Arvind Ltd (ARVMIL) | 430 · believe Arvind would be able to efficiently channelise its resources to full potential leading optimised results in the long term. We introduce FY20E

May 11, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Branded apparel, garmenting to spur growth…

Consolidated revenues for the quarter grew 21% YoY to | 2990.0

crore. Strong growth in the brand & retail segment, which grew 28%

YoY to | 1071 crore, mainly due to inclusion of Tommy Hilfiger &

Calvin Klein in consolidated results, accelerated growth

The textiles segment reported decent revenue growth of 9.3% YoY to

| 1596.4 crore. Growth in textiles was led by 14% increase in the

woven segment to | 605 crore. Denim, garment segment reported

revenue growth of 3%, 9% to | 471 crore, | 353 crore, respectively

The positive impact of lower raw material expense (cotton prices

down 7.4% YoY to | 113/kg) was completely offset by a reduction in

average realisations due to a sharp appreciation of rupee and reduced

duty drawback rates. Subsequently, gross margins at the consolidated

level declined 240 bps YoY to 49%

Positive operating leverage, (employee and other expenses as a

percentage to sales, down 9 bps and 298 bps, respectively) resulted in

EBITDA margin expansion of 60 bps YoY to 9.8%. Absolute EBITDA

grew 29% YoY to | 291.7 crore. On the segmental front, EBITDA

margins for the brands and retail segment improved significantly from

5.7% in Q4FY17 to 8.3% in Q4FY18. EBITDA margins for the textile

segment remained flattish at 12.5% YoY

Lower other income (down 58% YoY to | 14.1 crore), coupled with

increase in tax rate (18.5% in Q4FY18 vs. 11.3% in Q4FY17), restricted

PAT growth. Resultant PAT grew 18.2% YoY to | 115.5 crore, highest

quarterly PAT

Significant improvement in B&R segment margin visible…

The brands, retail segment continued on its strong trajectory, with

revenues increasing 28% YoY to | 1071 crore. Excluding it, revenue

growth for the base portfolio was at 12% YoY (GST adjusted growth 16%)

to | 925 crore. Overall B&R LTL sales growth came in at -4%, with ‘Power

Brands’ and ‘Unlimited’ posting negative LTL sales growth of 8% and 2%,

respectively. Negative LTL growth was mainly owing to advancement of

EOSS in December, 2017. However, after weak growth in January and

February, March turned out to be a strong month with Power Brands,

Unlimited seeing LTL growth of 7%, 13%, respectively. The management

remains upbeat on the future outlook, with revenues from B&R expected

to increase 20-24%, with margin expansion of 100 bps in FY19.

Garmenting segment to be next leg of growth for textiles segment…

The next leg of growth for the textiles segment is expected to be driven

by: 1) enhancing the garmenting capacity from current 30 million pieces

to 45 million pieces and 2) increased focus on advanced material division

and sportswear. The management believes the advance material division

(technical textiles) offers an immense opportunity to scale up its revenues

from the current | 500 crore to | 1000 crore by FY20E. The management

has affirmed its capex guidance of | 1500 crore over the next three to four

years (| 500 crore capex expected to be incurred in FY19E) towards high

asset turnover business, which, in turn, should improve RoCE. With a de-

merger on the cards (listing expected in the next four to five months), we

believe Arvind would be able to efficiently channelise its resources to full

potential leading optimised results in the long term. We introduce FY20E

estimates and roll over our valuation to FY20E. We maintain BUY

recommendation on the stock with a revised target price of | 510.

Arvind Ltd (ARVMIL) | 430

Rating matrix

Rating : Buy

Target : | 510

Target Period : 12 months

Potential Upside : 19%

What’s changed?

Target Changed from | 480 to | 510

EPS FY19E Changed from | 19.1 to | 16.2

EPS FY20E Introduced at | 23.6

Rating Unchanged

Quarterly performance

| Crore Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%)

