arvind ltd (arvmil) | 430content.icicidirect.com/mailimages/idirect_arvind_q2fy18.pdf · arvind’s...

November 10, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Focused approach; De-merger to unlock value

Revenues for the quarter grew 13% YoY to | 2628.5 crore (I-direct

estimate: | 2444 crore). The growth was accelerated by higher growth

in brand & retail segment grew by 20% YoY (adjusted for Tommy

Hilfiger & Calvin Klein) to | 1032.4 crore as compared to | 899 crore in

Q2FY17 and | 773 crore in Q1FY18. The revenue growth in textile

business, majorly driven by garments business (up 19% YoY) was

completely tapered by subdued performance in major business like

denim (down 9% YoY) and wovens (down 5% YoY) resulting a flattish

revenues of | 1437.6 crore

Higher cotton prices (up 15% YoY) impacted the EBITDA margins for

textile business which declined by 400 bps YoY to 13% (absolute

EBITDA at | 187 crore). However with improvement of margins in

speciality retail segment (Unlimited), EBITDA for brands improved by

210 bps YoY (absolute EBITDA | 63 crore). Higher employee expenses

(up 16% YoY) and other OH’s (up 8% YoY) continue to impact

consolidated EBITDA margins which contracted by 190 bps YoY to

8.1% (I direct estimate: 9%). Subsequently, absolute EBITDA de-grew

by % YoY to | 212.3 crore (I-direct estimate: | 219 crore)

The positive impact of lower interest cost (down 15% YoY) and high

other income (up 16% YoY) was completely offset by higher

depreciation expenses (up 16% YoY). The reported PAT was further

impacted by exceptional expense of | 4.5 crore pertaining to

retrenchment, post which PAT stood at | 64.5 crore. Excluding the

same PAT stood at | 69 crore (I-direct estimate: | 64.5 crore)

The company has announced the demerger of its Branded apparel and

Engineering business. The branded apparel business will be demerged

into Arvind Fashion’s Limited (AFL) and existing shareholders will be

allotted 1 share of AFL for five shares held. Moreover, engineering

business will be demerged into Anveshan (post listing name would

change to Anup Engineering) and existing shareholders would be

allotted one share of Anup for every 27 shares held. The expected

timeline for the same would be 6-8 months

Realigning focus - Stepping stone to aggressive targets; maintain BUY

With de-merger to be effective by FY19, Arvind has charted an aggressive

growth strategy for each of these businesses. The cash flows from

Arvind’s textile business was earlier utilised supporting expansion plans

of brands. On account of under investment in the revenues for textile

business grew by merge 5% CAGR over FY14-FY17 to | 5453 crore in

FY17. However the investment led strategy resulted robust growth in

brands business (AFL) which resulted revenues grow at a CAGR of >25%

over FY14-FY17 to | 2898 crore in FY17. With AFL now been able to fund

itself, Arvind has announced a capital expenditure of | 1500 crore for its

textile business. Although break-up of capex is not available, garmenting

and technical textiles would form a major part of the allocation. Given the

asset turns of these businesses are high; the management expects Arvind

Ltd. to grow at a CAGR of 10-11% over FY17-FY22 to | 9000-10000 crore.

AFL, which houses 15 brands, is expected to continue its upward

trajectory with revenues expected to grow at a CAGR of 22-25% to ~|

9000 crore over FY17-FY22. However, Anup engineering with its debt free

balance sheet and robust growth of 25% CAGR over FY13-17 is expected

to continue its growth trajectory.

With this de-merger, we believe Arvind would be able efficiently

channelise its resources to full potential leading optimised results. We

expect Arvind to play a pivotal role capturing a larger pie of the Indian

textile industry thereby maintaining a BUY and a target price of | 480.

Arvind Ltd (ARVMIL) | 430

Rating matrix

Rating : Buy

Target : | 480

Target Period : 12 months

Potential Upside : 12%

What’s changed?

