Prepared By:Kavita Chokshi (04)

Digesh Shah (22)Pritesh Shah (25)

Chirag Suthar (30)

Case study:Arvind mills

ltd.

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-ups/Garment Manufacturers

Arvind MillsWelspun GroupRaymondAlok IndustriesMadura Garments

Composite Units/ Fibers &Filaments manufacturers

Ashima GroupReliance IndustriesGarden Silk MillsMafatlal 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 MillsProbability of

ImpactImpact on business

High Medium Low

High

Scale of operations, Brand strength and reach

(For Apparels), Economic

Socio - Cultural, International

-

Medium -Integrated supply 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.

Environmental SectorNature of

ImpactImpact of Each Factor

Marketa. Protected Domestic Market. b. Emerging competitive power loom

sector.

TechnologicalIndian textile market less advanced technology oriented.

Economical Rupee appreciation.

RegulatoryGovernment controlled inputs, high taxes, controlled import of capital goods.

Political Politics had no great role in the industry

Socio - Cultural2nd largest population. Transforming consumer preference and shopping habits.

InternationalLow cost of labor.Low cost of productionUnexplored 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 SystemThe 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 FactorsAdvanced 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

Impact of each factor

Financial capability Readiness of domestic and international investors to invest and good financial performance

Marketing capability Good quality, good packaging, low price

Operational capability

Constant innovation & improvement in processing

Personnel capability Growth opportunities for employees, handling responsibility & free access to senior officials

Information Management System

Usage of Advanced Softwares for recording minutest operations, huge databank

General Management

Well thought out strategy & successful takeover of failed firms & hence establishing Arvind Mills as a Global Company

SWOT Analysis

Strong portfolio of domestic and international

brands

Economies of scale through complete integration

Latest manufacturing tools

Wide geographical presence

STRENGTHS

WEAKNESS

Lack of fresh ideas

Presence in only big cities

Not doing enough to build brand equity

OPPORTUNITIESChanging retail scenario

Rapid growth in age group of 15-44 years

Ability and willingness in India

THREATSCompetitors 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.

• 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.

Marketing policy

• 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.

• 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.

Operational policy

• 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.

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.

Training and Development

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 .