ArvindLtd. Absolute : Relative : N/A ADD ),PT ( B&R margin ...bsmedia.business-standard.com/_media/bs/data/...increased 4% yoy to Rs 790mn. Change in estimates: RsMn FY18E % Change

February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 1 of 13

Before reading this report, you must refer to the disclaimer on the last page.

ArvindLtd. Absolute : ADD

Relative : N/A

3QFY18 Result: Estimate (),PT (), Rating () Regular Coverage 6% ATR in 14 Months

B&R margin improvement continues, textile bottoming out - maintain ADD Textile

© 2017Equirus All rights reserved

Rating Information

Price (Rs) 412

Target Price (Rs) 438

Target Date 31st Mar'19

Target Set On 31stJan'18

Implied yrs of growth (DCF) 15

Fair Value (DCF) 311

Fair Value (DDM) 79

Ind Benchmark SPBSMIP

Model Portfolio Position -

Stock Information

Market Cap (Rs Mn) 107,052

Free Float (%) 57.08 %

52 Wk H/L (Rs) 478.5/353.25

Avg Daily Volume (1yr) 1,720,214

Avg Daily Value (Rs Mn) 684

Equity Cap (Rs Mn) 2,586

Face Value (Rs) 10

Bloomberg Code ARVND IN

Ownership Recent 3M 12M

Promoters 42.9 % 0.0 % -0.9 %

DII 13.8 % -0.3 % -2.7 %

FII 26.6 % 0.0 % 4.5 %

Public 16.8 % 0.3 % -1.0 %

Price % 1M 3M 12M

Absolute -5.6 % 6.1 % 15.5 %

Vs Industry -3.5 % 0.9 % -20.1 %

Alok -10.3 % 1.4 % 6.1 %

Raymond -0.1 % 18.4 % 113.5 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 2.9 2.8 2.9 3.8

EPS (18E) 2.3 2.4 3.1 6.6

After four quarters of EBITDA decline, Arvind Ltd. (ARVND) registered a 5% yoy EBITDA growth

in 3QFY18 led by an improving performance in the B&R segment. Textile revenues grew 9% yoy

but margins remained weak. B&R revenue (ex-JVs) growth at 10% was muted partly due to

early festivals, even as margin improvement was strong. We expect strong B&R margin

improvement ahead as well with ARVND nearing its B&R investment phase and consumer

sentiments improving. Textile is going through a weak cycle due to margin compression in

exports, a weak domestic market and a reduction in government incentives. However, we

think the worst in textile is over and see a gradual recovery in the next few quarters. We

maintain our ADD rating with a Mar’19 PT of Rs 438 (vs. Rs 434 earlier).

Textile EBITDA down 12% yoy: Textile revenue increased 9% yoy driven by garment growth of

16%. Textile margins declined 300bps yoy to 14% (but improved 100bps qoq) due to a changing

product mix towards low-margin garments and INR appreciation. Segment EBITDA declined 12%

to Rs 2.2bn. We believe the worst in terms of textile margin decline is over, with revenue

growth likely to be strong in high single digits in the coming quarters on garment business

expansion.

Excluding consolidation of JVs, B&R revenues grew 9% yoy: ARVIND has consolidated 100%

revenues of two brand JVs (Tommy & CK) due an increase in management control. B&R

reported revenues of Rs 9.6bn, including Rs 1.1bn of JV revenues which were not accounted

for last year. Excluding this, B&R revenues increased 9% yoy driven by 15% yoy growth in

power brands. An early festival season shifted significant purchases to Q2FY17.

B&R margin improvement continues: B&R EBITDA margins expanded ~300bps to 7%, partly due

to a weak base and improving performance in power brands. Management expects a ~150bps

margin recovery in the next two years due to (1) a decline in losses in new brands, (2) strong

growth in power brands, (3) operating leverage, and (4) revamp of GAP through local sourcing.

EBITDA increased 5% yoy: Overall revenue growth of 16% yoy was driven by B&R and textile

segments. Internet division saw Rs 112mn losses, even as losses have been reducing every

quarter. EBITDA at Rs 2.5bn grew 5% yoy, in line with our estimate. Interest cost was flat yoy

to Rs 671mn due to delays in receiving government incentives, sluggish wholesale channels and

debt of JVs; while other income was up 12%. PBT declined 5% yoy to Rs 1003mn but the tax

rate was lower at 11%. Adjusting for exceptional items of Rs 100mn towards VRS, reported PAT

increased 4% yoy to Rs 790mn.

