The Arvind Mills stock has nearly doubled in the last one-and-a-half months on renewed buying support.

From a recent low of Rs 18.50 touched on 1 April 2003, the stock has risen by 88.37% to Rs 34.85 on 16 May 2003, touching its 52-week high of Rs 36.25 on the same day. The 30-share BSE Sensitive Index has lost 0.80% in the same period. Interestingly, average daily volumes on the Arvind Mills counter have remained at 12-14 lakh shares in the above period. Retail investors as well as institutions have been active on the counter of late.

The recent surge in the share price of AML is attributed to the hopes of improved quarterly results on the back of the company's debt restructuring plan and higher denim prices, which have risen by around 50% during the last few months.

The company had posted  improved results in the third quarter ended 31 December 2002. It recorded a net profit of Rs 36.66 crore (loss of Rs 21.63 crore) on net sales of Rs 379.71 crore (Rs 360.32 crore. For the second quarter ended 30 September 2002, it had posted a net profit of Rs 29.07 crore (loss of Rs 44.59 crore) on  net sales of Rs 355.19 crore (Rs 339.39 crore). For the first quarter ended 30 June 2003, the company's net profit was at Rs 25.58 crore (loss of Rs 67.88 crore) on net sales of Rs 353.81 crore (Rs 330.48 crore).

AML's previous financial year was for a period of six months - from October 2001 to March 2002. Hence, cumulative figures for nine months of the past financial year were not available. For the nine-month period ended 31 December 2002, the company was able to post net sales of Rs 1,088.31 crore and a net profit of Rs 91.31 crore.

Even if  AML maintains its net profit of Rs 54.65 crore achieved in the first two quarters of FY 2002-03, it will clock a net profit of Rs 109.30 crore for the whole year, recording an earning per share of Rs 6.21. The company has an equity base of Rs 175.96 crore.

AML has improved its margins in the denim segment of the garment business during the recent quarters. It also managed a better sales volume in shirting, though the margin in the third quarter remains stagnant as compared to the second quarter.

The company has also gained some new customers abroad in the garments division. Major overseas clients include Levis, Gap, JC Penny, Wrangler and Banana Republic.

Hitherto, the major cause for concern for AML was the huge high-cost debt on its books. The factors like fall in demand and over-capacity in denim market in the last few years and increase in project cost due to time overrun, led to reduction in operating margin and inability to service the debt taken for expansion.

Thus, while the operating margin continued to slip, the borrowings increased substantially. The company's debt burden peaked at Rs 2,326.82 crore in FY 2001, on which it paid an interest of Rs 500.29 crore. To reduce its debt burden, the company entered into the scheme of arrangement with certain creditors for debt restructuring, as approved by the Gujarat High Court.

The said scheme envisages reduction in rates of interest with retrospective effect from 1 April 2000, waiver of principal amounts on buy-back of debt and waiver of accrued interest. The scheme is effective and binding on the company and all the lenders. All the legal cases for recovery as well as criminal complaints against the company stand withdrawn.

With this restructuring, the debt/equity ratio will come down from 6.2:1 in FY 2001 to 1.3:1 in FY 2003 and the average maturity of debt will be more than 5 years. Moreover, the management has taken several strategic initiatives to bring about permanent changes, which will ensure improved performance even during not-so-favourable macro level environment.

Following the restructuring, AML has managed to reduce its interest burden to Rs 79.85 crore in the first three quarters of FY 2002-03 from Rs 219.71 crore in the corresponding period previous year.

Soon after the company's debt restructuring, there has been a marked improvement in the company's business fundamentals. Denim prices have risen,  and are higher by around 20%  as compared to the same period last year.

While the debt restructuring has led to a significantly lower interest cost, AML has also benefited by shifting into higher margin ready-made bulk garment exports to major global companies like Nike, Lee, Levi's, GAP etc.

The company also intends to set up a garment manufacturing unit in Mauritius, and thereby avail of its status as a tax haven.

Bulk garment exports currently enjoy a margin of around 25%, which, according to analysts, is approximately twice the margins earned in fabric exports. The move by AML to enter into garment exports will be beneficial mainly post-WTO in 2005, when the quota restrictions on the exporting countries will cease to exist. Thus, exports are expected to jump significantly in the coming years.

Incorporated in 1931, AML, the flagship company of the Lalbhai group, is one of the largest denim producing companies in the world.  Besides, denim, it manufactures shirting and knit fabric and garments. It is India's largest textile exporter, exporting to more than 70 countries. It is the only mill present in all seven continents.

Currently, AML has the third largest plant in the world, with a total capacity of 90 million meters for denim manufacturing. Denim contributed around 70% to the company's annual turnover.