Arvind Mills' Restructuring Plan|Finance|Case Study|Case Studies

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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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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Expansion at What Cost?

Arvind Mills was promoted in June 1931, by Sanjay Lalbhai's grandfather, Kasturbhai Lalbhai, and his two brothers, Narottam and Chimanbhai, in Ahmedabad. When Sanjay Lalbhai took over the reins in 1975, Arvind Mills was at the crossroads.

A high wage structure, low productivity and surplus labor in the textile mills rendered its businesses unviable in most the products categories in which it competed. The emergence of power looms in the 1970s further aggravated the problems of Arvind Mills.

The government's indirect tax system at that time also reduced the profitability of its product lines. In the mid-80s, to survive the onslaught of the small-scale power loom sector, the composite mills,4 with their higher overheads had to change their strategies. It became imperative for them to switch to areas in which the power loom sector could not compete, viz, value added products.

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In the mid 1980s, Arvind Mills switched to high-quality fabrics requiring technical superiority that the power looms could not hope to match.

Until 1987, like any other textile company, Arvind Mills had a presence only in conventional products like sarees, suitings and low value shirting, and dress materials. Realizing the bleak growth prospects for textiles in general, Arvind Mills identified denim as a niche area and set up India's first denim manufacturing unit in 1986 at Naroda Road, Ahmedabad.

To deal with competition from the power loom sector, which rolled out vast quantities of inexpensive fabrics, and to cope with the rising cost of raw materials, Arvind Mills diversified into indigo-dyed blue denim; high quality, cotton-rich, two-ply5 shirting, and Swiss voiles6...

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4] Composite mills are mills that are involved in both spinning and weaving.

5] A twisted embroidered cotton made up of thread loosely twisted together.

6] A crisp lightweight fabric made from cotton, synthetic fibres. The fabric is translucent in nature; allowing light to pass through, but only diffusely, so that objects on the other side cannot be clearly distinguished. Swiss voiles are the best in quality.

 

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