The unfortunate trend for the shareholders of Arvind Mills was triggered by the FIIs' selling soon after the company's proposal to merge Arvind Intex with itself last year. Although the merger would not have resulted in huge equity dilution, FIIs' perception that enough disclosure were not made, forced them to offload their holdings at that time.

Thedowntrend further accelerated by not-so-impressive performance during 1997-98. After maintaining a sales growth of more than 21 per cent for six years (between 1991-90 and 1995-96), sales recorded a meagre growth of 7.53 per cent. In fact, for the first time in the past seven year, exports recorded a negative growth. At Rs 397 crore, exports dipped by two per cent during 1997-98.

A sharp jump in capacities in the domestic market as well as international market caused a stiff competition in the global denim market. A sharp dip in SE Asian countries' currency also forced players to cut their prices. And with the raw material prices remaining firm, the impact on the margins was predictable.

During 1997-98, the operating profit declined from Rs 186.75 crore to Rs 159.38 crore, pushing the operating profit down from 21.63 per cent to 17.16 per cent. The average cost of cotton rose from Rs 44 per kg in 1996-97 to Rs 46 per kg in 1997-98. During the same period, the average cost of cotton yarn increased from Rs88 per kg to Rs 92 per kg. Cotton along with the cotton yarn account for more than 50 per cent of the total expenditure. Cotton alone accounts for 26 per cent of the total expenditure.

A 30.38 per cent jump in power and fuel charges and 71 per cent jump in commission, brokerage and discount charges also made their contribution. The year 1997-98 also saw a 66 per cent jump in debtors, pushing the average credit period given to the customer from 58 days to 90 days.

Lower dividend payout further affected the stock. For the year 1997-98, the company has proposed a dividend of 25 per cent, much lower than previous year's 45 per cent.

The stock received a further blow recently following the news reports that the big brother, Reliance is entering the ready-made garment segment.

As far as the first quarter of 1998-99 is concerned, on sales of Rs 209 crore, operating profit margins stood at 18.17 per cent. Net profit for the same period stood at Rs 10.26 crore. While rising competition is certainly a cause forconcern, thanks to its size, Arvind still has an edge over its competitors which is expecdted to improved further once the company's expansion programmes are completed.

The company's project comprising of additional capacities in cotton shirting, a new unit fabric facility and capital power plants are expected to be commissioned in the second quarter of the current year. The company has recently commissioned the denim project with a capacity of 40 million meter per annum. The impact of this project will be fully felt in the second half of the current year.

As for the stock market, since almost every negative news have been fully discounted, the downward risk from the current level becomes very low. The bottom is somewhere around the corner.