Target Unchanged

EPS FY18E Unchanged

EPS FY19E Unchanged

Rating Unchanged

Quarterly performance

| Crore Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)

Revenue 2,628.5 2,331.1 12.8 2,475.0 6.2

EBITDA 212.3 232.3 (8.6) 207.0 2.6

EBITDA (%) 8.1 10.0 -189 bps 8.4 -29 bps

PAT 64.5 76.7 (15.9) 56.8 13.6

Key financials

| Crore FY16 FY17 FY18E FY19E

Net Sales 8,011 9,236 10,508 11,829

EBITDA 951 943 1,014 1,203

Net Profit 316.1 320.1 360.2 494.0

EPS (|) 12.3 12.4 14.0 19.1

Valuation summary

FY16 FY17 FY18E FY19E

P/E (x) 31.8 31.4 27.9 20.4

Target P/E (x) 28.5 28.2 25.1 18.3

EV/EBITDA (x) 14.5 13.8 12.7 10.6

P / BV (x) 2.7 2.0 0.9 0.8

RONW (%) 11.9 9.0 9.6 11.7

ROCE (%) 11.0 9.9 10.4 12.3

Stock data

Particular Amount

Market Capitalization (| Crore) 11,109.5

Total Debt (FY17) (| Crore) 151.4

Cash (FY17) (| Crore) 1,478.8

EV (| Crore) 9,782.1

52 week H/L 460 / 320

Equity Capital (| Crore) 258.4

Face Value (|) 10.0

Peer Comparison

1M 3M 6M 12M

Raymond (0.69) (2.78) 50.78 66.52

Arvind Ltd (1.84) (13.52) (4.06) 23.59

K P R Mill Ltd (1.28) 5.03 31.43 44.47

Kewal Kir.Cloth. (5.42) (6.02) (3.49) (10.00)

Research Analyst

Bharat Chhoda

[email protected]

Ankit Panchmatia

[email protected]

Cheragh Sidhwa

[email protected]


Variance analysis

| crore Q2FY18 Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments

Revenue 2,628.5 2,444.0 2,331.1 12.8 2,475.0 6.2 LTL: Power Brands (-) 1%: Unlimited: +20%: Overall 3%

RM Cost 1,280.1 1,099.8 1,065.5 20.1 1,130.7 13.2 Increase in cotton prices resulted in higher RM expenses

Employee Benefit Expenses 328.7 326.3 283.7 15.8 311.6 5.5

Other Expenditure 807.5 637.9 749.6 7.7 825.8 -2.2

Total Expense 2,416.2 2,225.3 2,098.8 15.1 2,268.0 6.5

EBITDA 212.3 218.7 232.3 -8.6 207.0 2.6

EBITDA Margin (%) 8.1 9.0 10.0 -189 bps 8.4 -29 bps

Depreciation 83.3 87.0 71.9 15.8 86.3 -3.5

Interest 62.0 64.5 73.1 -15.3 61.4 0.9 Decline in debt resulted in reduction interest expenses

Other Income 25.6 17.8 22.1 15.8 16.3 57.0

PBT 92.6 85.0 109.4 -15.4 75.6 22.6

Total Tax 23.6 15.4 27.0 -12.5 13.5 74.4

Exceptional Item -4.5 -7.9 -6.3 NM -6.9 -35.5 Exceptional expenses on account of retrenchment related compensation

Reported PAT (Incld Minority Int) 64.5 65.2 76.7 -15.9 56.8 13.6

Key Metrics Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)

Textiles 1,437.6 1,427.5 0.7 1,557.4 -7.7 Growth was mainly due to 19% growth in the garments business. Denim and

wovens de-grew by 9% and 5% respectivley

Brand & Retail 1,032.4 899.0 14.8 773.7 33.4 Adjusting for GST impact, growth would have been higher by 5%

Arvind Internet 1.9 3.0 -37.7 1.7 11.4

Others 179.2 168.9 6.1 152.8 17.3

Less: Intersegment 22.7 23.3 -2.8 10.5 115.9

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) % Change Old New % Change Old New % Change Comments

Revenue 9,235.5 2.4 10,507.5 10,507.5 0.0 11,829.2 11,829.2 0.0 Continue to maintain revenue growth estimates

EBITDA 943.4 -20.1 1,013.9 1,013.9 0.0 1,203.4 1,203.4 0.0

EBITDA Margin (%) 10.2 -287 bps 9.6 9.6 0 bps 10.2 10.2 0 bps Unchanged

PAT 320.1 -19.7 360.2 360.2 0.0 494.0 494.0 0.0

EPS (|) 12.4 -19.7 14.0 14.0 0.0 19.1 19.1 0.0 Unchanged

FY17

FY19EFY18E



Details of de-merger:

Arvind currently operates different businesses under divisions and

subsidiaries. As on FY17, Arvind has 22 subsidiaries (Direct or Indirect)

and 5 joint venture companies.

