Cotton prices, oil rally may squeeze Arvind margins

"Arvind is a speculative stock," Rajan Shah, chief investment officer, Angel Broking, said. "The textile industry has lost flavour," he said.

The company has captive energy units that run on oil.

Arvind reported a flat net profit of Rs 5 crore for the fourth quarter ended March 13, 2008. It registered net sales of Rs 658.37 crore for the quarter as against Rs 486.21 crore during the quarter ended March 31, 2007.

 

The company's net profit for FY08 slid by 77 per cent to Rs 119.56 crore compared with Rs 27.36 crore during the previous financial year. Arvind's net sales for FY08 rose by 23 per cent to Rs 2,271 crore as against Rs 1,848 crore.

Another analyst tracking the company said the pressure on margins is expected to continue due to weak denim sales. He observed that the company's initiatives of selling non-strategic assets will take time to reflect on the books.

Shares of the company closed 2.53 per cent down at Rs 50 on the Bombay Stock Exchange.

Arvind Managing Director Sanjay Lalbhai said, "The sharp appreciation of the rupee should have brought the input costs down and reduced energy bills.

Instead, commodity prices have gone through the roof even as the global economy reels under the weight of the US sub-prime crisis and the weakening dollar. However, things should better for the company in the fourth quarter."

The Ahmedabad-based company plans to sell its non-strategic assets, including land, in the next three years to repay debt and raise funds for expansion. It aims to raise Rs 700 crore by developing or selling between 5-6 million square feet of land in Mumbai. It owes a debt of Rs 1,400 crore, which is about the same size of its networth.

Arvind is targeting revenues of Rs 4,000 crore in next two years, led by the branded apparel and retail business. The company expects 40 per cent growth in the branded apparel business, targeting a turnover of Rs 700 crore by FY10. MegaMart, its value retail format, is pegged to be worth Rs 2,000 crore by 2012.