Arvind Ltd

(BSE Code: 500101) (CMP: Rs.322.15) (FV: Rs.10)

Money Times - - Best Bet -

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.

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