Stock Ideas

5 Paisa 5 steps to       analyze

Mail to a friend  Feedback

Arvind Mills (ARMI) is one of the leading manufacturers of denim cloth in the world. It also has a strong presence in cotton textiles and premium cotton shirting. Other peripheral businesses included EPBAX systems. The company faced financial difficulties as it expanded very fast in denim while global demand for the same stagnated. India’s premier rating agency CRISIL downgraded it several notches below investment grade. The company went through a period of painful restructuring by hiving off its garments division and selling off some of its assets.
 
Q3 Results analysis

The company posted impressive Q3 FY02 results. This was helped by reduction in interest outgo and impressive sales growth thanks to a renewed buoyancy in denim markets. Net losses fell from a loss of Rs862mn to Rs216mn. Operating profits showed an impressive growth by 32.4% at Rs1.48bn as against Rs803mn in the same quarter last year. On the export front, the company continued to maintain its northward journey. It reported a cash profit of Rs142mn against a cash loss of Rs411mn. The interest on the post debt restructuring works out to Rs358mn against Rs661mn provided last year. If the interest to be paid after restructuring is calculated, the company has in fact earned a net profit of Rs87mn.

The outlook is bright. The company is the largest player in the world of denim. International denim prices have risen significantly, and typically denim cycle lasts for a period of almost 24-36 months. In the recent past, company was hit on the downturn because capacity expansion coincided with a fall in denim prices. The downturn also resulted in some manufacturers getting out of business. Consequently, the demand supply dynamics have changed and we expect prices to remain firm. We expect the debt restructuring programs to be approved by institutions in the next month which will reduce its debt burden further.

Financials               

We recommend a STRONG BUY on Arvind Mills. The company in the none too recent past was a Group A stock of the BSE, with a lot of investor fancy. Thanks to the downturn in denim markets, the stock lost its pride of place and languished to sub par levels. Thanks to the good Q3 results, we expect the stock to enter into radar screens of investors and analysts. At Rs11, the stock is a bargain and we expect who get into this counter now to reap handsome benefits when the company announces a Net Profit in Q4 FY02.

Paisa team

Archives

"India Infoline Ltd (IIL) and India Infoline Securities Ltd (IISL) do not have any positions in any of the scrips recommended and which are currently displayed on the site www.indiainfoline.com and www.5paisa.com. IIL and IISL do not do any deals on their own account (proprietary trading) except for testing and demonstration purposes. IIL and IISL also has an internal compliance manual in place which restricts the team who analyze and gives information on various companies and investment opportunities, to place orders on scrips only through IISL and only after the said recommendation has been displayed on the above mentioned websites."