Revenue 2,990.0 2,465.9 21.3 2,705.8 10.5%

EBITDA 291.7 225.5 29.3 248.4 17.4%

EBITDA (%) 9.8 9.1 61 bps 9.2 57 bps

PAT 115.5 97.7 18.2 79.1 46.0%

Key financials

| Crore FY17 FY18E FY19E FY20E

Net Sales 9,236 10,826 12,375 14,030

EBITDA 943 965 1,182 1,483

Net Profit 320.1 315.8 419.2 608.3

EPS (|) 12.4 12.2 16.2 23.6

Valuation summary

FY17 FY18E FY19E FY20E

P/E (x) 34.7 35.1 26.5 18.2

Target P/E (x) 41.1 41.7 31.4 21.6

EV/EBITDA (x) 14.9 14.7 12.1 9.7

P / BV (x) 3.1 2.9 2.7 2.4

RONW (%) 9.0 8.3 10.1 12.9

ROCE (%) 9.9 8.8 10.6 13.2

Stock data

Particular Amount

Market Capitalization (| Crore) 11,120.7

Total Debt (FY18) (| Crore) 2,965.6

Cash (FY18) (| Crore) 65.5

EV (| Crore) 14,020.8

52 week H/L 478.5/353

Equity Capital (| Crore) 258.6

Face Value (|) 10.0

Peer Comparison

1M 3M 6M 12M

Raymond 7.9 15.7 16.3 42.7

Arvind 7.8 10.2 0.9 4.7

KPR Mill 4.8 -6.8 -7.9 -11.2

Kewal Kiran Cloth. -1.6 -0.5 -16.8 -9.2

Research Analyst

Bharat Chhoda

[email protected]

Cheragh Sidhwa

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

| crore Q4FY18 Q4FY18E Q4FY17 YoY (%) Q3FY18 QoQ (%) Comments

Revenue 2,990.0 NA 2,465.9 21.3 2,705.8 10.5 LTL: Power Brands (-) 8%: Unlimited: (-)2%: Overall (-) 4%

RM Cost 1,524.0 NA 1,198.0 27.2 1,318.4 15.6 A sharp reduction in duty drawback rates and rupee appreciation resulted in a

decline in gross margins

Employee Benefit Expenses 310.7 NA 258.5 20.2 320.5 -3.0

Other Expenditure 863.7 NA 784.0 10.2 818.5 5.5

Total Expense 2,698.3 NA 2,240.4 20.4 2,457.3 9.8

EBITDA 291.7 NA 225.5 29.3 248.4 17.4

EBITDA Margin (%) 9.8 NA 9.1 61 bps 9.2 57 bps Lower other expense results in marginal expansion

Depreciation 96.4 NA 82.7 16.5 93.3 3.3

Interest 67.4 NA 58.5 15.3 67.1 0.5

Other Income 14.1 NA 33.4 -57.8 12.2 15.5

PBT 142.0 NA 117.8 20.6 100.3 41.6

Total Tax 26.2 NA 12.3 113.4 11.2 133.5

Exceptional Item -0.8 NA -8.9 NM -10.6 -92.4 Exceptional expenses on account of retrenchment related compensation

Reported PAT (Incld Minority Int) 115.5 NA 97.7 18.2 79.1 46.0 Decline in other income and higher tax rate restricts PAT growth

Key Metrics Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%)

Textiles 1,596.4 1,460.5 9.3 1,534.4 4.0 Growth was mainly due to 14% growth in the wovens business. Denim and

garments grew 3% and 9%, respectively

Brand & Retail 1,071.2 839.9 27.5 957.6 11.9 Base portfolio (excluding TH & CK) revenue came in at 12%

Arvind Internet 5.3 2.7 95.9 1.8 191.8

Others 328.8 193.3 70.1 222.7 47.6

Less: Intersegment 11.7 30.5 -61.6 10.8 8.0

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Introduced

Revenue 10,826.1 11,829.0 12,375.2 4.6 14,030.1

EBITDA 965.0 1,203.4 1,182.2 -1.8 1,482.8

EBITDA Margin (%) 8.9 10.2 9.6 -62 bps 10.6

PAT 315.8 494.0 419.2 -15.1 608.3

EPS (|) 12.2 19.1 16.2 -14.9 23.6

FY19E

FY18E

FY20E



Details of de-merger

Arvind currently operates different businesses under divisions and

subsidiaries. As on FY17, Arvind has 22 subsidiaries (direct or indirect)

and five joint venture companies.

Exhibit 1: Consolidated structure to be divided to 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: Company, ICICI Direct Research, Entities to be impacted on de-merger

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


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, USPolo,

Arrow, Flying Machine, Gap, Aeropostale, The Children Place (TCP),

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

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

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

Anup and recently formed Anveshan) would also be demerged. Anup

would be merged with Anveshan while the renamed listed entity would

be 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

FY18 Revenue (in crs)

(Revenue growth)

| 6750 crore

(7%)

| 3852 crore

(33%)

| 224 crore

(21%)

FY18 EBITDA (in crs)

| 677 crore | 235 crore | 54 crore

EBITDA Margin 10.0% 6.1% 23.9%

Net Debt as on FY18 | 2578 crore | 745 crore Net Cash of | 46 crore

Shareholders Equity ~| 2551 crore | 1217 crore | 209 crore


Key conference call takeaways…

For FY19, the management has guided for 10% revenue growth for

the textiles segment, mainly driven by increased capacity for the

garmenting division. EBITDA margins for the textile segment are

expected to remain flattish on the back of lower duty drawback rates.

