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Arvind Stock Research Report

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Text Box: Company Overview:Arvind has a strong focus on Research and Development for process improvement, cost reduction and new product development. This is evident in the fact that Arvind continuously modifies its production process to enhance flexibility on the use of various types and quality of cotton. To further meet customer needs, Arvind has also introduced a new dyeing and processing method for denims.

State-of-the-art technology and equipment have made Arvind one of the leading producers of denim in the world, paving the way for the Company to emerge as a global textile conglomerate. This cutting edge position comes to Arvind courtesy technologies such as Open-end Spinning, Foam Finishing, Mercerizing, Slasher-dyeing, Rope-dyeing, Air-Jet, Projectile and Wet Finishing. It’s only natural that Arvind quality fabrics are in high demand in the markets of Europe, US, West Asia, the Far East and Asia Pacific.

Continued traction in the brand portfolio

* Consolidated revenues rose by 15% yoy to Rs23bn. EBITDA margin was down 250bps yoy at 10.1%. APAT down 16% yoy at Rs756mn

* “Unlimited” and growth brands drove overall Brand and Retail (B&R) growth by 24% yoy to Rs7.6bn. Textile revenues grew 8% yoy to Rs14bn on the back of a robust volume growth in garmenting division. We expect revenue CAGR of 14.6% over FY16-19E

* EBITDA margins were impacted by weaker mix in favour of garmenting (in textiles) and EBO/LFS (in brands), investment in the internet business and advancement of end of season sale (EOSS). We expect EBITDA margin of 11.9/12.3/12.5% in FY17/18/19E.

 

Performance highlights:.

Branded apparel sustains growth trajectory; Margins impacted by one-offs

Arvind’s Q3FY17 revenue growth was in-line with our estimates, while EBITDA margins were impacted due to one-offs. Key highlights: 1) Consolidated revenues at Rs23.3bn were up 15% yoy, with textile revenues increasing 8% yoy and B&R revenues increasing 24% yoy. EBITDA at Rs2.4bn down 8% yoy. EBITDA margins corrected down by 250bps yoy to 10.1%, impacted by higher employee costs, weaker mix, and investment in the internet business. Lower interest burden was offset by lower other income resulting in APAT of Rs756mn, down 16% yoy.

Demonetisation impact wears off; Maintains guidance of 15% growth

Company has maintained its revenue growth guidance of 15% going forward, driven by 25% growth in the B&R division. Growth in textiles is expected to be subdued at c.8%. Operating leverage, localised sourcing and improved performance from “Unlimited”, growth brands and specialty retail are expected to partially offset weaker mix (which will weigh down EBITDA margins). We have built in a 14.6% revenue CAGR over FY16-19E. We expect consolidated EBITDA margins to decline by 70bps in FY17E and to improve by 40/20bps in FY18E/19E.

Financials :

 

Particulars

Dec-16

Sep-16

June-16

Revenue

1463.91

1484.16

1465.85

Other Income

16.75

31.47

23.62

Total Income

1480.66

1515.63

1489.47

Expenditure

-1280.43

-1310.29

-1247.96

Interest

-54.80

-57.40

-70.50

PBDT

145.43

147.94

171.01

Depreciation

-46.46

-45.59

-43.53

PBT

98.97

102.35

127.48

Tax

-27.32

-35.08

-40.03

Net Profit

71.65

67.27

87.45

Equity

258.36

258.36

258.24

EPS

2.78

2.60

3.39

 

Highlights the fact:

1)Company has maintained its revenue growth guidance of 15% going forward, driven by 25% growth in the B&R division.

2)Lower interest burden was offset by lower other income resulting in APAT of Rs756mn, down 16% yoy.

3)The B&R business is well placed with a strong portfolio of brands, and is expected to drive growth.

4)EBITDA margins were impacted by weaker mix in favour of garmenting (in textiles) and EBO/LFS (in brands), investment in the internet business and advancement of end of season sale (EOSS).

5)Consolidated revenues rose by 15% yoy to Rs23bn. EBITDA margin was down 250bps yoy at 10.1%. APAT down 16% yoy at Rs756mn.

6)We expect consolidated EBITDA margins to decline by 70bps in FY17E and to improve by 40/20bps in FY18E/19E.

 

Technically View:

 

The stock is currently trading around 50 days and 100 days, moving average that is all about good positive moov& uptrend signal on daily base. RSI &MFI is present at 48 and 68respectivally, which is uptrend& showing the sideways formation for the short term period. The stock is currently in the upward formation and when it hold above 400 then somemore upside is expecting with major support is found 330 level. MACD line is greaterthen signal line 10 day Avg Volume is very high.

 

 

VALUATION & OUTLOOK:

 

While the revenue growth was in-line with our expectation, the impact of demonetisation on the trade channels, advancement of EOSS and investment in the internet business impacted profitability. The B&R business is well placed with a strong portfolio of brands, and is expected to drive growth. Owing to the weak profitability in the quarter and EBITDA mix moving in favour of low margin B&R and Garmenting segments, we have cut our EBITDA by 6%/4%/2% for FY17E/18E/19E respectively and consequently cut our EPS by 12%/8%/4% for FY17E/18E/19E. We maintain ACCUMULATE rating with revised price target of Rs450/share.

 

We retain our Buy recommend in this script with a price target of Rs 450 in the very short term outlook. So Entry would be around 380-370as recomanded in this counter.

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