The capacity of Arvind Mills was 70 million meters/annum.
Features of Production:
Automatic spreading and cutting.
Automatic patterns sewing machine for cuffs and collars.
Automatic collar and cuff making machine.
Automated conveyor system in finishing areas to minimize
handling of finishing garments.

Arvind Mills works on technologies such as Open-end Spinning,

Foam Finishing, Mercerizing, Slasher-dyeing, Rope-dyeing, Air-Jet,
Projectile and Wet Finishing.

To further meet customer needs, Arvind Mills has also introduced a

new dyeing and processing method for denims.
 Operation and Control System
Arvind Mills had been put up in Technical Collaboration
with Tsudakoma Airjet Looms.

The company has followed a disciplined strategy of

improved product and customer mix

Increased capacity utilization

Control on sourcing of cotton and other raw materials

to reduce procurement costs.
 R & D System
Arvind Mills has a strong Research and Development
focus on process improvement, cost reduction and new
product development.

Introduced brand “Ruf & Tuf” with the concept of ready to

stitch jeans.

Also its Newport brand was made available at low price.

Arvind Mills produce more than 50 varieties of denim for

international customers.
 Personnel Capability Factor
Arvind Mills resourced management talent from
diverse backgrounds, so that they come with a
fresh perspective and no preconceived mindset.

The delayerisation and flattening of the

management structure had been carried out to
enable employees get early substantive
responsibility.

Recruitment from premier management and

technological institutes were done.
 Information capability Factors
Advanced Production Management software and Advanced
Industrial Engineering software.

Each sewing machine would have a data center which would be

used to record critical parameters like Online production,
machine stoppages due to problems in sewing, problems in
machines etc.

The data from these data centers would be routed to Central

Console Station where a team of production engineers would be
monitoring each of the lines.

This system ensures a strong control over production and

ensures a quick turn around apart from a high quality level.
General Management Capability
Factors
Inspiring lifestyle solutions

Successful takeover of failed firms & rejuvenating

them with a new purpose

Conversion of non performing assets into

productive resources

Establishing Arvind Mills as global company

 Capability factor Nature of
Impact
Financial capability
Marketing capability
Impact of each factor
Readiness of domestic and international
investors to invest and good financial
performance
Good quality, good packaging, low price

Operational Constant innovation & improvement in

capability processing

Personnel capability Growth opportunities for employees, handling

responsibility & free access to senior officials

Information Usage of Advanced Softwares for recording

Management minutest operations, huge databank
System
General Well thought out strategy & successful takeover
Management of failed firms & hence establishing Arvind Mills
as a Global Company
SWOT Analysis
STRENGTHS
 Strong portfolio of domestic and international

brands
 Economies of scale through complete integration
Latest manufacturing tools
 Wide geographical presence

WEAKNESS

Lack of fresh ideas

 Presence in only big cities
 Not doing enough to build brand equity
 OPPORTUNITIES
Changing retail scenario
Rapid growth in age group of 15-44 years
Ability and willingness in India

THREATS
Competitors like Raymond, Bombay Dyeing,
Madura Garments
Cheap imports from China, Thailand,
Bangladesh
 Excise duty
Business Policies
 Purchase Policy
• Inputs used: Yarn, dyes, chemicals and spare-parts are
forming part of other materials (other than Cotton) in the
process of manufacturing.
• Arvind Mills follows the Purchase Policy and Standard
Operating Procedures laid down by one of the large
international advisory firms, in the materials management
function.
• Policy: Arvind Mills has policy to make global sourcing so
as to optimize quality and cost of these inputs.
• The company has stringent quality standards and has well
equipped testing facilities to ensure adherence to these
standards for inward-materials.
 cont…
• Arvind Mills deals with internationally renowned names
• While procuring the dyes and chemicals it also
ensures that internationally accepted Eco-norms are
met with.
• The material sourcing team employed by Arvind Mills
is consisting of mix of engineering as well as
commercial skills so as to ensure that both quality and
costs are optimized.
• This team in cooperation with manufacturing team
continuously works on product and vendor
developments.
 Financial Policy
• Arvind Mills is acclaimed in the Indian corporate field for
its financial skills. Be it the phase of rapid growth or
downturn; the company has demonstrated swift, sharp
and robust financial acumen to navigate the Company
through different phases of economic cycles.