Exhibit 1: Consolidated structure to be divided in three independent listed companies…

Sr. No Name of the Company Subsidiary %

1 The Anup Engineering Limited Subsidiary 93.5

2 Arvind Lifestyle Brands Limited Subsidiary 100.0

3 Syntel Telecom Limited Subsidiary 100.0

4 Arvind Brands and Retail Limited Subsidiary 100.0

5 Arvind PD Composites Private Limited Subsidiary 51.0

6 Arvind Envisol Limited Subsidiary 100.0

7 Arvind Goodhill Suit Manufacturing Private Limited Subsidiary 51.0

8 Arvind OG Nonwovens Private Limited Subsidiary 74.0

9 Dholka Textile Park Private Limited Subsidiary 100.0

10 Arvind Garments Park Private Limited Subsidiary 100.0

11 Arvind Internet Limited Subsidiary 100.0

12 Arvind Beauty Brands Retail Private Limited Subsidiary 100.0

13 Arvind Foundation Subsidiary 100.0

14 Arvind Fashions Limited Subsidiary 89.7

15 Arvind Ruf & Tuf Private Limited Subsidiary 100.0

16 Arvind Premium Retail Limited Subsidiary 51.0

17 Arvind True Blue Limited Subsidiary 87.5

18 Arvind Worldwide Inc., USA Subsidiary 100.0

19 Arvind Textile Mills Limited, Bangladesh Subsidiary 100.0

20 Arvind Niloy Exports Private Limited, Bangladesh Subsidiary 70.0

21 Arvind Lifestyle Apparel Manufacturing PLC, Ethopia Subsidiary 100.0

22 Westech Advanced Materials Limited, Canada Subsidiary 51.0

23 Arya Omnitalk Wireless Solutions Private Limited Associate (JV) 50.0

24 Tommy Hilfiger Arvind Fashion Private Limited Associate (JV) 50.0

25 Arya Omnitalk Radio Trunking Services Private Limited Associate (JV) 50.0

26 Arudrama Developments Private Limited Associate (JV) 50.0

27 Calvin Klein Arvind Fashion Private Limited Associate (JV) 49.0

JV/Associate

Subsidiaries

Source: ICICIdirect.com Research, Entities to be impacted on de-merger

Exhibit 2: Consolidated structure to be divided in three independent listed companies…

Source: ICICIdirect.com Research

The de-merger would result in three independent listed entities. The

textile business which includes denim, wovens, garments, technical

textiles etc. would continue to be a part of Arvind Ltd. The branded

apparel business which includes 15 brands (Tommy Hilfiger, U.S.Polo,

Arrow, Flying Machine, Gap, Aeropostale, The children place (TCP),

Sephora etc.) will be de-merged into Arvind Fashion Limited (AFL). The

consideration would be one share of AFL for every 5 existing Arvind

shares. In addition to the AFL shares, the engineering division (including

Anup and recently formed Anveshan) would also be de-merged. Anup

would be merged with Anveshan and the renamed listed entity would

Anup engineering. The consideration would be one share of Anup for

every 27 existing Arvind shares.


Key indicators of independent entities…

Exhibit 3: Key indicators of de-merged entities…

Particulars Arvind Ltd.

Arvind

Fashions Ltd.

Anup Engineering

Limited

FY17 Revenue (in crs)

(CAGR)

| 6158 crore

(13%)

| 2898 crore

(25%*)

| 179 crore

(25%)

FY17 EBITDA (in crs)

(CAGR)

| 819 crore

(5%)

| 145 crore

(~34%)

| 54 crore

(47%)

EBITDA Margin 13.3% 5.0% 30.0%

RoCE

(FY17)

11.9% 3.7% 43.3%

Net Debt as on Q2FY18 | 2792 crore | 696 crore Net Cash of | 36 crore

Shareholders Equity

as on Q2FY18

~| 2600 crore | 1108 crore | 179 crore


Analyst meet takeaways…

Arvind Ltd:

With capabilities from yarn to garment, Arvind remains one of the

most vertically integrated company in the textile industry. With the

core capabilities developed from transition of textile manufacture to

brand player, the company has successfully positioned itself as the

most preferred choice of manufacturing & distribution partner

Arvind continues to foster new businesses and invest in future. The

capital expenditure of | 1500 crore would be channelized to develop

next generation clothing solutions. Garmenting also continues to be a

focus of the company and capacity expansion would be on the anvil.

The current captive consumption of fabric to garment stands at 8%.

Affirming its stance on value addition, the management intends to

scale this proportion up to 50%. The targeted customers involve

multi-billion dollar fast fashion brands like Zara, H&M, Uniqlo, etc.

which are eyeing aggressive expansion in India.

