Over the next five years we aim to be Rs 9K cr net sales value company with the healthy CAGR of 25 percent: Kulin Lalbhai
Over the next five years we aim to be Rs 9K cr net sales value company with the healthy CAGR of 25 percent: Kulin Lalbhai

Arvind Limited, India’s largest textile and branded apparel player is set to demerge its branded apparel and engineering businesses from the parent company. The branded apparel business will be demerged into the entity Arvind Fashions Limited. The financial performances of these two businesses have allowed it to demerge into entities from the parent company. For the next couple of years the company wants to rapidly grow in the area of value fashion and specialty retail with Arvind Fashions while investing around Rs 200 Cr every year into it. Also it is going to invest Rs 1500 cr in textile business. Hence, talking about brands future strategies, omni-channel move, financials and current scenario of fashion consumption market in India, Kulin LalbhaiExecutive DirectorArvind Limited spoke to Indianretailer.com on the sidelines of announcement of demerger in Mumbai.

Why this demerger now?
We are at the cusp of new generation of textile. The financial performance of these three entities has allowed us to come to this moment where three companies can be independent. From denim accounting for more than 80 percent of what the business, was we are today a multi product company. The revenue and earnings before interest, tax, depreciation and amortization (EBITDA) performance of all three companies have grown incredibly with healthy numbers for the last five years and industry leading performances. Arvind Fashions have shown the strength of balance sheet to stand on its two legs, so it is at a demerger point. Following this move we will be able to pursue every opportunity that we aim for in the fashion business.

Also importantly we have Arvind Ltd. which generates very large amount of free cash flow. As a standalone and independent entity it will continue to generate strong cash flows. We believe the independence creates an enormous amount of benefit. It unleashes animal spirit of a company both through internal alignment and external flexibility.

What would be the move forward?
Post demerger three companies will be born out of the holding company of Arvind Ltd. That are Arvind Fashions Ltd., Arvind Ltd. and Anup Engineering Ltd. Arvind Ltd will continue to house our large Rs 6K cr textile and apparel businesses. It will also continue to house certain businesses which are at incubation stage such as bespoke clothing. The focus will continue to be on differentiation and asset like growth. Arvind Ltd. will aim to remain at the net to debt EBITDA profile which is very healthy. It will move towards 2.5 to 2 net debt to EBITDA. For the next couple of years we want to rapidly grow in the area of value fashion and specialty retail. Overall we are going to invest Rs 1500 cr in textile business.

How will you build a separate brand identity of Arvind Fashions?
In the branded apparel we understand the opportunity. We are the company of choice to bring global brands to India and to be able to create scale and valuable business. We have good relations with 20 plus global brands. In the last three years we have added 6-8 global brands and many of them are Rs 1000 cr opportunity. Arvind is a unique platform for the best brands which are ready for the future of India.

What is your omni-channel strategy?
The world of tomorrow is omni-channel. We are fiber to fashion company with an omni-channel future. We are ready for the change of tomorrow. As the business matures and operating leverage kicks in and each brand becomes large, then the bottom line will grow much faster than the top line. We are not just a retailer, but also a brand company which operates retail stores, shop-n-shops, we are present in MBOs and are on digital channel. 

Online is more like a wholesale business. It is growing at almost 100 percent YOY. We believe in the future as it will account for 15-20 percent of our overall sales in couple of years. Overall combination will be digital and phygital. The investment is not going to be very material in omni-channel. The Major investment will be in the technology and the team. In brand business technology is changing the way consumer buy apparel. Digital is the first mode now for a consumer to interact with the brands.

What is your financial target with all these three companies?
Over the next five years we aim to be Rs 9K cr net sales value company with the healthy CAGR of 25 percent. Arvind Fashions hopes to achieve more than Rs 1000 cr of EBITDA. We are investing little about Rs 200 cr every year in the company and we can achieve 150 basis points improvement every year. Textile is 16-18 percent of EBITDA business and we are going to maintain that. Unlimited is more than Rs 800 cr retail chain today and will be Rs 1000 cr and this year we hope for break-even. As a group company we have total debt of 3.5K cr.

What is the current scenario of fashion consumption market?
India’s consumption of fashion apparel Viz-a-viz any economy in the world is under saturated. When per capita income in any economy crosses $2000 of the GDP that’s when apparel as a branded apparel category sees an inflection and we are going to see that over the next three years. Apparel as a business is almost doubling towards $100 bn while witnessing a rapid movement towards branded segment whilst having benefits of higher share of wallet for clothing. In a digital world with 4G smart phone penetrated in every village, the aspiration level for apparels is spreading like WiFi. In terms of textile the world is changing, countries which have dominated with 35 percent of market share of global trade are retreating. Simultaneously the domestic market is coming of age and the age of differentiation is before us.

Stay on top – Get the daily news from Indian Retailer in your inbox
Also Worth Reading