For B&R, the management expects topline growth of 20-24%, driven

by aggressive footprint expansion and healthy LTL growth. While

margins for B&R are expected to improve 100 bps despite an increase

in marketing spends

The management expects to incur | 500 crore capex towards the

textile segment and | 160 crore towards B&R in FY19E

Arvind is aggressively expanding the capacity of the garmenting

facility from current 30 million metre to 40-45 million metre. The

company is setting up a garmenting facility in Jharkhand (government

has recently announced subsidies for garmenting). Currently, ~8% of

fabrics are used for captive consumption for manufacturing garments.

This share is expected to increase to 25% over the next two to three

years

Consolidated debt has increased by | 147 crore to | 3112 crore, on

fist time consolidation of TH & CK and balanced funds blocked in GST.

The management expects debt to remain at similar levels, going

forward

The management highlighted that the denim business is expected to

remain under pressure owing to oversupply situation in the country

Debtors increased significantly in FY18 to | 1767 crore (up 117%) on

account of: 1) consolidation of TH&CK (| 180 crore), 2) | 135 crore

towards execution in water business segment and 3) increase in

credit period in the wholesale business. The management expects the

debtor days to reduce by 15 days in FY19

Currently, only three brands are reporting losses at the EBITDA level.

The same is expected to turn profitable by FY19


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. Arvind 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 4: 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.


Exhibit 5: Consolidated revenue trend

7851

1877

1957

2034

2233

8011

2104

2331

2335

2409

9236

2475

2628

2706

2990

10826

12375

14030

0

2000

4000

6000

8000

10000

12000

14000

16000

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

FY18E

FY19E

FY20E

| c

rore


Exhibit 6: EBITDA and EBITDA margin trend

1013

228 260 258 260

951

244 232 236 226

943

207 212248

292

965

1182

1483

0

200

400

600

800

1000

1200

1400

1600

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

FY18E

FY19E

FY20E

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

EBITDA EBITDA Margin


Exhibit 7: Consolidated net profit

436

248

354

91 93109

48

341

58 7190 98

316

73 77 7398

320

57 6479

115

316

419

608

0

100

200

300

400

500

600

700

FY12

FY13

FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

FY18E

FY19E

FY20E

| cro

re



Valuation

Standalone capex to focus on high asset turnover garmenting segment

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

fabric 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 capacity 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. 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. This is further expected to grow at a CAGR of ~21% in

FY18-20E. 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.

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 6.0x

FY20E. Hence, we arrive at a targeted market capitalisation of | 2443

crore and value of | 95/share.

Exhibit 8: Valuing standalone business….

Arvind Standalone

Target EV/EBITDA (x) 6.0

EBITDA (FY20E) (| Crore) 803.1

Net Debt (| Crore) 2,335.2

Enterprise Value (| Crore) 4,778.3

Target Market cap Core business (| crore) 2,443.0

Value/Share (|) 95


Exhibit 9: Valuing Anup Engineering ….

Anup Engineering

Target EV/EBITDA (x) 10.0

EBITDA (FY18) (| Crore) 54.0

Net Debt -

Enterprise Value (| Crore) 542.2

Target Market cap Core business (| crore) 542.2

Value/Share (|) 21



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 this business would be

valued on the basis of the sales that the company is able to achieve and

following this, the estimated market capitalisation that 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 | 395 per share with a target market capitalisation

of | 10185 crore.

Exhibit 10: Valuing brands & retail business….

Arvind Lifestyle & Brands

Target Market Cap/Sales (x) 2.0

Sales (FY20E) 5,197

Market Capitalization (FY19E) 10,185.7

No. of Shares 25.8

Price target (|) 395


Consolidated valuation

Applying the EV/EBITDA multiple of 6.0x to its standalone business

(| 95/share) and market capitalisation to sales multiple of 2x to its brands

& retail business (| 395/share) and Anup Engineering at 10x EV/EBITDA

(| 21/share), we revise our consolidated price to | 510/share.