The vision includes developing IP driving smart clothing solutions

which would be developed using blends of man-made fibers. The

vision also involves a completely technology driven manufacturing

process.

Arvind Fashion Ltd (AFL):

AFL would continue its store expansion targets accelerating the

transition of its “new brands” to “growth brands” and “growth

brands” to “power brands”. The management is confident of

unleashing the potential of “Unlimited” and believes that the format is

currently at an inflection point.

For FY18, nearly 3 brands are expected to negatively impact the

EBITDA. Two of these brands are expected to turnaround by the end

of the year and exit the year with one loss making brand.

Creyate and Footwear category would be transferred to AFL.

However, of the two components of Arvind internet, NNOW would

transferred to AFL and the backend technology would continue to be

a part Arvind Ltd. The vision here includes offering digital and omni-

channel solutions to customer providing them seamless shopping

experience.

The management has now set high the threshold limits for acquisition

of new brands. The internal guidance involves targeting a brand not

less than | 500 crore or white space offering e.g. traditional wear, etc.

Exhibit 4: Targeted revenues - Arvind textile business

Revenues (in crs.)

46844958 5069

5453

2999

9000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

FY14

FY15

FY16

FY17

H1FY18

FY22

10% - 12% CAGR


Exhibit 5: Targeted revenues - Arvind Fashion

Revenues (in crs.)

19152361

27402302

1818

9000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

FY14

FY15

FY16

FY17

H1FY18

FY22

22% - 24% CAGR



Company Analysis

Arvind - One stop shop for apparel requirements

Arvind possesses key ingredients that would enable it to capture the high

trajectory growth opportunity in the apparel segment. Having diversity in

offerings across menswear, womenswear and kidswear; positions the

company as a one stop to shop for all apparel requirements of a family.

The company is equipped with probably the best portfolio of brands (both

owned and licensed) in the Indian apparel industry coupled with a

nationwide reach that would enable it to reach a large quantum of

customers across various price points. The company has products with a

price range starting from as low as | 400 to as high as | 15000, which

provides a variety of choices and entry points for each and every

customer.

Exhibit 6: Everything for everyone..!!!

Mens Wear

Formal Casual Denim

Kids Wear

(|44000 cr / $8 bn)

Brands

Inner Wear

(|18000 cr / $3 bn)

Men Women Brands

Women Wear

(|95000 cr / $15 Bn)Mkt. Size (|105000 cr / $18 bn)


Over a period of time, Arvind has strategically built up its brand portfolio,

which includes a blended combination of mass brands, entry level

brands, premium brands and super premium brands. With this

combination, the company manages to capture customers across the

income pyramid. For menswear, it has entry level brands like Excalibur

and Cherokee and power brands like Arrow, US Polo and Flying Machine.

For women, it has brands like Elle and Karigari. For kidswear, it has

association with major brands like The Children’s Place (TCP) and GAP for

kids. Furthermore, brands like Tommy Hilfiger and GAP are available

across categories. Also, in the innerwear segment, the company is well

positioned with brands like Hanes & Tommy Hilfiger.


Consistent L2L in Unlimited – Signs of successful restructuring…

Growth in Unlimited remained robust, revalidating the business model

correction initiated over the past two years. Arvind has been constantly

reinventing this retail segment from an initially launched discounted retail

store to a value retail format. In order to shed its “discount store” image,

Arvind has rebranded its large format Megamart stores (>10000 sq ft) as

Unlimited. Apart from mass brands like Cherokee and Geoffrey Beene, the

management started offering premium brands like Arrow and US Polo. It

also started selling exclusive brands like Ruggers, Skinn, Elitus, Donuts,

Karigari, Mea Casa, Auburn Hill, Bay Island, Colt, Leisha and Edge.

Closure of unviable lossmaking stores led store count to reduce from 140

in FY15 to 90 stores in Q2FY18. Post completion of restructuring the

management intends to add 30-40 stores under this format and targets

revenue of | 800 crore for FY18 as compared to | 600 crore in FY17.

Technical textiles - future ahead

After the recent stake dilution, the company now intends to focus on the

textile division with major thrust in the field of “advanced material”

(erstwhile technical textiles). Technical textiles has immense potential,

particularly in developing countries. India currently accounts for less than

5% of the world technical textile production (value). Indian technical

textile industry has grown at a CAGR of 12% in 2008-16 from | 36755

crore to | 92499 crore. The growth has been driven by higher domestic

consumption and increased exports. Though still in the nascent stage,

Arvind has been constantly building on the technical textile business and

have been looking for newer opportunities for joint ventures with global

companies to either bring in technology or access to international

customers. As of FY16, the company had made investments of around

| 200 crore. The management believes that due to its varied application

and utility, technical textiles would position Arvind in the league of high

growth phase.

