Captains Speak     

Published: July 15, 2024
Updated: July 15, 2024

Arvind Ltd

Rs 3,000 cr capex to boost growth

Maintaining that the “path in our growth journey is being charted with a discreet capex programme of Rs 3,000 crore for the next three years till fiscal year 2027,” Punit Lalbhai, Vice Chairman and Executive Director of Arvind Ltd, added that of this amount, Rs 400-450 crore is the budget for the current fiscal year ending March 2025. The investments will go towards capacity increase in AMD (advanced material division) garments and augment product differentiation capabilities and maintenance in the fabric business.

According to him, during Q4 of FY24, a strong performance was delivered by the company, as guided during the earlier quarters, amidst sustained challenges in the global geopolitical and macroeconomic environment, with volumes across the segments of textile and advanced material division (AMD) clocking healthy growth. While denim registered 13% growth, full garments registered 41% growth and the AMD combined product volume registered 17% growth. This volume growth led to a healthy revenue growth in Q4. Overall revenue for the quarter stood at Rs 2,075 crore up 10% on a YoY basis. The full-year FY24 revenue stood at Rs 7,738 crore.

P.A.T. UP

Improvement of margins in textiles due to lower input costs, improvement in efficiencies in the garments division and operating leverage in AMD led to a ~156 bps improvement in the overall EBITDA margin to reach 11.7% in Q4 FY24. Profit after tax during the quarter stood at Rs 99 crore, up 19% on a YoY basis. The full-year PAT stood at Rs 334 crore.

AMD delivered its highest ever revenue of Rs 387 crore in Q4FY24 at a growth of 21%. Volume and revenue growth resulted in the highest ever EBITDA reported of Rs 61 crore for AMD in a quarter, up 31%. Operating leverage helped in achieving the highest ever EBITDA margin of 15.8%. The EBITDA margin improved by 131 bps on a YoY basis. In the full year FY24, the AMD business EBITDA margin improved by 240 bps and stood at 15.6%.

As guided, long-term debt at the end of FY24 has come down further by Rs 34 crore from the December 2023 levels to close at Rs 399 crore. Total net debt stood at Rs 1,250 crore compared to Rs 1,327 crore in March 2023.

ONE UMBRELLA

As per the plan, all business units currently reported in the AMD segment of the company are getting consolidating under one umbrella. The rechristened legal entity, called ‘Arvind Advanced Material Ltd’, (AAML) will now house all the businesses, namely human protection, industrial and composite units, through step-down subsidiaries under a scheme of arrangements effective from April 1, 2024.

According to Mr Lalbhai, the Advanced Material Division gained tremendously from the parentage of Arvind and will continue to get a tail wind for growth, both organic and inorganic, which will require capital allocation and balance sheet strength. This is particularly true for nascent business ventures like defence, mobility solutions and sports equipment, which require prequalification criteria including the sustainability credentials to grow in scale. Also important is the synergistic benefits accruing to the ‘human protection’ business benefiting from a large and diverse fibre-to- fabric base with deep processing capabilities, which help in achieving economies of scale, innovation and development of new products.

FY25 GUIDANCE

Mr Lalbhai noted, “With a robust performance in Q4 of FY24, which sets the benchmark for the quarters ahead and is the basis of the current order book and pipeline, we expect FY25 to deliver a strong set of results across key rameters of volume and revenue, resulting in growth in EBITDA with healthy margins and returns. We expect to grow our traditional textile business at a more secular rate aligned to the GDP, while the AMD business is expected to grow at 20% CAGR.”

Referring to the capex plan, Mr Lalbhai stated that “with resumed investments in growth, incremental profitability, margins and an improving financial position, Arvind is rightfully on its way to reach a ROCE profile of 20%+ and touch new heights in all-round value creation for stakeholders. Leverage ratios have improved to 0.35x from 0.40x and coverage ratios, like net debtto-EBITDA, improved to 1.4x from 1.6x last year. During the year, the company has earned a free cash flow from operations of Rs 696 crore and spent Rs 262 crore on various capex projects that it has announced. On the back of a robust business performance and a disciplined capital allocation, ROCE on a run rate basis of Q4 of FY24 improved by 326 basis points to 14.8% at the end of March 2024.

As it approached the mid-year of FY 24, it saw a revival in demand. The company is now in a phase where inventory correction is behind and brands are talking about growth, though in a cautious way, but there is talk about growth across the board, which has not been the case for the whole of last year.

Overall, the management is optimistic that this year should replace or surpass the performance of last year on the basis of better demand globally in the textile business and the robust high-growth trajectory that AMD has successfully embarked on. It also believes that garmenting will grow significantly this year by about 25%. It, of course, has to be remembered that the business cycle is such that the second half of the year generally is better than the first half of the year.