Change in estimates:

RsMn FY18E %

Change FY19E

%

Change

Revenue 105,198 0% 116,233 0%

EBITDA 9,579 -3% 11,661 0%

EBIT 6,159 -5% 8,007 0%

Interest Exp. 2,323 0% 2,564 0%

PAT 3,898 8% 5,510 23%

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 92,355 105,198 116,233 131,254

EBITDA 9,434 9,579 11,661 13,952

Depreciation 2,971 3,420 3,653 3,892

Interest Expense 2,884 2,323 2,564 2,670

Other Income 780 760 760 760

Reported PAT 3,235 3,703 5,510 7,239

Recurring PAT 3,398 3,898 5,510 7,239

Total Equity 35,682 38,543 42,862 48,538

Gross Debt 28,666 34,809 33,859 33,859

Cash 539 8,623 9,200 10,763

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Earnings 12.5 15.1 21.3 28.0

Book Value 138 149 166 188

Dividends 2.4 2.8 3.9 5.2

FCFF 30.8 17.4 19.5 21.3

P/E (x) 32.9 27.3 19.3 14.7

P/B (x) 3.0 2.8 2.5 2.2

EV/EBITDA (x) 14.5 14.1 11.4 9.5

ROE (%) 11 % 11 % 14 % 16 %

Core ROIC (%) 8 % 8 % 11 % 13 %

EBITDA Margin (%) 10 % 9 % 10 % 11 %

Net Margin (%) 4 % 4 % 5 % 6 %

Arvind Ltd. Absolute – ADD Relative – N/A 6% ATR in 14 months


Exhibit 1:Garment/Denims/Shirting grew 16%/6%/3%yoy

Source: Company, Equirus Securities

Exhibit 2:Decline in average realizations due to higher cotton prices led to yoy

contraction in gross margins


Exhibit 3:Denim volume decreased 14% yoy while woven volume increased 6% yoy


Exhibit 4:Textile margins slid yoy on sluggish demand conditions, INR appreciation


4,9

70

4,6

20

4,9

20

4,7

60

4,8

60

4,7

40

4,3

40

4,7

20

4,9

60

4,5

70

4,3

20

4,5

60

5,5

10

4,1

40

4,5

90

1,4

70

1,7

40

1,8

60

2,0

50

1,9

70

2,2

80

2,0

00

2,5

50

2,5

10

2,7

40

2,7

60

3,2

40

2,9

30

3,2

60

3,1

90

4,6

80

4,6

80

5,2

60

4,8

20

4,7

00

4,8

50

5,5

10

5,0

30

5,5

00

5,4

20

5,8

90

5,3

10

5,7

30

5,1

70

6,0

50

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Denim Garments Shirting Khakis

48%

50%

52%

54%

56%

58%

60%

62%

64%

0

50

100

150

200

250


Cotton Prices Rs/Kg LHS Denim Average Realization LHS (Rs Mtr) Gross Margins RHS

28

26 26 26 27

26

23 25

27

24 22

24

28

22

25 27 27

30 28

27

29

32

29 31 31

33 31

29 29

35

0

5

10

15

20

25

30

35

40


Denim Volume Woven Volume

13,1

24

13,0

01

13,5

47

14,2

50

14,2

75

14,1

10

14,5

95

15,5

74

14,3

76

15,3

90

2,0

87

2,1

84

2,0

73

2,5

36

2,4

27

2,4

40

1,8

54

2,1

96

1,8

70

2,1

50

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Textile Revenue Textile EBITDA EBITDAM (RHS)



Exhibit 5:Brand & retail margin improved yoy with strong growth in power brands &

specialty retail segments


Exhibit 6:Textile will grow on garment expansion in FY18E and FY19E


Exhibit 7:Revenue growth driven by higher volume in textile and expansion in brand

biz; 12% CAGR in revenue over FY17-FY20E


Exhibit 8:14% CAGR in EBITDA over FY17-FY20E driven by brand business


4.6 6.0 6.6 4.6 4.4 5.7 6.2 6.8 5.5 7.7 7.8 8.3 7.9 8.9 8.5

3.5%

5.4%

7.0%

3.9%

2.6%

4.8%

7.6%

3.6% 2.3%

4.0%

3.4%

7.1%

2.9%

6.1%

7.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

1

2

3

4

5

6

7

8

9

10


Brand & Retail Sales (Rs Bn) RHS EBITDA Margins LHS

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Textile B&R

46.5 50.7 52.2 57.1 61.4 64.9 71.7

19.2 23.5 23.0

31.2 40.8

45.4 53.2

2.6 4.0

7.4

7.0

8.6 8.9

9.2

0

20

40

60

80

100

120

140

160

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Textile Brands & Retail Others

8,3

93

8,8

32

8,5

20

9,2

57

8,5

91

9,4

04

10,0

42

1,007 1,352 1,089

1,535 2,639

3,596

4,757

153

-56 -98

-2,158 -1,300

-900 -300

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Textile Brands & Retail Others



Exhibit 9:Steady RoCE Improvement


Exhibit 10:Added Engineering Valuation, SOTP valuation is on Mar’19 basis.

