Arvind restructures Rs 904 crore debt; promoters to subscribe to warrants

The additional breathing space is important as the company is going through a difficult phase. In April-December 2008, revenues grew by 7.4% to Rs 1733 crore but higher material and energy costs hit margins. Its operating profit was down by a tenth though it was still a respectable figure at Rs 193 crore.

Arvind has notched up a massive debt burden over the years, Rs 1992 crore as of Dec’09, with a fifth of it in foreign currency debt. Its interest cost alone was Rs 176.7 crore, wiping off most of its operating profits. The company has not mentioned if lenders have reduced interest rates, along with the increase in tenure. At any rate, interest costs will continue to cut into its profits.

The company is facing pressure due to a global slowdown in demand for textiles by retailers. In addition, higher prices of key inputs like cotton and higher power costs are likely to put pressure on profitability. On the bright side, it has managed to get higher per unit prices for its main products, negating to some extent the impact of a slowdown in volume sales. Only a substantial improvement in its businesses will allow the company to make enough cash accruals to be able to both service and repay its enormous debt burden.
In exchange for the concession, the banks have asked Arvind’s promoters to invest Rs 51 crore through the issue of warrants that will get converted into equity. The warrant conversion price has been fixed at not less than Rs 15 a share, and will be determined as per the Sebi pricing formular. The company will issue 3.32 crore warrants, and if all are converted into equity shares will lead to the promoter’s stake go up from 35.31% to about 44%.

The press release is available on the BSE website.

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