Will gain from rupee fall in Q3; eye Rs 500cr capex: Arvind

Post employees’ strike at Arvind in the last quarter last year, the company has posted positive numbers this quarter. So much so, that its retail growth in this quarter appears much higher than what the company guided for FY14.

But, CMD Sanjay Lalbhai, CMD, Arvind, says the company is very much on target and growth in percentage terms is looking much higher because of the strike. The company has grown 19 percent on top line, taking the strike into account. He told CNBC-TV18, the company had taken some forward cover on the rupee and are hence yet to get the full benefit of rupee depreciation. It will be almost on par with the rupee rate in the third and the fourth quarter.  Also Read: Arvind Q1 net profit doubles to Rs 67.6 cr Lalbhai says Arvind will be very close to Rs 1,000 crore in EBITDA by FY14 end. He expects the company to grow by 25 percent this year, so turnover should be around Rs 6500-6700 crore, which adds around Rs 400-500 crore of working capital. The company plans to invest around Rs 400-500 crore in capital assets. “I think our debt for another next two years, this year and next year, may go up by Rs 300 crore which is only working capital debt that will go up,” he says. Below is the verbatim transcript of Sanjay Lalbhai’s interview on CNBC-TV18 Q: Just focusing on revenue growth first, for both your categories textiles and brands in retail the growth this quarter was much higher than what you guided for FY14 - are you looking to up targets for revenue on either one of these verticals? A: I think we are very much on target because you will have to see that the last quarter last year we had a strike so the growth in percentage terms is looking higher, but otherwise we have grown by 19 percent on the top line if we account for the strike. It is broadly as per our guidance. Q: How are you dealing with the rupee? One must ask an exporter like you that question. How is it interfering with your reported numbers? A: I think we had taken some forward cover so we are not getting the full benefit of the rupee. But going into quarter three and four we should be almost on par with the kind of rupee prices which are prevailing against the dollar so the major benefit should come in Q3 and Q4. Q: What kind of EBITDA level do you think you will end the year FY14 with, can you get close to Rs 1,000 crore EBITDA this year? A: I think so. We will be very close to Rs 1,000 crore. Yes, we should be. Q: What is the situation with regard to your balance sheet – what can you point to now both in terms of a target you set out for your debt to equity and whether any more steps have been taken to elevate the debt pressure. A: No. As I have been saying, we are not really very concerned about debt. We will grow by 25 percent this year so our turnover should be around Rs 6500-6700 crore, this adds around Rs 400-500 crore of working capital and we are investing around Rs 400-500 crore in capital assets. I think our debt for another next two years, this year and next year, may go up by Rs 300 crore which is only working capital debt that would go up. Then post the next year your debt level should start coming down that is how it has been planned. Our next five years growth plan suggests that for two years our debt may rise by around Rs 300 crore a year. But our net worth is going up so our debt equity should remain very much under control and our EBITDA is going up dramatically so our total debt to EBITDA ratio should also remain controlled. But post the next year our debt levels will start coming down because we have not planned a very aggressive capital assets growth. Q: I think you have faced some pressure on your margins though on the brands and retail side sequentially – any trouble there either in terms of holding prices or that input cost are going higher and that margins may be a bit of a challenge? A: No. Q1 is always the most difficult quarter in a year so compared to the last year our margins have grown from 2 percent to 4 percent. The 2 percent is also because of the new brands which we have acquired like Debenhams and Next which are posting losses as expected. So the margins of our established brands are growing as per plan but the Q1 margins are looking a little compressed because of Debenhams and Next and acquisition of various brands which we completed last year. Q: Any progress on the real estate unlocking front since we spoke last quarter? A: Things are moving pretty well. We are now hopeful that all our permission should come in, in Q2 or Q3. So, once all the permissions are with us we will try and monetize the large piece of land which we have so hopefully if not this year Q1 of next year we shuld be able to monetise a good amount of value of our land bank.