RsMn FY17 FY18E FY19E FY20E EV/EBIT

DA FY17 EV

FY18E

EV

FY19E

EV FY20E EV

EBITDA

Textile 9,257 8,591 9,404 10,042 7.5 69,426 64,433 70,532 75,312

Brands 1,243 1,813 2,486 3,300 20 22,373 32,627 44,746 59,401

Retail 54 247 355 490 14 676 3,110 4,471 6,170

Brand JV 76 158 198 246 20 1,522 3,159 3,954 4,916

Total 10,630 10,808 12,443 14,077

93,998 103,330 123,703 145,798

Engg. 9,000 9,000 9,000 9,000

Real Estate

5,000 5,000 5,000 5,000

Total EV

107,998 117,330 137,703 159,798

Consol Net

Debt 28,127 26,186 24,659 23,096

Market Cap

79,871 91,143 113,044 136,702

SoTP Price

310 353 438 530

CMP

412 412 412 412

% Upside

-25% -14% 6% 29%


Exhibit 11: Topline up 16% yoy while margins were hit due to unfavorable macro-

economic variables


Exhibit 12: Management has maintained its topline guidance but has trimmed its

segmental revenue growth guidance


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Pre-Tax RoCE RoE



Earnings call takeaways

A decrease in duty drawback rates, INR appreciation and weak demand affected overall

revenues. Demand in the wholesale channel also remained weak due to adjustments

with new taxation laws.

Textile revenues grew 9% yoy due to 16% yoy growth in garmenting business. Margins

were low yoy due to INR appreciation, lower export incentives and higher share of

garmenting revenues. QoQ margins were better due to improved efficiency and a

correction in cotton prices.

On consolidated basis, revenue growth of 16% yoy was driven by strong growth in the

brand business and a pick-up in textile business growth. Overall EBITDA margin fell

from 10.1% to 9.2% due to a drop in textile margins and lower earnings in few smaller

businesses as compared to last year.

ARVIND has worked with the GAP team for indigenous production and for the upcoming

spring season. About 40% of domestic sales would be produced in India, which will be

further increased to 80%. This will dramatically change the outlook for GAP.

Going ahead, the company would consolidate garmenting revenues in each textile

segment; denim garmenting revenue would be included in the denim segment and shirt

garmenting revenue would be consolidated under the woven segment.

Current garment capacity is ~31mn pieces per annum. Commissioning of the first phase

will add a 4mn piece capacity, while commissioning of the Hawassa plant will further

add 6mn pieces capacity; these capacities are expected to commission by FY18- end.

The company will further add capacity in FY19-end and expects to sell 45mn pieces in

FY19.

As most investments for the year are already completed, it plans to reduce debt by

~Rs 1bn in FY18. Current gross debt is Rs 35bn in books.

A large part of capex of Rs 5bn in FY19 will be towards garment capacity expansion

which would be commiserating with its strategy of being a vertically integrated player.

Also, with incentives declared by various state governments, the company plans to

invest in installing new capacities.

Brand business

Demand in branded apparels was mixed during the quarter. Festive months saw lower

demand growth as the industry struggled with lackluster demand while non-festive

months of Nov-Dec saw strong growth trends with demand picking up.

Revenues grew 24% yoy (incl. revenues of Tommy & CK which were excluded in 3QFY17

adjusting for which revenue growth was 10% yoy). LTL growth for power brands stood

at 5.7% in 3QFY18.

Unlimited: Reported a negative LTL growth of 3% yoy on very high base, wherein due to

demonetization, quarter LTL growth stood at 27%. This along with a festive season shift

(Diwali) to the earlier quarter had affected LTL growth. Going ahead, the company

plans to deliver 6-8% LTL growth on an annual basis.

Not only power brands have delivered strong growth, certain emerging brands have

also turned profitable. Going ahead, due to subsuming of CVD under GST, certain

emerging brands will benefit to a great extent. Except for 1-2 emerging brands, all

other brands are expected to either break-even or turn profitable next year.

Between Q2 and Q3, the company has written off ~Rs 120mn-150mn in emerging

brands, which were set off against CVD post GST implementation.

Engineering business

Revenue grew 59% yoy on a very low base at Rs 686mn. 9MFY18 revenue growth was

21% yoy at Rs 1,397mn with an EBITDA of Rs 290mn.

EBITDA margin contracted for 9MFY18 due to higher commodity prices.

Expect FY18 revenue growth to be around 25% with margins ranging from 23-25%.

Arvind Internet

Arvind Internet had a negative investment of ~Rs 80mn in 3QFY18 vs. Rs 230mn in

2QFY18. It will further go down in 4QFY18 and will stabilize to Rs 150m-180mn in FY19.

Ethiopia plant update

ARVIND operates two sites at Ethiopia. Site 1, which commenced about a year ago, saw

a marginal profit in Q3FY18. At site 2, Hawassa, dispatches have started this quarter

only; the site is expected to generate revenues of US$ 7-8mn in FY19.

The facility is set to break even by this year-end and generate 10-12% margins in FY19.