Focus on specialty retail store

The management of AFL is keen on developing “Specialty retail” channel.

Formats under the specialty retail would include multi-offerings under

Unlimited, TCP, Aeropostale, GAP and Sephora. The company is focusing

on setting up more speciality retail stores, which would contribute ~30%

of the brand & retail revenue in FY18. The management expects to break

even from this segment in three years of its operations and generate

positive EBITDA in the range of 7-9% by FY22.

Nnow.com: Arvind’s foray into omni-channel play

In the quest to upgrade customer experience through Omni channel and

leverage its global brands on a digital platform Arvind has launched

‘nnnow.com’, which provides access to a complete range of Arvind

brands online. The current stores pan-India are acting as warehouses for

the online platform. Approximately, 40-50% of the online business is

fulfilled through its own stores in the vicinity. Investments made in Arvind

internet for FY17 were around | 55-60 crore.


Valuation

Given the investments, Standalone business to be re-rated at 6.5x

Given the company’s expertise in manufacturing garments, coupled with

its positioning as the most preferred franchisee/distribution partner in

India, it is poised to benefit from an increase in apparel demand. Arvind’s

standalone revenue, which includes textiles and garments, grew at a

CAGR of 17% in FY11-17. Majority of this growth was driven by growth in

its fabric division, which grew at 16% CAGR in FY11-17. The increase in

fabrics revenues was mainly supported by 16% CAGR in woven, followed

by denim revenues, which grew at a modest CAGR of 4%. Apart from

fabrics, the company manufactures garments for brands like Tommy

Hilfiger, Calvin Klein, H&M, M&S, FCUK and Jack & Jones. Revenues from

the same grew at a CAGR of 17% in 2012-17.

Over the past few years, the company’s investments in augmenting its

garmenting capacities and textile capabilities were insignificant. With the

recent demerger the investments in expansion of its intention to double

its garmenting capacity to a targeted 40 million pieces by 2020. Further,

currently only 7% of fabrics produced are used for production of

garments that the company intends to increase to 25% by 2020 and 50%

by 2022. With the enhancement of capacity, standalone revenues would

be mainly driven by garments. Garment revenues have increased at a

CAGR of 17% in 2012-17, which is further expected to grow at a CAGR of

~20% in FY17-19E. Furthermore, additional investments in new segments

like technical textiles will drive standalone revenues. We believe the

standalone business has different dynamics and has very different

working capital cycle.

Exhibit 7: Peer comparison for standalone business….

Figures (Rs crs)

Company Price Sales EBIDTA OPM PAT PAT % FY17 FY18E FY19E

Nandan Denim 170.0 1,220.4 189.9 15.6 56.7 4.6 6.2 4.9 4.4

KPR Mills 730.0 2,816.0 590.7 21.0 286.2 10.2 10.6 9.6 8.5

Vardhman Textiles 1,290.0 6,066.8 1,226.0 20.2 981.4 16.2 7.5 8.2 6.4

Average EV/EBIDTA 8.1 7.6 6.4

FY17 EV/EBIDTA


The renewed focus on the cash gusher segment commands a re-rating on

the textile business. We value the standalone business on the basis of

EV/EBITDA and assign an industry average EV/EBITDA multiple of 6.5x

FY19E arriving at a targeted market capitalization of | 3100 crore and

SOTP value of | 120/share.

Exhibit 8: Valuing standalone business….

SOTP

Arvind Standalone & other businesses

Target EV/EBITDA (x) 6.5

EBITDA (FY19E) (| Crore) 832.6

Net Debt (| Crore) 2,274.5

Enterprise Value (| Crore) 5,378.7

Target Market cap Core business (| crore) 3,104.2

Value/Share 120


Anup valued at 5x EV/EBITDA…

We value Anup Engineering at 5x EV/EBITDA which could result a

targeted market capitalization of | 270 crore post listing, ascribing a per

share value of | 10/share.


Brands & retail business – stability to remain crucial…

The theme around brands and positioning apparel as a ‘bridge to luxury’

segment has seen only a handful of players like Madura and Page getting

it right and being successful. The growth from branded apparel has been

lumpy with close to 200 international brands currently present in the India

fashion segment. Currently, Arvind has four power brands with each

having a turnover of ~| 2700 crore. The company estimates that each of

these brands would be scaled up to | 5000 crore. Over a decade, the

company believes it has added sufficient number of brands and now

wants to focus on its monetisation. The recent restructuring of Megamart

and closure of unsuccessful ventures like Debenhams and Next affirm the

management efforts to focus on profitable growth.