• Arvind Mills was the first Textile Company from India to

issue GDRs in the year 1992-93. Highly complex
financial restructuring exercise involving more than 80
domestic and international lenders which the Company
implemented following the major downturn in the business
cycle during year 2000-2002 is considered to be the
benchmark for the Indian corporate.
 contd…
• Arvind Mills has been making judicious choice of
fund-raising avenues in the domestic as well as
international markets so as to construct very efficient
capital structure, which is in the tune with operating
risks and enhances the shareholders’ value.

• The Company has laid down the Risk

Management policy to manage the financial risks
emerging out of currency and interest rate risks, as it
is an international player. It runs an active treasury
desk so as to make use of modern hedging tools
available to manage financial risks.
 contd…
• Arvind Mills was the first Textile Company in
India to implement ERP, SAP as back as in
the year 1997-98.

• The company follows best accounting practices

to prepare its financial statements as envisaged
in the Indian and international accounting
standards.
Financial Performance of the Company
Ratios Mar ' 10 Mar ' 09
Gross profit margin (%) 8.44 5.75
Net profit margin (%) 2.20 -1.99
Return on Net Worth (%) 3.82 -4.38
debt/equity 1.40 1.79
Current ratio 3.26 2.62
Quick ratio 2.31 1.66
EPS (Rs.) 2.21 -2.26
Average Collection Period (days) 68 55
http://money.rediff.com/companies/arvind-ltd/16010001/ratio
With the help of ratio analysis, company’s financial policies
can be derived as follows:
• Financing Policy:
The debt/equity ratio of the company as on March 2010 is
1.40, which implies that for every Rs.1 of equity, company
has taken debt (in form of secured and unsecured loans)
worth Rs. 1.40. The standard d/e ratio is 2, thus Arvind mills,
having very good brand name can easily opt for debt
instruments, should take advantage of its reputation and thus
should derive benefits of leverage.
• Collection Policy:
The average collection period has increased from 55 days to
68 days, this implies poor performance of collection
department in implementing the collection policy. Such a high
ratio implies that debtors remain unpaid on an average for 68
days, so more funds are blocked in firm’s current assets.
• Dividend Policy:
Company has 6% Redeemable Cumulative Non
convertible Preference Shares. So, company manages to
pay dividend to its preference share holders but it is not
paying dividend to its equity share holders from last 3
years, also last year Earning Per Share was negative,
implying no profit available for residual share holders.

• Profit Retention Policy:

The negative EPS implies no profit available for reserve
purpose in 2009 but in 2010, EPS is Rs. 2.21 and company
doesn’t have paid dividend to equity holders that implies
100% retention of profits. May be company is investing
more in R&D, as recently it has come up with a new
product for women.
 Environmental Policy
• Arvind Mills commits itself to continually improve our
environmental management. It strives to go beyond the
requirements of the applicable environmental laws & other
regulations through:
· Optimizing usage of cotton, energy, chemicals & water.

· Adopting preventive strategies to reduce the generation

of effluents, waste & air emissions.

· Maximizing the recycling of inevitable wastes.

 contd…
. Maintaining a safe working environment.

· Encouraging suppliers & buyers to become

environmentally responsible.

. Increasing the green cover.

· Training employees on environmental issues.