Guidance

Revenue growth is expected to be lower than guided due to a change in the tax

structure while margins are likely to improve marginally. Fashion business is expected

to grow at ~15-17% (without Tommy and CK).

For FY18, garment revenue (excluding Tommy & CK) would grow at 11-12%, including

which growth would be close to 15-16%.

Margins are expected to improve by 175bps for FY18 vs. guidance of 150bps

improvement. Textile margins are likely to be lower due to lower incentives and rupee

appreciation.



Quarterly Results Table (Consolidated)

Rs mn 3QFY18 3QFY18E 2QFY18 3QFY17 % Change

3QFY18E 2QFY18 3QFY17

Net Sales 27,058 27,352 26,285 23,355 -1% 3% 16%

Raw Material 13,184 12,408 12,801 10,344 6% 3% 27%

Employee Cost 3,205 3,315 3,287 2,880 -3% -2% 11%

Other Expenditure 8,185 9,085 8,075 7,772 -10% 1% 5%

Total Expenditures 24,573 24,808 24,162 20,995 -1% 2% 17%

EBITDA 2,484 2,543 2,123 2,359 -2% 17% 5%

Depreciation 933 855 833 734 9% 12% 27%

EBIT 1,551 1,688 1,290 1,626 -8% 20% -5%

Interest 671 604 620 676 11% 8% -1%

Other Income 122 175 256 109 -30% -52% 12%

PBT 1,003 1,259 926 1,059 -20% 8% -5%

Tax 112 353 236 280 -68% -53% -60%

Recurring PAT 890 906 689 779 -2% 29% 14%

Extraordinaries 100 0 72 23

Reported PAT 790 906 618 756 -13% 28% 4%

EPS (Rs) 3.5 3.5 2.7 3.0 -2% 29% 14%

EBITDA Margin 9.2% 9.3% 8.1% 10.1% -12 bps 111 bps -92 bps

EBIT Margin 5.7% 6.2% 4.9% 7.0% -44 bps 83 bps -123 bps

PBT Margin 3.7% 4.6% 3.5% 4.5% -90 bps 18 bps -83 bps

PAT Margin 2.9% 3.3% 2.4% 3.2% -39 bps 57 bps -32 bps

Tax Rate 11.2% 28.0% 25.5% 26.4% -1682 bps -1436 bps -1522 bps

Textile Revenue 15,390 - 14,376 14,110 - 7% 9%

Textile EBITDAM 14.0% - 13.0% 17.3% - 96 bps -332 bps

Brand & Retail Rev 9,576 - 10,324 7,747 - -7% 24%

Brand & Retail EBITDAM 55.2% - 6.1% 3.9% - 4907 bps 5130 bps



Company Snapshot

How we differ from Consensus.

- Equirus Consensus % Diff Comment

EPS FY18E 15.1 13.3 13 % We expect recovery in both the

segments from FY19 onwards. FY19E 21.3 19.5 9 %

Sales FY18E 105,198 105,235 0 %

FY19E 116,233 119,198 -2 %

PAT FY18E 3,703 3,381 10 %

FY19E 5,510 4,965 11 %

Our Key Investment arguments:

Increasing competitiveness of Indian textile industry, diversified product mix and

operating scale continue to deliver margin higher than historical average

Brand business post demerger with strong margins, possible FCFF generation and

adequately capitalized B/S capable to grow independently. B&R margins expected to

grow from by ~150bps in FY18E from ~5% in FY17.

Demerger of brand business to unlock value for textile business which has seen mid-

single digit growth and cash-flows generated invested in B&R business.

Expect 14%/31% EBITDA/EPS CAGR over FY17-20E with gradual improvement in return

ratios.

Key Assumptions:

Rs mn FY17A FY18E FY19E FY20E

Textile Revenue 57,142 61,365 64,857 71,725

Brand & Retail Revenue 31,232 40,792 45,380 53,223

Textile EBITDA 7,222 8,738 8,727 9,385

B&R EBITDA 1,535 2,639 3,596 4,757

Risk to Our View

Margin pressure due to lower demand, deterioration in operating performance in

brands.Losses in e-commerce

Key Triggers

Strong earningsgrowth, margin improvement in brand and retail business, land sale and

introduction of new brands

Sensitivity to Key Variables % Change % Impact on EPS

Textile Margin 1 % 11 %

Brand & Retail Revenue Growth 5 % 3 %

Brand & Retail EBITDA Margin 1 % 5 %

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

7.3 % 1.2 14.5 % 2.5 % 46.4 %

- FY18E FY19E FY20-22E FY23-27E FY28-32E

Sales Growth 14 % 10 % 11 % 7 % 8 %

NOPAT Margin 5 % 6 % 7 % 7 % 7 %

IC Turnover 1.61 1.70 1.85 2.05 2.30

RoIC 8.2 % 10.6 % 13.3 % 14.4 % 16.2 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 112 145 199 234 266

Valuation as of Mar'19 131 169 233 274 311

Based on DCF, assuming 15 years of 8% CAGR growth and 16% average ROIC, we derive

current fair value of Rs. 266 and 31th Mar’19fair value of Rs. 311.

