Ahmedabad-based Arvind Ltd, which is the world’s largest denim manufacturer, has made 47 times (or 4,600%) the investment it made in a joint venture five years back, simply by selling off its share in the JV. The company, promoted by Sanjay Lalbhai, has made Rs257 crore from a Rs5.47 crore investment it made five years back in a joint venture to market products under the Lee and Wrangler brand.
In September 2006, Arvind Ltd and VF Mauritius formed a joint venture, VF Arvind Brands Private Ltd (VFAB), to market products under the famous brands Lee and Wrangler. With an investment of just Rs5.47 crore, its share in the joint venture was in the 40:60 ratio (between Arvind Ltd and VF Mauritius).
The company has now divested its 40% stake in the joint venture and sold it off to VF Mauritius for Rs257 crore.
“We had invested Rs5.47 crore in 2006 to form the JV. Now by divesting from that company, we have got Rs257 crore. In this deal, we can say that we have got 47 times the investment we made and that too in just five years,” said director and CFO of Arvind Ltd, Jayesh Shah. Arvind intends to use the money made from the divestment to cut its debts.
"We had a debt of around Rs2,500 crore. The Rs257 crore we have made from the divestment will be used to reduce our debt. With additional business, the company has made some Rs250 crore more. Hence, our debt will reduced by around Rs500 crore," said Shah.
The divestment was done as part of the joint venture agreement in which VF Mauritius had the right to acquire shares from Arvind at the end of five years. "It was VF Mauritius's decision to buy our stake in the JV. However, as a retailer, we will continue to market Lee and Wrangler products through our Megamart stores in India," he said.
Without borrowing more money, the company is investing Rs400 crore to expand its shirting and brands & retail business. "Through internal accruals, we are investing Rs200 crore to increase our shirting capacity by 12 million pieces per annum. This year, too, we will reduce our debt and simultaneously increase our production capacity. We are expecting our turnover (which is around Rs1,200 crore) to grow by 20%," said Shah.
