(BSE Code: 500101) (CMP: Rs.322.15) (FV: Rs.10)
Established in 1931, Ahmedabad-based Arvind Ltd, together with its subsidiaries, manufactures, supplies and exports textiles. It operates through the following segments: Textiles; Branded Apparels; Arvind Internet; Engineering; and Others. It offers denim, woven and knit fabrics, sportswear products, long cloths, dress materials, blouse materials, etc. It also provides critical engineering process equipment including heat exchangers, pressure vessels, reactors, columns/towers and centrifuges for oil & gas, petrochemicals, fertilizers and pharmaceuticals sectors and a range of advanced materials such as fire-resistant fabrics and garments, work wears, filtration products, conveyor belt fabrics, coated products, glass fabrics and structural composites. In addition, it operates ~1,200 speciality retail stores that offer garments under various brands such as Flying Machine, Tommy Hilfiger, Arrow, US Polo, Izod, Elle, Cherokee, Mainstream, Excalibur, etc. Further, it supplies water and waste water treatment plants for industrial process. It is also engaged in e-commerce, technical textiles, agriculture produce, telecommunication and other businesses. The demerger of Arvind’s branded apparel and engineering businesses is at the final stage as the final decision from the NCLT court is awaited. Its verticalization strategy i.e. expanding its garment manufacturing business is moving as per plan. It targets to achieve ~50% from garmenting in the next 4-5 years compared to ~10% in FY18. In order to achieve this target, it plans to enhance its garment manufacturing capacity to 120 million pieces per annum (~4x of current) in the next 4-5 years.
The management expects strong growth in H2FY19 backed by all major festivals in October and November. Its apparels business may grow at a moderate rate of mid to low teen in Q2FY19 on weak Onam demand in South India and major festival demand which has been shifted to Q3FY19.
The management is positive on improving the margins of its branded apparel business based on improvement in its operating leverage and all its brands turning profitable on higher scale. It has maintained its guidance for 10% growth in its textiles business with a flattish margin, 20-24% YoY growth in its brand and retail business with 100 bps improvement in margins and 10-12% growth in its engineering business with a flattish margin. We have assumed 17% revenue CAGR in the branded apparels business, 8.9% in the textiles business and 17.5% in the engineering business with EBITDA margin improvement of 200 bps, 160 bps and 90 bps in each segment respectively over FY18-20E. Based on these estimates, we cut our consolidated EPS estimates for FY19E and FY20E by 10.4% and 11.8% respectively.
Technical Outlook: The stock looks good on the daily chart for medium-term investment. It has formed a hammer on the weekly chart, which indicates that the stock is being accumulated in heavy volumes. The stock trades below all important moving averages like the 200 DMA level on the daily chart.
Start accumulating at this level of Rs.322.15 and on dips to Rs.287 for medium-to-long term investment and a possible price target of Rs.375+ in the next 12 months.