Company Description:

Arvind is one of the largest textile players in the country having more than 220mn

Mtr/p.a. of installed capacity. It’s also a largest player in denim globally. In textile, it

has significant presence in shirting and khakis apart from denim. It has growing presence

in brand and retail segment and has significant advantage over competitors.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Arvind Ltd. ADD 412 107,052 438 31st Mar'19 12.5 15.1 21.3 32.9 27.3 19.3 138.1 2.8 11 % 11 % 14 % 0.6 % 0.7 %

Alok NR 4 4,821 NR NR -22.4 - - -0.2 - - 12.3 - 3 % - - 0.0 % 0.0 %

Raymond NR 1,057 64,858 NR NR 4.2 19.3 30.9 254.0 54.6 34.1 272.6 3.6 2 % 6 % 10 % 0.1 % 0.4 %



Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 21,041 23,311 23,355 24,648 24,750 26,285 27,058 27,106 27,896 29,058 29,058 30,221 92,355 105,198 116,233 131,254 Raw Material 9,011 10,655 10,344 11,956 11,307 12,801 13,184 9,710 12,634 13,160 13,160 13,687 41,965 47,001 52,641 58,958

Employee Cost 2,656 2,837 2,880 2,589 3,116 3,287 3,205 2,671 3,300 3,438 3,438 3,575 10,963 12,278 13,751 15,402

Other Expenditure 6,929 7,496 7,772 7,797 8,258 8,075 8,185 11,823 9,163 9,545 9,545 9,927 29,994 36,340 38,180 42,942

User Defined Standalone Expense 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EBITDA 2,445 2,323 2,359 2,306 2,070 2,123 2,484 2,902 2,799 2,915 2,915 3,032 9,434 9,579 11,661 13,952 Depreciation 691 719 734 827 863 833 933 790 877 913 913 950 2,971 3,420 3,653 3,892 EBIT 1,754 1,604 1,626 1,479 1,207 1,290 1,551 2,112 1,922 2,002 2,002 2,082 6,463 6,159 8,007 10,060 Interest 891 731 676 585 614 620 671 419 615 641 641 667 2,884 2,323 2,564 2,670 Other Income 166 221 109 284 163 256 122 219 190 190 190 190 780 760 760 760 PBT 1,029 1,094 1,059 1,178 756 926 1,003 1,912 1,496 1,551 1,551 1,605 4,359 4,596 6,203 8,151 Tax 317 270 280 131 135 236 112 214 167 173 173 179 997 698 694 911 PAT bef. MI & Assoc. 712 824 779 1,047 620 689 890 1,698 1,329 1,377 1,377 1,426 3,362 3,898 5,510 7,239 Minority Interest -12 0 0 -24 0 0 0 0 0 0 0 0 -36 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 724 824 779 1,071 620 689 890 1,698 1,329 1,377 1,377 1,426 3,398 3,898 5,510 7,239 Extraordinaries -21 107 23 78 23 72 100 0 0 0 0 0 163 195 0 0 Reported PAT 745 718 756 993 597 618 790 1,698 1,329 1,377 1,377 1,426 3,235 3,703 5,510 7,239

EPS (Rs) 2.88 2.78 2.93 3.84 2.31 2.39 3.06 6.58 5.15 5.34 5.34 5.53 12.52 15.09 21.33 28.02

Key Drivers

Textile Production (Mn Mtrs/p.a.)

318 330 341 351

Textile Realization (Rs/mtr)

180 186 190 204

Brand & Retail Revenue Growth - - - - - - - - - - - - 23 % 10% 18% 17%

Sequential Growth (%)

Revenue -6 % 11 % 0 % 6 % 0 % 6 % 3 % 0 % 3 % 4 % 0 % 4 % - - - - Raw Material -9 % 18 % -3 % 16 % -5 % 13 % 3 % -26 % 30 % 4 % 0 % 4 % - - - - EBITDA -5 % -5 % 2 % -2 % -10 % 3 % 17 % 17 % -4 % 4 % 0 % 4 % - - - - EBIT -9 % -9 % 1 % -9 % -18 % 7 % 20 % 36 % -9 % 4 % 0 % 4 % - - - - Recurring PAT -3 % 14 % -5 % 37 % -42 % 11 % 29 % 91 % -22 % 4 % 0 % 4 % - - - -

EPS -24 % -4 % 5 % 31 % -40 % 3 % 28 % 115 % -22 % 4 % 0 % 4 % - - - -

Yearly Growth (%)

