Aarvee Denim - Rs.51.00

Aarvee Denims & Exports Ltd. (Aarvee) was incorporated in March 1988 as Amtex India, a private limited company and was subsequently converted into a Public Limited company in April 1992. Today, Aarvee is the second largest manufacturer of denim fabric in India after Arvind Mills. It manufactures over 70-80 varieties of denim fabric with different textures and style and markets them under the brand name ‘Amtex’. Although operating predominantly in the domestic market, it also exports to Africa, USA, Panama, Honduras, Chile, Turkey, Venezuela, Mexico, Morocco, France, US and Bangladesh. Besides spinning and weaving Aarvee is also into garmenting and manufactures cotton and denim garments like jeans, trousers, jackets, shirts, skirts etc for men, women and kids.

Presently, Aarvee can produce 47 million metres (MM) of denim fabric including outsourced weaving job work at its Narol plant. Simultaneously, its’ spinning and stitching capacities stand at 18500 metric tonnes per annum (MTPA) and 6 lakh pieces of readymade garments per annum. The company has a captive power plant and has installed two windmills and coal based thermal power plant of 2.5 MW capacity, which reduces its power cost substantially. To achieve a larger global market share the company is implementing a massive Rs.100 cr. expansion plan whereby it will expand its weaving capacity by 25 MM to touch 72 MM and the spinning capacity by 13000 to take the total to 30000 MTPA. It also intends to augment its garment production capacity to 15 lakh pieces. As a strategic move, the company is diversifying in a big way into the lucrative market of Home Textiles & Made-ups. It is now planning a processing facility of 20 MM and a weaving capacity 3 MM totally dedicated for manufacturing of bed linens, pillow covers, cushions and tablecloth among others. Recently, Aarvee has launched its ‘Aden’ garment brand in the domestic market in Ahmedabad, Delhi and Mumbai and will expand to the rest of India gradually.

To fund its expansion, the company raised nearly Rs.40 cr. through preferential allotment of 45 lakh shares at Rs.86 per share to M/s DEG - Deutsche Inventions - a German Development Financial Institution and to promoters. For FY06, its turnover increased by 20% to Rs.277 cr. whereas its net profit grew by 30% to Rs.34 cr. This works out to an EPS of Rs.15 on its current equity of Rs.22.50 cr. Although denim prices have come down in recently putting some pressure on margins we expect it to end FY07 with top-line of Rs.325 cr. and bottom-line of Rs.38 cr. i.e. EPS of Rs.16 on diluted equity of Rs.23.50 cr. considering company expansion plan and foray into home textile. At a reasonable P/E of 6, the scrip should trade near about Rs.100. Investors are strongly recommended to buy Aarvee at current levels as the scrip can easily double in 15-18 months.