Aarvee Denim - Rs.66.50

Established in 1988, Aarvee Denims & Exports (Aarvee) is among the leading and oldest denim manufacturers in India and manufactures over 70~80 varieties of denim fabric with different textures and style. At present, it exports to Panama, Honduras, Guatemala, Chile, Turkey, Venezuela, Mexico, Morocco, France, US and Bangladesh. It also manufactures and exports jeans and jackets for men and women to Africa, America and South America and also has a brand called ‘ADEN’. With the removal of the quota regime, the company is concentrating on garment exports to tap new markets in America, Europe and other Asian countries.

The company has a spinning unit near Bavla and a weaving & processing unit at Narol, both in Gujarat. It has enhanced production capacity regularly and can spin over 17,000 MTA and weave 19.90 million metres of denim. It outsources another 10 million metres of weaving outside on a contract basis making it the second largest denim fabric producer after Arvind Mills. To match the increasing demand post quota, it is adding another 14 million metres in weaving and 3100 MTA in spinning at a cost of about Rs40 cr., which will be operational by end September 2005. In addition, it is commissioning a new project of Bed Linen with an initial capacity of 1.2 million metres per month for the European and American markets.

During H1FY05, while its sales increased by 63 per cent to Rs114 cr., NP spurted by 71 per cent to Rs9 cr. thanks to its expanded capacity. Given its thrust on exports and debt restructuring, it can register Net Sales of Rs240 cr. and NP of Rs20 cr. recording a likely EPS of Rs11 on an equity of Rs18 cr. As the impact of the new expansion will be visible only in FY06, it’s best to hold it for the longer term for maximum returns. At CMP, it is trading at 6 PE against FY05 forward earning. Investors are advised to accumulate at dips and sharp corrections for 50 per cent appreciation in the coming 12 months.