Revenue 18 % 19 % 15 % 10 % 18 % 13 % 16 % 10 % 13 % 11 % 7 % 11 % 15 % 14 % 10 % 13 % EBITDA 18 % 2 % -8 % -10 % -15 % -9 % 5 % 26 % 35 % 37 % 17 % 4 % -1 % 2 % 22 % 20 % EBIT 18 % -6 % -17 % -24 % -31 % -20 % -5 % 43 % 59 % 55 % 29 % -1 % -9 % -5 % 30 % 26 % Recurring PAT 153 % 89 % 5 % 43 % -14 % -16 % 14 % 59 % 114 % 100 % 55 % -16 % 46 % 15 % 41 % 31 %

EPS 22 % 2 % -16 % 1 % -20 % -14 % 5 % 71 % 123 % 123 % 74 % -16 % 3 % 20 % 41 % 31 %

Margin (%)

EBITDA 12 % 10 % 10 % 9 % 8 % 8 % 9 % 11 % 10 % 10 % 10 % 10 % 10 % 9 % 10 % 11 % EBIT 8 % 7 % 7 % 6 % 5 % 5 % 6 % 8 % 7 % 7 % 7 % 7 % 7 % 6 % 7 % 8 % PBT 5 % 5 % 5 % 5 % 3 % 4 % 4 % 7 % 5 % 5 % 5 % 5 % 5 % 4 % 5 % 6 %

PAT 3 % 4 % 3 % 4 % 3 % 3 % 3 % 6 % 5 % 5 % 5 % 5 % 4 % 4 % 5 % 6 %



Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 92,355 105,198 116,233 131,254 Equity Capital 2,584 2,584 2,584 2,584 PBT 4,197 4,596 6,203 8,151

Op. Expenditure 82,922 95,619 104,573 117,302 Reserve 33,098 35,959 40,279 45,954 Depreciation 2,971 3,420 3,653 3,892

EBITDA 9,434 9,579 11,661 13,952 Networth 35,682 38,543 42,862 48,538 Others 2,471 -195 0 0

Depreciation 2,971 3,420 3,653 3,892 Long Term Debt 28,666 34,809 33,859 33,859 Taxes Paid 1,067 698 694 911

EBIT 6,463 6,159 8,007 10,060 Def Tax Liability 1,578 1,832 1,782 1,782 Change in WC -3,137 183 -2,396 -3,004

Interest Expense 2,884 2,323 2,564 2,670 Minority Interest 1,514 1,514 1,514 1,514 Operating C/F 5,435 7,307 6,767 8,127

Other Income 780 760 760 760 Account Payables 14,788 16,740 18,749 20,999 Capex -4,381 -4,778 -4,000 -5,000

PBT 4,359 4,596 6,203 8,151 Other Curr Liabi 4,476 5,260 5,812 6,563 Change in Invest 1,734 0 0 0

Tax 997 698 694 911 Total Liabilities & Equity 86,704 98,698 104,578 113,255 Others 2,942 0 0 0

PAT bef. MI & Assoc. 3,362 3,898 5,510 7,239 Net Fixed Assets 36,726 38,106 38,452 39,560 Investing C/F 294 -4,778 -4,000 -5,000

Minority Interest -36 0 0 0 Capital WIP 2,262 2,262 2,262 2,262 Change in Debt -8,536 6,143 -950 0

Profit from Assoc. 0 0 0 0 Others 6,880 6,858 6,857 6,857 Change in Equity 6,347 0 0 0

Recurring PAT 3,398 3,898 5,510 7,239

Inventory 23,828 27,380 30,252 34,162 Others -3,625 -588 -1,240 -1,564

Extraordinaires 163 195 0 0 Account Receivables 8,139 8,646 9,553 10,788 Financing C/F -5,815 5,555 -2,190 -1,564

Reported PAT 3,235 3,703 5,510 7,239 Other Current Assets 8,331 6,824 8,001 8,862 Net change in cash -86 8,084 577 1,563

FDEPS (Rs) 12.5 15.1 21.3 28.0 Cash 539 8,623 9,200 10,763 RoE (%) 11 % 11 % 14 % 16 %

DPS (Rs) 2.4 2.8 3.9 5.2 Total Assets 86,704 98,698 104,578 113,255

RoIC (%) 9 % 8 % 10 % 12 %

CEPS (Rs) 24.6 28.3 35.5 43.1 Non-cash Working Capital 21,034 20,851 23,247 26,251

Core RoIC (%) 8 % 8 % 11 % 13 %

FCFPS (Rs) 30.8 17.4 19.5 21.3 Cash Conv Cycle 83.1 72.3 73.0 73.0 Div Payout (%) 19 % 23 % 22 % 22 %

BVPS (Rs) 138.1 149.2 165.9 187.9 WC Turnover 4.4 5.0 5.0 5.0 P/E 32.9 27.3 19.3 14.7