Majority of brands in India, though not profitable, are targeting revenue

growth. However, profitability will creep in once significant scale is

achieved. To quote the management, “When a brand attains a turnover of

| 100-150 crore it gets out of negative EBITDA. By the time it touches |

250 crore, RoCE becomes attractive. By the time it gets to | 350 crore, a

brand makes tonnes of money”. With the currently successful launch of

GAP store and target audience for Aeropostale, it is well poised to create

a number of powerbrands by 2020. We believe that one of the brands

would be converted into a powerbrands in 2018. On account of this,

powerbrand revenues are expected to grow at 33% CAGR while due to

the shift, growth of other brands would be lower at 11% CAGR in 2017-

19. We believe this business would be valued on the basis of sales the

company is able to achieve and following this, the estimated market

capitalisation it would demand. We value its brands & retail business

using the market capitalisation to sales method. Thus, we value the

company at an average multiple of 2x and arrive at a value of | 350 per

share and a targeted market capitalization of | 9025 crore.

Exhibit 9: Peer comparison brands & retail business….

Figures (Rs crs)

Company

Market

Capitalization FY15 FY16 FY17 FY18E FY19E FY17 FY18E FY19E

Kewal Kiran 2,324.7 405.1 453.0 492.0 526.0 608.0 4.7 4.4 3.8

Monte Carlo 1,156.0 582.6 621.5 584.1 584.1 789.6 2.0 2.0 1.5

Raymond 5,857.6 5,332.6 5,176.8 5,391.3 2,822.2 6,673.7 1.1 2.1 0.9

Trent 10,567.1 2,284.3 1,589.3 1,833.9 2,366.0 2,740.0 5.8 4.5 3.9

Average Mcap/Sales 3.4 3.2 2.5

Sales Market Cap/Sales


Exhibit 10: Valuing brands & retail business….

SOTP

Arvind Lifestyle & Brands

Target Market Cap/Sales (x) 2.0

Sales (FY19E) 4,593

Market Capitalization (FY19E) 9,025.2

No. of Shares 25.8

Price target (|) 350


Consolidated valuation

Applying the EV/EBITDA multiple of 6.5x to its standalone business (|

120/share) and market capitalisation to sales multiple of 2x to its brands &

retail business (| 350/share) and Anup engineering at 5x EV/EBITDA (|

10/share), we continue to maintain our consolidated target price of |

480/share and BUY recommendation on the stock.


Recommendation history vs. Consensus

0.0

10.0

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30.0

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50.0

60.0

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100.0

150

200

250

300

350

400

450

500

Nov-17Aug-17Jun-17Apr-17Jan-17Nov-16Aug-16Jun-16Mar-16Jan-16

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Dec-04 Arvind Brands Ltd made subsidiary company of Arvind

Jul-10 Launches The Arvind Store and its first major real estate project

Oct-11 Sets up joint venture for marketing Tommy Hilfiger brand

Aug-12 Signs distribution agreement with Billabong Arvind acquires India operations of Debenhams, Next, Nautica

Sep-13 Signs agreement for licenses of Hanes Enters long term licensing agreement with Iconix Lifestyle India

Oct-14 Buys 49% stake in Calvin Klein in India Set up joint venture (JV) with Goodhill Corporation of Japan for launch of formal suits

May-15 Launches the first GAP store in Delhi; the company ties up with American specialty retailer - Aeropostale

Jul-15 Reports Q1FY16 results with 6% growth in revenues; brands & retail revenues at | 527 crore

Oct-15 Reports Q2FY16 results in line with estimates. Textiles grew by 5% YoY and Brands & Retail grew by 9% YoY

Feb-16 Reports Q3FY16 results in line with expectation. Textiles remained stagnant and brand & retail grow 12%

May-16 Launch of nnnow.com

Aug-16 Reports Q1FY17 results in line with expectation. Textiles grew by 13%; brand & retail grew by 26%

Oct-16 Reports Q2FY17 results. Stake sale of 10% to "Multiples" at | 740 crore in ALBL. Revenues grew by 19% YoY; Brands & Retail grew by 33% YoY, textile grew by

9%

Jan-17 Reports Q3FY17 results with revenues growth of 15% YoY; Brands & Retail grew by 25% YoY, textile grew by 8%. Debt reduced to | 2780 crore


Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position Change (m)

1 Aura Securities Pvt. Ltd. 30-Sep-17 36.96% 95.6 0.0

2 Life Insurance Corporation of India 30-Sep-17 3.26% 8.4 0.0

3 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-17 2.68% 6.9 0.2

4 Nordea Funds Oy 31-Aug-17 2.62% 6.8 0.0

5 Dimensional Fund Advisors, L.P. 30-Sep-17 2.60% 6.7 -0.5

6 AML Employees Welfare Trust 30-Sep-17 2.45% 6.3 0.0

7 Kotak Mahindra Asset Management Company Ltd. 30-Sep-17 2.34% 6.1 -0.2

8 Sundaram Asset Management Company Limited 30-Sep-17 2.08% 5.4 0.5

9 Multiples Alternate Asset Management Private Limited 30-Sep-17 1.91% 4.9 0.0

10 Reliance Nippon Life Asset Management Limited 30-Sep-17 1.66% 4.3 0.2

(in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Promoter 43.8 43.8 43.1 42.9 42.9

FII 22.5 22.6 24.8 25.9 27.1

DII 16.2 16.4 15.3 13.8 14.1

Others 17.5 17.2 16.8 17.3 15.9

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor Name Value Shares Investor Name Value Shares

Sundaram Asset Management Company Limited 3.0 0.5 Tata Asset Management Limited -6.1 -1.1

LGT Capital Partners Ltd. 2.5 0.4 Dimensional Fund Advisors, L.P. -2.8 -0.5

Reliance Nippon Life Asset Management Limited 1.2 0.2 Jyske Invest Fund Management A/S -1.4 -0.2

Franklin Templeton Asset Management (India) Pvt. Ltd. 1.1 0.2 Kotak Mahindra Asset Management Company Ltd. -1.3 -0.2

Aditya Birla Sun Life AMC Limited 0.9 0.2 Driehaus Capital Management, LLC -1.3 -0.2

BUY SELL

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY16 FY17 FY18E FY19E

Total operating Income 8,010.6 9,235.5 10,507.5 11,829.2

Growth (%) 2.0 15.3 13.8 12.6

Raw Material Expenses 3,466.6 4,196.5 4,833.5 5,382.3

Employee Expenses 898.1 1,096.3 1,293.6 1,494.1

Manufacturing & Other Expenses 2,685.1 2,986.5 3,351.9 3,732.9

Project Expenses 9.7 12.9 14.6 16.5

Total Operating Expenditure 7,059.5 8,292.2 9,493.6 10,625.8

EBITDA 951.1 943.4 1,013.9 1,203.4

Growth (%) (0.8) 7.5 18.7

Depreciation 240.5 297.1 321.6 345.6

Interest 358.6 288.4 272.2 262.7

Other Income 82.1 78.0 70.2 73.7

PBT 434.0 435.9 490.3 668.7

Growth (%) (13.0) 0.4 12.5 36.4

Total Tax 124.6 99.7 120.1 164.7

PAT (adj. exceptional gains/loss) 316.1 320.1 360.2 494.0

Growth (%) (7.3) 1.2 12.5 37.2

EPS (|) 12.3 12.4 14.0 19.1


Cash flow statement | Crore


Profit after Tax 316.1 320.1 360.2 494.0

Add: Depreciation 240.5 297.1 321.6 345.6

(Inc)/dec in Current Assets (308.8) (453.5) (84.9) (493.7)

Inc/(dec) in CL and Provisions 230.5 299.9 (30.4) 150.3

Others 0.2 - - -

CF from operating activities 478.5 463.5 566.5 496.3

(Inc)/dec in Investments (118.2) 147.8 (19.8) (20.8)

(Inc)/dec in Fixed Assets (572.1) (445.1) (246.3) (296.6)

(Inc)/dec in CWIP (2.9) 2.6 (19.1) (23.0)

Others - - - -

CF from investing activities (693.2) (294.8) (285.2) (340.4)

Issue/(Buy back) of Equity - 0.1 (0.1) -

Inc/(dec) in loan funds 278.8 (853.2) (100.0) (100.0)

Others (73.0) 677.3 (165.3) (49.3)

CF from financing activities 205.9 (175.8) (265.4) (149.3)

Net Cash flow (8.8) (7.0) 15.9 6.6

Opening Cash 69.7 60.9 53.9 69.8

Closing Cash 60.9 53.9 69.8 76.4


Balance sheet | Crore


Liabilities

Equity Capital 258.2 258.4 258.2 258.2

Reserve and Surplus 2,388.2 3,309.8 3,504.4 3,948.7

Total Shareholders funds 2,646.4 3,568.2 3,762.6 4,207.0

Total Debt 3,818.8 2,965.6 2,865.6 2,765.6

Deferred Tax Liability (124.0) (144.1) (151.3) (158.9)

