From the Swadeshi movement to globalization, the Lalbhai family-controlled Arvind group in Ahmedabad has withstood the test of times.
It all began in 1930, the year of the Great Depression, when many companies across the globe downed shutters and the textile industry in particular, in the UK and India, was in deep trouble. This coincided with Swadeshi movement and inspired by Mahatma Gandhi people from all walks of life in India began boycotting fine and superfine fabrics, imported from England.
Expanding business: Sanjay Lalbhai, chairman and managing director of Arvind, says the company will shortly start producing carbon glass-reinforced fabrics.
The Lalbhais knew that the demand for fine and superfine fabrics would continue to remain and any Indian company that could meet the demand would prosper.
The three Lalbhai brothers —Kasturbhai, Narottambhai and Chimanbhai—decided to set up a mill to produce superfine fabric and Arvind Ltd was born in 1931 with state-of-the-art machinery acquired from England with a share capital of Rs 25.25 lakh.
In an interview with Mint, Sanjay Lalbhai, chairman and managing director of Arvind, the flagship company of the Rs 4,000 crore group, recollects the more recent past in the 1980s when the group was weighing the option of diversifying to refineries but chose to stick with denim.
Arvind, the largest denim-producer in the world, is now betting on the real estate sector through joint ventures. It has also chalked out an ambitious project of setting up a special economic zone with an investment of about Rs 3,000 crore.
Apart from the company’s business initiatives, Lalbhai also talks about the focus on organic cotton farming and and the next generation that has recently stepped in. Edited excerpts:
It has been 80 years since Arvind was formed. At one point of time you were planning to diversify into various sectors, including oil and gas.
We have been very successful. This is reflected by the fact that we never missed on (paying) dividends (to our shareholders) except for a couple of times in 1984 and 1986. We started out with local products like dhotis and sarees. The textile business today has four verticals—denim, khakhis, knits and technical textiles.
By 2014-15, we aim to achieve a turnover of Rs 9,000 crore from the current Rs 4,000 crore. Our brands (The company has the licence to sell brands such as Gant, U.S.A. 1949, Izod, Arrow and Cherokee. Arvind Ltd also has joint ventures with many global brands including Tommy Hilfiger, Lee, Wrangler and Riders.) will grow from Rs 800 crore next year to Rs 2,500 crore in 2014-15; real estate revenues will be almost Rs 1,000 crore; and revenue from technical textiles is seen growing to around Rs 500 crore from Rs 100-150 crore now.
Our knitting division will contribute Rs 500 crore among other sectors. All these will add up to Rs 9,000 crore.
The ’80s saw the onslaught of the power-looms and this was a time when we were looking to diversify. We were given the option of refinery (by our consultants) but we chose denim. We have no plans to enter into this sector (oil and gas) even today.
You did diversify into telecom and engineering.
Yes and they are generating revenues for us. The telecom company generates about Rs 100 crore.
As far as denim goes, we emerged as the largest producer of denim in the world last year, overtaking Santista Textil SA of Brazil and Turkey’s ISKO Textile Industry and Trading Inc. Santista was holding the number one position, followed by ISKO.
Santista was not able to keep up the production after its merger with Spain-based Tavex Algodonera and has closed a few units. ISKO, too, has reduced its production due to the recessionary impact. This makes Arvind Mills the world’s largest producer of denims. Our denim capacity stands at 105 million metres per annum.
Have you recently closed down your knitted garments plant in Ahmedabad?
The plant was no longer viable as there was too much absenteeism by workers. We started outsourcing it. However, we are growing in knitted garments business.
Tell us about your technical textiles division.
Our technical textiles division has a number of products and we are constantly carrying out research and development activities to add innovative products. Currently, we are producing protective textiles, including bulletproof fabrics and high visibility fabrics used by the army and police force. We also make woven filtration fabrics for industrial usage.
We will shortly start producing carbon glass-reinforced fabrics. This is a composite fabric used in manufacturing of windmill blades, body of buses, cars, yachts and railway wagons.
There is a big demand in India for carbon glass-reinforced fabrics. The total size of this market stands at over 50,000 tonnes per annum in terms of volume. In terms of value, it is over Rs 400 crore. We are expecting Rs 100 crore revenue from this product.
At one point of time you were working on denim sarees. Is the project still on?
We discontinued the project as it was not viable.
Aren’t you planning a special economic zone (SEZ) on the outskirts of Ahmedabad?