EBITDAM (%) 10 % 9 % 10 % 11 % FA Turnover 2.4 2.6 2.9 3.1 P/B 3.0 2.8 2.5 2.2

PATM (%) 4 % 4 % 5 % 6 % Net D/E 0.8 0.7 0.6 0.5 P/FCFF 13.4 23.7 21.1 19.4

Tax Rate (%) 23 % 15 % 11 % 11 % Revenue/Capital Employed 1.4 1.5 1.5 1.6 EV/EBITDA 14.5 14.1 11.4 9.5

Sales Growth (%) 15 % 14 % 10 % 13 %

Capital Employed/Equity 2.1 2.3 2.3 2.1

EV/Sales 1.5 1.3 1.1 1.0

FDEPS Growth (%) 3 % 20 % 41 % 31 %

Dividend Yield (%) 0.6 % 0.7 % 1.0 % 1.3 %

TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE TTM EV/EBITDA vs. 2 yr forward EBITDA growth

6x

12x

18x

24x

30x

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

100

200

300

400

500

600

700

Mar/

14

Jun

/14

Sep

/14

De

c/14

Mar/

15

Jun

/15

Sep

/15

De

c/15

Mar/

16

Jun

/16

Sep

/16

De

c/16

Mar/

17

Jun

/17

Sep

/17

De

c/17

Mar/

18

Jun

/18

Sep

/18

De

c/18

Mar/

19

EPS Growth

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

100

200

300

400

500

600

700

Mar

/14

Jun

/14

Sep

/14

De

c/14

Mar

/15

Jun

/15

Sep

/15

De

c/15

Mar

/16

Jun

/16

Sep

/16

De

c/16

Mar

/17

Jun

/17

Sep

/17

De

c/17

Mar

/18

Jun

/18

Sep

/18

De

c/18

Mar

/19

RoE

2x

2.5x

3x

3.5x

4x

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

40,000

70,000

100,000

130,000

160,000

190,000

220,000

Mar

/14

Jun

/14

Sep

/14

De

c/14

Mar

/15

Jun

/15

Sep

/15

De

c/15

Mar

/16

Jun

/16

Sep

/16

De

c/16

Mar

/17

Jun

/17

Sep

/17

De

c/17

Mar

/18

Jun

/18

Sep

/18

De

c/18

Mar

/19

12x

8x

10x

14x

16x

EBITDA Growth



Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 68,621 78,514 80,106 92,355 Equity Capital 2,582 2,582 2,582 2,584 PBT 4,237 4,448 4,408 4,197

Op. Expenditure 59,068 68,386 70,595 82,922 Reserve 23,248 24,655 23,882 33,098 Depreciation 2,252 2,124 2,405 2,971

EBITDA 9,553 10,129 9,511 9,434 Networth 25,830 27,238 26,464 35,682 Others 3,195 3,463 3,027 2,471

Depreciation 2,252 2,124 2,405 2,971 Long Term Debt 29,919 33,967 35,253 28,666 Taxes Paid 1,078 1,308 1,192 1,067

EBIT 7,301 8,005 7,106 6,463 Def Tax Liability 918 1,006 1,267 1,578 Change in WC -4,486 -3,142 -2,144 -3,137

Interest Expense 3,758 3,946 3,586 2,884 Minority Interest 242 348 556 1,514 Operating C/F 4,121 5,584 6,503 5,435

Other Income 694 932 821 780 Account Payables 12,495 13,494 12,142 14,788 Capex -2,999 -5,386 -5,558 -4,381

PBT 4,237 4,991 4,340 4,359 Other Curr Liabi 4,228 3,704 6,239 4,476 Change in Invest -2,365 -1,131 -170 1,734

Tax 541 1,072 1,246 997 Total Liabilities & Equity 73,632 79,757 81,920 86,704 Others -376 643 703 2,942

PAT bef. MI & Assoc. 3,696 3,920 3,094 3,362 Net Fixed Assets 28,927 32,082 34,768 36,726 Investing C/F -5,740 -5,874 -5,025 294

Minority Interest -13 -35 -54 -36 Capital WIP 1,347 1,000 1,468 2,262 Change in Debt 5,311 4,050 2,856 -8,536

Profit from Assoc. 0 0 0 0 Others 1,334 656 8,963 6,880 Change in Equity 10 11 0 6,347

Recurring PAT 3,709 3,709 3,709 3,709 Inventory 16,281 18,450 19,205 23,828 Others -3,849 -4,546 -4,365 -3,625

Extraordinaires 115 543 14 163 Account Receivables 10,093 11,658 7,682 8,139 Financing C/F 1,472 -485 -1,509 -5,815

Reported PAT 3,595 3,595 3,595 3,595 Other Current Assets 13,974 15,062 9,227 8,331 Net change in cash -148 -775 -30 -86

