As part of its efforts to take advantage of the dismantling of quota regime from January 2005, textile major Arvind Mills Ltd is planning to set up new plants in Bangalore and Ahmedabad. The company is raising its garments capacity to 14.4 million pieces by end of FY 2005.
The plan includes capacity addition in jeans, khakis and an expansion of its knitted garments factory at Ahmedabad. Arivind is taking several initiatives to capture the enormous upside expected out of WTO opportunities post 2005.
To raise its garments capacity to 14.4 million pieces by end of FY 2005, the company is plannig to set up new facilities - a 2.1 million pieces jeans factory, and a 1.5 million pieces khakis factory in Bangalore. Both these are expected to be completed by end-FY 2005. Also, the existing knitted garments factory at Ahmedabad is being expanded to 4.2-million piece capacity.
"Clearly, AML is on track with its several initiatives targeted at capturing the enormous upside expected out of the dismantling of the quota regime effective Jan-2005," says a leading securities research firm.
Also the textile reconstruction fund notified by the central government would offer AML an opportunity to further reduce interest costs. The scheme would help the company to reduce its effective interest rate for textile companies to 8-9 per cent in order to enhance its competitive edge. AML has an opportunity to get Rs 6 billion of its existing borrowings refinanced under this scheme, leading to an annual saving of Rs 180 million to 240 million per annum.
The company is also trying to reduce its power costs as it is seeking to shift to natural gas from high cost naphtha for its captive power plants. The company has recently entered into a 3-year agreement with one of the natural gas suppliers. Supplies are expected to commence in Q2FY05, and would yield substantial savings in fuel costs. It is estimated that annual savings on this count to be between Rs 300 million and 400 million.
The company has reported 11 per cent YoY decline in sales to Rs 3.48 billion and 34 per cent drop in net profits to Rs 152 million in financial year '04. In terms of positive contributors - interest charges declined 39 per cent YoY and forex gains of an estimated between Rs 160 and Rs 180 million were booked during the quarter.