We are planning to set up a spinning industrial park. Yes, it could be an SEZ.
Spinning is big in south (India) and we intend to have a zone with a total capacity to produce 10 million spindles. Of this, we would need one-fourth for our own consumption.
Electricity in Gujarat is very costly and the state government has encouraged us with enough lignite linkage to fuel a captive power plant. The project is at a very initial stage and not much progress has been made so far. The total investment that the park could draw would be about Rs 2,500-3,000 crore.
You seem to be betting big on the real estate sector, especially with the kind of land bank you have.
We have a lot of land bought in the ’90s. They will now start generating profits. Recently we announced a township project in Ahmedabad with Safal-B as a 50:50 joint venture partner. The project will have 750 apartments in the first phase, generating about Rs 250-300 crore top line. In the early ’90s, we have done an apartment project in Ahmedabad and a couple in Mumbai.
All our future residential projects will be with a joint venture partner. We will soon launch a Rs 2,000 crore township project at Santej region in Ahmedabad on 1,000-acre land.
In the next two years, our real estate projects will generate about Rs 250-300 crore revenue. Megamart, our retail arm, will generate about Rs 1,000 crore in next four to five years.
Are you in talks with Tata Housing Development Co. Ltd for the Santej township project?
All I can say is that we are ready with all permissions and have 10 million sq. ft of FSI (floor space index). We are looking for the right partner but we cannot disclose the name till a formal agreement is signed.
Are you planning to spin off the real estate division and go for a public float?
As of now we have enough funds for our real estate projects. Once the real estate division is worth Rs 1,000-2,000 crore, we will go for a public listing.
What’s the status of your organic cotton contract farming initiative?
We have been cultivating organic cotton in Maharashtra—on 10,000 acres of land in Vidarbha and Akola—for the past many years under contract farming with over 5,000 marginal farmers. Now, we are going to start organic cotton contract farming in Gujarat on over 30,000 acres of land in Sabarkantha district. This will be under “Better Cotton Initiative” (BCI).
(BCI is a global initiative founded in 2005 by cotton producers, trade and industry organizations, civil society, and international institutions to promote usage of organic cotton, transparent farming and industrial processes and reducing carbon footprint. Brands like Levis, Nike, Adidas, Reebok, Wal-Mart are among the 150 members that are part of this initiative.)
We will produce 50,000 bales of better cotton per annum from Gujarat apart from 15,000 bales from Maharashtra. Our organic farming initiative will benefit 10,000 marginal farmers directly and over 60,000 people indirectly.
What exactly will be Arvind’s role in the BCI initiative?
Arvind has been asked by BCI to head its initiative of designing and creating a BCI index to grade cotton using firms in their labour practices, carbon footprints, the usage of chemicals and gender equality in cotton farming process, among other things.
The basic design of the index is almost ready and it will be launched soon. Through higher grading in this index a firm will be able to project itself as a brand implementing eco-friendly practices and gain more faith from its consumers and establish itself as a sustainable supplier of cotton and cotton products.
Arvind has also become the first exporter of better cotton after this initiative was launched. Arvind Mills exported the world’s first cotton bale tagged as “Better Cotton” last year.
What will be the impact of 10% excise duty on apparels on consumers?
The imposition of 10% excise duty on garments is ill-timed. The new tax, along with steep price rise in cotton and demand factors, are likely to cause inflationary pressure in the apparel sector for the first time in the last one decade.
Yarn producers have been trying to cope with rising prices of cotton for over a year. Garment manufacturers will not have any option but to pass on the price rise to the customers.
Denim yarn prices have risen to Rs 180 per metre from Rs 105 per metre in the last one year. Excise duty is bad news as we were expecting demand for garments to rise as per capita earning has crossed $1,300. This is an inflection point and normally after this, demand for garments rises. However, with the imposition of excise duty, demand for garments may not rise as much it was expected.
We are not against tax but what’s the use of introducing it when GST (goods and services tax) is one year away? These factors may pose hurdles in garment manufacturers’ growth also.
The industry was expecting to grow by 50%, but now with this tax, the growth expectations will have to be toned down. By May-June we will know what we have been able to achieve.
What role does your son Puneet, who represents the fifth generation of Lalbhai family, play in the organization?
He has done his MBA from Yale University and has recently joined the organization. He is currently looking after the new initiatives of the group, including technical textiles and engineering firms. With a background in environmental science he also takes care of the BCI project.
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