EPS (Rs) 13.9 13.2 12.1 12.5 Cash 1,676 847 609 539

RoE (%) 15 % 15 % 12 % 11 %

DPS (Rs) 2.4 2.6 2.4 2.4

Total Assets 73,632 79,757 81,920 86,704

RoIC (%) 14 % 12 % 9 % 9 %

CEPS (Rs) 23.1 23.5 21.5 24.6 Non-cash Working Capital 23,626 27,972 17,732 21,034 Core RoIC (%) 13 % 11 % 9 % 8 %

FCFPS (Rs) 6.4 10.9 15.6 30.8 Cash Conv Cycle 125.7 130.0 80.8 83.1 Div Payout (%) 17 % 19 % 20 % 19 %

BVPS (Rs) 100.0 105.5 102.5 138.1 WC Turnover 2.9 2.8 4.5 4.4

P/E 29.6 31.2 33.9 32.9

EBITDAM (%) 14 % 13 % 12 % 10 % FA Turnover 2.3 2.4 2.2 2.4 P/B 4.1 3.9 4.0 3.0

PATM (%) 5 % 5 % 4 % 4 % Net D/E 1.1 1.2 1.3 0.8 P/FCFF 64.1 37.9 26.4 13.4

Tax Rate (%) 13 % 21 % 29 % 23 % Revenue/Capital Employed 1.3 1.3 1.3 1.4 EV/EBITDA 14.4 14.0 15.2 14.5

Sales growth (%) 30 % 14 % 2 % 15 %

Capital Employed/Equity 2.1 2.3 2.3 2.1

EV/Sales 2.0 1.8 1.8 1.5

FDEPS growth (%) 45 % -5 % -8 % 3 %

Dividend Yield (%) 0.6 % 0.6 % 0.6 % 0.6 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 VishadTurakhia [email protected] 91-22-43320633

AshutoshTiwari Auto, Metals & Mining [email protected] 91-79-61909517 SubhamSinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 SwetaSheth [email protected] 91-22-43320634

Devam Modi Power & Infrastructure [email protected] 91-79-61909516 Viral Desai [email protected] 91-22-43320635

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Rushabh Shah [email protected] 91-22-43320632

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Dealing Room E-mail

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ashish Shah [email protected] 91-22-43320662

PrafulBohra Pharmaceuticals [email protected] 91-79-61909532 IleshSavla [email protected] 91-22-43320666

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Manoj Kejriwal [email protected] 91-22-43320663

Associates E-mail Dharmesh Mehta [email protected] 91-22-43320661

Ankit Choudhary [email protected] 91-79-61909533 SandipAmrutiya [email protected] 91-22-43320660

Bharat Celly [email protected] 91-79-61909524 Compliance Officer E-mail

Harshit Patel [email protected] 91-79-61909522 Jay Soni [email protected] 91-79-61909561

Meet Chande [email protected] 91-79-61909513 Corporate Communications E-mail

Nishant Bagrecha [email protected] 91-79-61909526 Mahdokht Bharda [email protected] 91-22-43320647 Parva Soni [email protected] 91-79-61909521

Pranav Mehta [email protected] 91-79-61909514

Ronak Soni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

VarunBaxi [email protected] 91-79-61909527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office:

Equirus Securities Private Limited

Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,

N M Joshi Marg, Lower Parel,

Mumbai-400013.

Tel. No: +91 – (0)22 – 4332 0600

Fax No: +91- (0)22 – 4332 0601

Corporate Office:

3rd floor, House No. 9,

Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,

S.G. Highway Ahmedabad-380054

Gujarat

Tel. No: +91 (0)79 - 6190 9550

Fax No: +91 (0)79 – 6190 9560

mailto:[email protected]






























© 2018 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not

be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited

Analyst Certification

I, Maulik Patel, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also

certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers

Regulations, 1993 (Reg. No. INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No. IN-DP-324-2017). There are no disciplinary actions taken by any regulatory

authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to

merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their

directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or

Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor

Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or

brokerage service transactions. ESPL has not been engaged in market making activity for the subject company.

The Research Analyst engaged in preparation of this Report:-

(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c)

has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or

services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject

company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject

company.

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein

may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession of this document are required to inform themselves of, and to observe, such applicable

restrictions. Please delete this document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view and read this

document without subjecting ESPL and affiliates to any registration or licensing requirement within such jurisdiction.

This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based on

this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to

its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant information

contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the information

current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the

securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives,

financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or

anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its

research report. Thus, investors should be aware that the firm may have conflict of interest.



A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and www.bseindia.com (Choose a company from the list on the browser and select the

“three years” period in the price chart).

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No

Research Analyst’ or Relatives’ material conflict of interest No

Disclaimer for U.S. Persons

ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the “Acts”), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended

for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on

soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective contents

do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons"

are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under

certain rules.

ArvindLtd. Absolute : Relative : N/A ADD ),PT ( B&R margin ...bsmedia.business-standard.com/_media/bs/data/...increased 4% yoy to Rs 790mn. Change in estimates: RsMn FY18E % Change

Documents