Recommendation history vs. Consensus

20

70

120

170

220

270

320

370

420

470

520

May-18

Mar-18

Feb-18

Dec-17

Nov-17

Sep-17

Jul-17

Jun-17

Apr-17

Mar-17

Jan-17

Dec-16

Oct-16

Sep-16

Jul-16

Jun-16

Apr-16

Feb-16

Jan-16

Nov-15

Oct-15

Aug-15

Jul-15

May-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with Buy

Source: Bloomberg, Company, ICICI Direct 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. 31-Mar-18 36.95% 95.6 0.0

2 Kotak Mahindra Asset Management Company Ltd. 31-Mar-18 4.35% 11.3 2.5

3 Life Insurance Corporation of India 31-Mar-18 3.26% 8.4 0.0

4 HDFC Asset Management Co., Ltd. 31-Mar-18 3.24% 8.4 3.0

5 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar-18 2.81% 7.3 2.2

6 Nordea Funds Oy 31-Dec-17 2.70% 7.0 -2.2

7 AML Employees Welfare Trust 31-Mar-18 2.45% 6.3 0.0

8 Reliance Nippon Life Asset Management Limited 31-Mar-18 2.43% 6.3 1.8

9 Dimensional Fund Advisors, L.P. 31-Mar-18 2.18% 5.6 0.0

10 Sundaram Asset Management Company Limited 31-Mar-18 2.06% 5.3 0.0

(in %) Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Promoter 43.1 42.9 42.9 42.9 42.9

FII 24.8 25.9 27.1 27.1 23.7

DII 15.3 13.8 14.1 13.8 18.1

Others 16.8 17.3 15.9 16.2 15.3

Source: Reuters, ICICI Direct Research

Recent Activity

Investor Name Value Shares Investor Name Value Shares

HDFC Asset Management Co., Ltd. 17.7 3.0 Nordea Funds Oy -15.8 -2.2

India Capital Management Ltd 16.3 2.8 Amundi Hong Kong Limited -6.4 -0.9

Kotak Mahindra Asset Management Company Ltd. 14.9 2.5 Baillie Gifford & Co. -2.7 -0.4

Franklin Templeton Asset Management (India) Pvt. Ltd. 13.1 2.2 Fidelity Management & Research Company -1.6 -0.3

Reliance Nippon Life Asset Management Limited 10.6 1.8 JM Financial Asset Management Pvt. Ltd. -1.1 -0.2

BUY SELL

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18E FY19E FY20E

Total operating Income 9,235.5 10,826.1 12,375.2 14,030.1

Growth (%) 15.3 17.2 14.3 13.4

Raw Material Expenses 4,196.5 5,259.5 5,940.1 6,734.4

Employee Expenses 1,096.3 1,264.7 1,441.8 1,586.0

Manufacturing & Other Expenses 2,986.5 3,322.7 3,793.9 4,207.3

Project Expenses 12.9 14.2 17.2 19.6

Total Operating Expenditure 8,292.2 9,861.2 11,193.0 12,547.3

EBITDA 943.4 965.0 1,182.2 1,482.8

Growth (%) 2.3 22.5 25.4

Depreciation 297.1 359.3 399.0 438.9

Interest 288.4 257.9 266.6 268.1

Other Income 78.0 62.6 65.8 69.0

PBT 435.9 410.4 582.3 844.9

Growth (%) 0.4 (5.9) 41.9 45.1

Total Tax 99.7 74.6 163.0 236.6

PAT (adj. exceptional gains/loss) 320.1 315.8 419.2 608.3

Growth (%) 1.2 (1.3) 32.8 45.1

EPS (|) 12.4 12.2 16.2 23.6


Cash flow statement | Crore


Profit after Tax 320.1 315.8 419.2 608.3

Add: Depreciation 297.1 359.3 399.0 438.9

(Inc)/dec in Current Assets (453.5) (1,353.3) 181.0 (627.7)

Inc/(dec) in CL and Provisions 299.9 962.7 (487.5) 230.1

Others - - - -

CF from operating activities 463.5 284.6 511.8 649.5

(Inc)/dec in Investments 147.8 285.4 (5.5) (5.8)

(Inc)/dec in Fixed Assets (445.6) (759.8) (589.7) (592.9)

(Inc)/dec in CWIP 3.2 5.1 1.7 (1.0)

Others - - - -

CF from investing activities (294.6) (469.3) (593.5) (599.7)

Issue/(Buy back) of Equity 0.1 0.3 - -

Inc/(dec) in loan funds (853.2) 146.9 100.0 10.0

Others 677.1 49.1 (49.4) (68.7)

CF from financing activities (176.0) 196.3 50.6 (58.7)

Net Cash flow (7.0) 11.6 (31.1) (8.9)

Opening Cash 60.9 53.9 65.5 34.4

Closing Cash 53.9 65.5 34.4 25.5


Balance sheet | Crore


Liabilities

Equity Capital 258.4 258.6 258.6 258.6

Reserve and Surplus 3,309.4 3,524.2 3,901.5 4,449.0

Total Shareholders funds 3,567.8 3,782.9 4,160.2 4,707.6

Total Debt 2,965.6 3,112.5 3,212.5 3,222.5

Deferred Tax Liability (144.1) (149.8) (157.2) (165.1)

