Arvind Ltd sees demand pick-up in second quarter

Ahmedabad | Updated on June 29, 2020

Textile and garment major Arvind Ltd said Covid-19 disruptions are estimated to result in a loss of about ₹250 crore on the company’s topline and ₹75-crore loss in EBITDA (earnings before interest, taxes, depreciation and amortization) for the year ended March 2020. The company expects a quarter more for consumption demand to pickup.

Sales of its global brands as well those in the domestic market were hit as the lockdown and the subsequent economic impact brought a change in consumers’ preference for discretionary spends.

“April was under a complete lockdown. In May we could start but due to non-availability of factors such as transportation we couldn't really work. It is actually in the month of June we have been able to start production across all our verticals. We are seeing about 45-50 per cent capacity utilisation across different plants,” said Jayesh Shah, Wholetime-Director, and Chief Financial Officer, Arvind Ltd, at an analyst call on Monday. Based on the operations, the company expects to clock ₹300-crore sales in June.

Capacity utilisation to improve

Shah said all categories including denim, woven, knitted fabrics and garments may improve to become closer to 60 per cent capacity utilisation in July on the back of improvement in international business. With currency levels being favourable and overseas strategic customers consolidating their purchases, the company currently has reasonable orders from exports.

Considering the current demand trend, Arvind expects to generate positive cash accruals as early as the second quarter of this fiscal. “Our liquidity position is quite comfortable. Despite the setback in March, our net debt has reduced by ₹248 crore from ₹2,619 crore as on March 2019, to ₹2,371 crore in March 2020,” Shah said.

Demand to pick up

Shah said the domestic market continues to suffer on two aspects — first due to muted demand from customers, who are avoiding discretionary shopping, and second due to disruption in supplies in the distribution network, due to lack of liquidity.

“The domestic market is still under the impact of the lockdown. Though the markets have opened, spending and consumption hasn't picked up including in the big cities like Mumbai and Delhi. It may take a quarter or so before India opens up for consumption and the demand resumes,” Shah added.

The company has also initiated several prudent measures to contain cost and maintain its profitability. “We have made fundamental change in our cost structures, which we believe will stay with us and give us an advantage when the capacity utilisation improves. On sustainable basis we should be able to reduce our fixed costs by about 15 per cent from where we reported last year."

Revenues up 3%

The company reported full year consolidated revenues of ₹7,369 crore, which were 3 per cent highercompared to the previous year, driven by growth in garmenting and advanced materials. The consolidated net profit for the year fell to ₹92.10 crore, down 60 per cent against ₹228 crore in the previous year. The Board of Directors has not recommended dividend on equity shares for the fiscal. It has approved issue of Non-Convertible Debentures (NCDs) upto ₹150 crore on private placement basis to meet the general corporate purposes including capital expenditure, augmenting long term working capital and re-finance of existing loans.

Published on June 29, 2020

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