 Marketing policy
• Till mid 1980s,Arvind Mills’ focus was more on
marketing its products in the domestic market.
Its major change in strategy came about in 1987
when the company established its Denim
manufacturing division with the primary aim of
marketing denim in international markets. In the
last two decades, the company has become the
world’s third largest manufacturer of denim with
a capacity of 110 million meters per year.
• The company has adhered to its aggressive
strategy to expand its operations by setting
up world class manufacturing facilities, which
offer complete packages to its international
and domestic customers. Its woven garments
unit for example has been set up in technical
collaboration with the Italian apparel
consultancy firm, CF ITALIA, while its
Knitwear garments unit has been set up in
technical collaboration with Alamac Knits Inc.
of USA.
• In order to capture the maximum market
share globally and to create new markets,
the company has continuously expanded its
product portfolio and manufactures denim
fabric and jeans, cotton shirting, khakis,
shirts/tops, knitted garments etc to market
them in international markets. Under this
scenario, the company’s exports, which
already account for more than 45 per cent of
its gross sales, are set to increase further in
the future.
• The company is focusing on optimizing the product
mix for all its divisions to further improve the
performance of each division, which is being done
by emphasizing on the high value added products.
As denim already accounts for about 60 per cent of
the company’s gross sales, it is trying to spread the
product risks by reducing dependence on only one
product. As part of this, shirting, knits and khakis
are being focused on to achieve a more balanced
product mix. The company also plans to have
increased focus on high value added garments in
both existing and new geographies.
• Branded apparel consuming class in India is
expanding at a CAGR of 11 per cent and this is
turning out to be a major force impacting the
domestic apparel sector. Arvind Mills has been
making efforts to capitalize on this opportunity
for sometime now by using one of its subsidiary
companies 'Arvind Brands Limited' as a
platform. The company plans to renew its focus
on the domestic branding and retailing of its
own apparel brands as well as developing
closer relationships with the global retailers by
increasing value added products in its portfolio.
 Operational policy
• Arvind established its own Naphtha based
combined cycle cogeneration plant in
1997.

• The same has been converted into Natural

Gas fuel. Being operated on Natural gas
fuel it is totally emission free and
environment friendly.
• Arvind is serving the nation by preserving
the precious resources with establishment
of highly efficient combined cycle
cogeneration plant both at Naroda and
Santej (main two facilities).

• At the same time it is also serving the

objective to provide stable, reliable,
uninterrupted quality power and economic
steam.
• The CCPP consists of 2 x 10.45 MW GE
make Gas Turbines, Waste heat recovery
steam generators and 1 x 6.4 MW BHEL
extraction cum condensate steam turbine
both at Naroda and Santej.

• In addition to CCPP both plants have

stand by auxiliary boiler running on agro
waste fuel.
• The exhaust waste flue gases of Gas
turbines efficiently utilized to generate the
high-pressure steam from Heat Recovery
Steam generators, which again generate the
power from steam turbine.

• The low pressure extracted steam from the

steam turbines serve the steam requirement
of the textile process. Almost 70 % of the
heat energy of the fuel are being recovered.
• By achieving the highest availability
constant production needs is being
attained.

• By Maintenance of constant quality power

in terms of voltage and frequency which
attributes to consistent production rate
with less maintenance of the equipment
 HR Policies
• Sources of Recruitment

 Recruitment from premier management and

technological institutes.
 The human resources have changed to “a
thinker doer”.
 Management talent from diverse
backgrounds, so that they come with a fresh
perspective and no preconceived mindset.
 Training and Development

To select, train and coach people to obtain higher

responsibilities.
To nurture talent to build leaders for tomorrow's corporation.
Emphasis on learning and skill enhancement.
Training calendars keep our people busy across businesses.
encompassing technical, functional and behavioral modules.
Training is imparted on the job, as well as through
classrooms and seminars.
Offering higher responsibilities.
 Process of Selection

 At Managerial level written exams, group discussions and personal

interviews are conducted.
 At technical level written exams and personal interviews are
conducted.
 At operational level only informal interviews and skill tests are
conducted.

• Employee Relations

 Annual days, Sports day and Awards days are celebrated.

 Suggestions and advices at all levels in the organization are
taken into consideration and implemented if worthy.
Benefits and Compensation Process

 Industry’s best benefits and Compensations are given to all

employees at all level.
 Gym and Canteen facilities.
 Family medical insurance is provided to employees.
 Commutation for the higher and Technical level employees.
 Yearly performance evaluation and salary increases,
Overtime compensation.
Future plan
 Future Strategy
• Vertical integration, diversification and huge capacity setup.
• Process innovation and cost player strategy to defend its
Foreign Market.
• 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 .
• Alliance with establish brands.
• Explore the rural market with affordable brands like
Newport .