Minority Interest / Others 151.4 307.2 307.2 307.2

Total Liabilities 6,540.7 7,052.8 7,522.6 8,072.2

Assets

Gross Block 4,012.6 4,592.6 5,182.2 5,775.1

Less: Accumlated depreciation 607.7 967.0 1,366.1 1,805.0

Net Block 3,404.9 3,625.5 3,816.2 3,970.2

Capital WIP 94.8 89.7 88.0 89.0

Intangibles 148.9 328.7 328.7 328.7

Total Fixed Assets 3,499.8 3,715.3 3,904.2 4,059.2

Investments 396.0 110.6 116.2 122.0

Inventory 2,382.8 2,619.4 2,848.0 3,228.8

Debtors 813.9 1,767.0 1,288.4 1,460.7

Loans and Advances 584.7 533.8 587.2 645.9

Other Current Assets 564.4 778.8 794.4 810.3

Cash 53.9 65.5 34.4 25.5

Total Current Assets 4,399.6 5,764.5 5,552.4 6,171.2

Trade Payables 1,478.8 2,147.2 1,642.7 1,855.3

Provisions 64.5 87.6 92.0 96.6

Other Current Liabilities 360.2 631.5 644.1 657.0

Total Current Liabilities 1,903.6 2,866.3 2,378.8 2,608.8

Net Current Assets 2,496.1 2,898.2 3,173.6 3,562.4

Application of Funds 6,540.7 7,052.8 7,522.6 8,072.2


Key ratios


Per share data (|)

EPS 12.4 12.2 16.2 23.6

Cash EPS 23.9 26.1 31.6 40.5

BV 138.1 146.3 160.9 182.0

Cash Per Share 2.1 2.5 1.3 1.0

Operating Ratios

EBITDA Margin (%) 10.2 8.9 9.6 10.6

PBT Margin (%) 4.5 3.6 4.7 6.0

PAT Margin (%) 3.4 2.9 3.4 4.3

Inventory days 94.2 88.3 84.0 84.0

Debtor days 32.2 59.6 38.0 38.0

Creditor days 58.4 72.4 48.5 48.3

Return Ratios (%)

RoE 9.0 8.3 10.1 12.9

RoCE 9.9 8.8 10.6 13.2

RoIC 10.8 9.1 11.0 13.6

Valuation Ratios (x)

P/E 34.7 35.1 26.5 18.2

EV / EBITDA 14.9 14.7 12.1 9.7

EV / Net Sales 1.5 1.3 1.2 1.0

Market Cap / Sales 1.1 0.9 0.8 0.7

Price to Book Value 3.1 2.9 2.7 2.4

Solvency Ratios

Debt/EBITDA 3.1 3.2 2.7 2.2

Debt / Equity 0.8 0.8 0.8 0.7

Current Ratio 2.3 2.0 2.3 2.4

Quick Ratio 1.0 1.1 1.1 1.1



ICICI Direct Research 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 1575 1775 Buy 1941 60.5 59.4 72.7 26.0 26.5 21.7 19.4 19.6 16.8 22.7 20.6 22.2 19.9 18.3 20.4

Page Industries

(PAGIND)

24000 22920 Hold 26769 238.7 297.2 395.7 100.5 80.7 60.7 57.9 46.2 35.2 51.6 54.3 60.1 40.0 40.5 44.1

Rupa & Company 425 530 Buy 3392 9.1 10.8 13.7 46.8 39.3 31.0 26.9 23.9 19.1 23.6 25.4 29.1 16.4 17.7 20.1

Vardhman Textiles 1223 1465 Buy 7024 179.0 99.1 144.1 6.8 12.3 8.5 7.2 9.8 6.9 14.5 10.7 15.0 23.0 11.8 15.0

Arvind Ltd 430 510 Buy 11120.7 12.4 12.2 16.2 34.7 35.1 26.5 14.9 14.7 12.1 9.9 8.8 10.6 9.0 8.3 10.1

RoCE (%) RoE (%)

Sector / Company

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



RATING RATIONALE

ICICI Direct Research endeavours to provide objective opinions and recommendations. ICICI Direct Research

assigns ratings to its stocks according to their notional target price vs. current market price and then

categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and

the notional target price is defined as the analysts' valuation for a stock.

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

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

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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Arvind Ltd (ARVMIL) | 430 · believe Arvind would be able to efficiently channelise its resources to full potential leading optimised results in the long term. We introduce FY20E

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