Strategic Analysis Of Arvind Mills Ltd.

4318 words - 17 pages

Arvind Mills: Current ScenarioIn the third quarter of 2005-2006 the revenue for Arvind Mills declined by 4% as compared to the corresponding quarter of the last financial year . This was mainly due to the reduction in both volume and realization of denim during the quarter. The denim product group of the company is still to recover from volume slump due to its key customers having low season. The emergence of Pakistan and Bangladesh as strong regional competitor are deterrent in volume recovery. The European market volumes are also affected by large capacity build up in Turkey, even though the shirting and garments business grew at satisfactory pace the high dependence on the denim lead to the loss in current quarter. While the near term outlook on denim is negative, the outlook on all other products; shirting, garmenting and knits is positive.The company is working towards de-risking its existing business model. The strategy is getting implemented in three phases. The first phase of product diversification is already implemented with revenues from shirting and knits having stabilized. The second phase of verticalisation is under implementation in which investments will be made in the retailing and branding. The final phase is to grow the business of "Arvind Brands", in which company will focus on growing its own brands.Industry AnalysisFabrics IndustryIndian fabrics industry is highly fragmented , has excess capacity and is dominated by unorganized sector (97%). The main reasons for this state of affairs are because of past unfavorable and restrictive government policies as the sector was reserved under small-scale industries. Obsolete technology did not allowed for excess to bigger market and as such resulted in low margins and profitability. This restricted the expansion and thus the players got stuck in a vicious cycle of low profitability and resulting inability to upgrade. FDI was not allowed in this sector and as the financial power of Indian players was weak industry consolidation did not happen.Industry is highly capital intensive and economies of scale are highly visible. The production strategy requires long and continuous production runs. Different fabric types and coloring etc. requires different pricing which becomes highly difficult to determine and communicate to customer. Industry does not have a clear market leader, which impedes its development. A clear market leader may have guided the industry and also provided the bargaining power with different stakeholders and would have helped in creation of demand.There are some positives like the cheap availability of raw material and easy access to labor. But these are negated to some extent when we consider that the quality of cotton is questionable and the productivity of labors is lower then those in competing countries.Indian fabric market is very different as it is predominantly rural (65%). This market is dominated by regional players who offer traditional clothing like dhotis...

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