Arvind aspires to be a $1bn company this year

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Arvind 's revenue was up 22.5% at Rs.1255.7 crore versus Rs.1024.9 crore and profit after tax (PAT) was up 59% at Rs.62.3 crore versus Rs.39.2 crore (YoY). The company reported a sales turnover of Rs 765.38 crore and a net profit of Rs 52.40 crore for the quarter ended September 2011.

Sanjay Lalbhai, chairman and managing director of the company expects to improve margins from current levels of 15-16% and maintain a 20% topline growth this year. The company's revenue target for this year is USD 1 billion and USD 2 billion by FY15.

Lalbhai told CNBC-TV18 in an interview that the long-term debt to come down to Rs 600 crore by year-end. Moreover, he indicated that lower cotton prices would aid in improving margins.

Here is the edited transcript of his interview. Also watch the accompanying video.

Q: How do you see the full year shaping up, both on volume trends for the textile side and branded garments? What kind of volume growth do you expect to see for the second half of the year?

A: We have been achieving around 20%-growth quarter-on-quarter and we should be able to maintain this. We would be a billion dollar company this year and very near to Rs 5000 crore mark. Our bottomline should be quite healthy.

Q: You exceeded the numbers you spoke about at the start of the year. From an EBITDA perspective, what can you achieve at the end of this year? What can you achieve next year on the Rs 5000 crore base?

A: We want to grow by a Rs 1000-crore every year. We want to become a USD 2 billion company by 2014-15. We are well on our course to be achieving those kinds of numbers.

Our EBITDA margin is healthy around 14-15%, which would improve because our interest cost will keep going down. There are three-four aspects as far as interest is concerned.

We had had a Rs 20-crore mark to market loss that we have added into our interest cost, which will go away once the rupee corrects. Because of the high cotton prices, our working capital money had gone up dramatically because our selling prices and cotton stocks had gone up.

We should have substantially reduced working capital going forward. Because of the rate hike by RBI, our interest cost has gone up by almost 3-4%, which should also correct next year. We expect our interest cost to come down dramatically.

We will be able to reduce our total debt below Rs 2000 crore and achieve a debt-equity ratio of 1:1. With all this, our EBITDA margins and net profit should keep on improving. Our EBITDA margin is a factor of how well we do in brands, retail and textiles. Both the businesses are looking pretty healthy.

Q: On the margin front, how is the mix between textiles and branded garments? It appears that branded garments, as a percentage of revenues, is going up now, but you get far better EBIT margins from the textiles business. Could that have an impact on margins going forward?

A: The margins in textiles are quite healthy, but we are looking at return on capital employed (ROCE). ROCE in brands and retail is healthier than textiles. The kind of money invested in textiles is very large because it's a capital intensive business.

We achieve a turnover to investment ratio of 1:1, whilst in brands and retail you hardly invest any kind of capital. Most of the money is invested in working capital.

When we have around 16-17% for brands and around 10% for retail, the profit margins should be very healthy. Our margins in retail and brands will keep on improving as we achieve critical mass for the entire portfolio of brands and mega mart.

Q: The lingering concern of course remains on debt. How much does that weigh the balance sheet down by? What is the target now in terms of how much you want to scale it down on debt to equity both this year and FY13?

A: We should be able to achieve 1:1 debt equity this year, which is pretty healthy. Our debt to EBITDA would be around 3, which we want to bring down to 2. We are not adding any debt every year, instead constantly reducing it. This year, we should go below Rs 2000 crore of total debt with increased turnover.

As we are investing more and more in working capital, our debt levels are still going down which shows that we are repaying our long-term debt. Our long-term debt should sharply come down to around Rs 500-600 crore in this entire mix of Rs 2000 crore.

If you see the mix of debt, there would hardly be any kind of long-term debt left on the balance sheet and all our debt would be working capital, which will keep on reducing as we go forward from our internal accruals.

Q: On land monetisation, do you want to get done with anything this year?

A: We are working on one deal. If that comes through, it will sharply bring down our debt. Let's hope that it happens this year, otherwise, we will be able to divest a large chunk of our land or put it into a township with a partner and monetise at least 50% of the land bank by July next year. We are on course as far as land bank is concerned.

Around 12 million square feet of real estate is under development. Next year, the developmental profits would kick in, which could be quite healthy. Our balance sheet will get further strengthened with the profits from our developmental efforts in real estate and the monetising of our land bank will continue.