Minority Interest / Others 55.6 151.4 159.0 167.0

Total Liabilities 6,396.8 6,541.1 6,635.9 6,980.6

Assets

Gross Block 3,659.5 4,012.6 4,288.2 4,608.6

Less: Accumlated depreciation 369.4 607.7 929.3 1,274.9

Net Block 3,290.1 3,404.9 3,358.9 3,333.7

Capital WIP 98.3 95.7 114.8 137.8

Intangibles 115.4 148.9 119.1 95.3

Total Fixed Assets 3,388.4 3,500.6 3,473.7 3,471.5

Investments 543.8 396.0 415.8 436.6

Inventory 1,920.5 2,382.8 2,303.0 2,592.7

Debtors 768.2 813.9 863.6 972.3

Loans and Advances 704.8 584.7 643.1 707.5

Other Current Assets 498.8 564.4 620.8 651.8

Cash 60.9 53.9 69.8 76.4

Total Current Assets 3,953.2 4,399.6 4,500.4 5,000.7

Trade Payables 1,214.2 1,478.8 1,402.7 1,509.6

Provisions 58.8 64.5 74.2 77.9

Other Current Liabilities 330.8 360.2 396.3 435.9

Total Current Liabilities 1,603.7 1,903.6 1,873.1 2,023.4

Net Current Assets 2,349.5 2,496.1 2,627.3 2,977.2

Application of Funds 6,396.8 6,541.1 6,635.9 6,980.6


Key ratios


Per share data (|)

EPS 12.3 12.4 14.0 19.1

Cash EPS 21.6 23.9 26.4 32.5

BV 102.5 138.1 145.7 162.9

DPS 0.0 0.0 0.0 0.0

Cash Per Share 2.4 2.1 2.7 3.0

Operating Ratios

EBITDA Margin (%) 11.9 10.2 9.6 10.2

PBT Margin (%) 5.4 4.5 4.6 5.6

PAT Margin (%) 3.9 3.4 3.4 4.2

Inventory days 87.5 94.2 80.0 80.0

Debtor days 35.0 32.2 30.0 30.0

Creditor days 55.3 58.4 48.7 46.6

Return Ratios (%)

RoE 11.9 9.0 9.6 11.7

RoCE 11.0 9.9 10.4 12.3

RoIC 12.3 10.8 11.5 13.6

Valuation Ratios (x)

P/E 31.8 31.4 27.9 20.4

EV / EBITDA 14.5 13.8 12.7 10.6

EV / Net Sales 1.7 1.4 1.2 1.1

Market Cap / Sales 1.4 1.2 1.1 0.9

Price to Book Value 2.7 2.0 0.9 0.8

Solvency Ratios

Debt/EBITDA 4.0 3.1 2.8 2.3

Debt / Equity 1.4 0.8 0.8 0.7

Current Ratio 2.4 2.3 2.4 2.4

Quick Ratio 1.2 1.0 1.1 1.2



ICICIdirect.com coverage universe (Retail & Textile)

CMP M Cap

(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

Kewal Kiran Clothing 1910 2260 Buy 2354 69.2 75.8 96.3 23.4 21.2 16.8 4.8 4.5 3.8 23.8 23.6 25.6 23.8 22.7 24.5

Page Industries

(PAGIND)

22350 15115 Hold 21065 260.9 335.1 429.1 85.7 66.7 52.1 8.4 6.7 5.4 59.2 63.2 68.9 51.6 56.8 62.2

Rupa & Company 452 475 Buy 3317 9.1 11.0 13.4 49.8 41.3 33.9 24.3 21.0 17.7 23.6 24.8 26.9 16.4 17.9 19.5

Vardhman Textiles 1310 1070 Hold 7455 179.0 75.2 157.3 7.3 17.4 8.3 6.6 7.5 5.9 14.5 7.7 15.4 23.0 9.0 16.6

Arvind Ltd 430 480 Buy 10143 12.3 12.4 14.0 35.1 34.7 30.8 14.5 13.8 12.7 11.0 9.9 10.4 11.9 9.0 9.6

RoCE (%) RoE (%)

Sector / Company

EPS (|) P/E (x) EV/EBITDA (x)



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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

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ICICIdirect.com Research Desk,

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