Arvind Mills' Restructuring Plan


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Case Details:

Case Code : FINC011
Case Length : 8 Pages
Period : 1997 - 2001
Pub. Date : 2003
Teaching Note : Available
Organization : Arvind Mills
Industry : Financial Services
Countries : India

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Arvind's expansion and diversification projects have suffered from substantial time and cost overruns as well as stabilisation problems, which have coincided with the ongoing downturn in the denim industry."

- Credit Rating Information Services of India Limited (CRISIL), 1999.

Introduction

In the early 1990s, Arvind Mills1 initiated massive expansion of its denim capacity.

By the late 1990s, Arvind Mills was the third largest manufacturer of denim in the world, with a capacity of 120 million metres.

However, in the late 1990s, due to global as well as domestic overcapacity in denim and the shift in fashion to gabardine2 and corduroy,3 denim prices crashed and Arvind Mills was hit hard. The expansion had been financed mostly by loans from domestic and overseas institutional lenders.

As the denim business continued to decline in the late 1990s and early 2000, Arvind Mills defaulted on interest payments on every loan, debt burden kept on increasing.

In 2000, the company had a total debt of Rs 27 billion, of which 9.29 billion was owed to overseas lenders.

In 2000, Arvind Mills, once the darling of the bourses was in deep trouble. Its share price was hovering between a 52 week high of Rs 20 and low of Rs 9 (in the mid 1990s, the share price was closer to Rs 150). Leading financial analysts no longer tracked the Arvind Mills scrip.

The company's credit rating had also come down. CRISIL downgraded it to "default" in October 2000 from "highest safety" in 1997. In early 2001, Arvind Mills announced a restructuring proposal to improve its financial health and reduce its debt burden. The proposal was born out of several meetings and negotiations between the company and a steering committee of lenders.

Arvind Mills' Restructuring Plan - Next Page>>

1] Arvind Mills was the flagship of the Lalbhai group. It had significant presence in textiles, ready-to-wear apparel, agro-chemicals and dyestuffs. Arvind Mills had 5 denim wear brands which were leaders in their respective segments in India.

2] Fabric with velvet. It is closely woven and has a thick, short pile on one side.

3] A textile fabric with diagonal ribs (combination of plain and purl stitches, producing a somewhat elastic fabric).

 

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