Arvind gears up for demerger of branded apparel, engineering ventures

Even as it is set to touch the Rs 100 billion revenue mark for the first time in fiscal 2017-18, Arvind Limited is gearing up for demerger of its branded apparel & retail as well as engineering ventures into separate entities, as part of restructuring its business. 

The integrated textile company is working towards closing the demerger by October 2018 which will result in three separate entities, each of which will look at three key businesses including textiles (including fabric, garments and technical textiles), branded apparel & retail, and engineering. This will result in branded apparel and retail business being demerged into the current subsidiary Arvind Fashions Limited while the engineering will go under Anup Engineering. 

"The demerger would be over by October this year. Only the brands business is getting demerged under Arvind Fashions Ltd., which is a 90 per cent subsidiary of Arvind Ltd while engineering is getting demerged under Anup Engineering. The textile business is, however, going to remain in Arvind Ltd," Jayesh Shah, director and chief financial officer of Arvind Limited told Business Standard. 

Offering a rationale for the move, Shah said, "Textile and branded retail are two different businesses and it is the right time to demerge, giving investors options to choose between investing in textiles and branded retail business." 

The demerger comes at a time when Arvind Limited is looking to cross the Rs 100 billion turnover mark on the back of a 15-16 per cent growth that it has been witnessing. 

"Going by the nine months’ run rate we should be crossing the Rs 100 billion mark this year. Profitability is something which we will not comment but overall the profitability has been good, said Shah. 

The Rs 100 billion turnover would come on the back of a 15-16 per cent growth being clocked by Arvind. Of this, Rs 40 billion is from branded apparel and retail business which is entirely domestic, while Rs 60 billion would be from textiles, almost 50 per cent of which is export.

While overall the company is growing at about 15-16 per cent, its branded apparel business is growing at about 20 per cent, followed by textiles at about eight per cent. Backed by some of the power and emerging brands such as US Polo, GAP, Arrow, Flying Machine, Tommy Hilfiger and Calvin Klein, among others, Arvind's branded apparel and retail business has been spearheading profitability for the company.

"When looked at the various segments that we are present in, one segment growing rapidly within the brands is the youth wearing casual. Almost all our brands are in casual sportswear segment which is growing the fastest. Now that we have been through the initial years of investment, suddenly we are seeing a high surge in revenue and bottomline," said Shah. 

The group services in all 14 brands, of which four are power brands, while rest are emerging brands. According to Shah, all brands are out of investment phase and are or set to book profits.

Further, the demerger will be followed by capex of anywhere between Rs 5 billion to Rs 10 billion in its three key businesses.  "Every year we spend about Rs 4.5 billion, of which roughly Rs 1.5 billion goes into branded apparel, about Rs 2 billion into traditional textiles including garment expansion, and another Rs 0.50-0.75 billion go into technical textile year-on-year," said Shah.