Arvind to raise ~490 cr in long-term loans
Arvind Ltd, the Ahmedabadbased textile major, is planning to raise long-term credit worth ~490 crore to replace short-term loans as part of plans to improve its financial profile.
It will also lower capital expenditure to ~300 crore from the earlier plan of ~500 crore. And, has released corporate guarantee obligations for subsidiaries and associates.
The management has articulated a plan to reduce the company’s sizable debt and outside liabilities by March 2020.
It will do so through rationalisation of gross working capital, almost half of which it says was achieved by end-august.
Meanwhile, CARE Ratings has downgraded its ranking for Arvind’s bank lines and debentures from AA to Aa-negative. This was due to lower than envisaged profit in 2018-19 and further decline during the first quarter of 2019-20.
The textile segment saw pricing pressure in the denim fabric business, due to competition and high pre-operative expenses related to the recently commissioned garment capacities. The ramp-up of the latter business’ operations have been slower than previously envisaged.
Arvind has sanction for a long-term corporate loan of ~200 crore and in-principle sanction for another of ~190 crore. These will be used for reimbursement of past capital expenditure and to further reduce its short-term borrowings; also, for pre-payment of some term loans which are due in 2020-21.
Arvind had already pre-paid a term loan of ~40 crore falling due in FY21. These long-term sources are expected to cushion its liquidity.
Prudent deployment of short-term funds on a continuous basis would need to be monitored, CARE said.
The corporate guarantees extended by Arvind to erstwhile subsidiaries and step-down subsidiaries Arvind Fashions and Arvind Lifestyle Brands have been mostly released gradually, except for ~75 crore.
Arvind had already reduced its creditor dues by ~245 crore as on end-august. Its commercial paper dues were ~200 crore as on September 10. This reduction was largely via rationalisation of inventory, CARE said.
The operations of Arvind are inherently working capitalintensive, as it needs to maintain stocks of raw cotton. It also needs to extend credit of about two months to customers, for sale in a competitive market. Even so, liquidity remains adequate, marked by steady cash accrual and positive cash flow from operations, CARE added.