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May 13, 2016 Analyst:Maulik Patel maulik@equirus.com (+91-8128694110) Page 1 of 13
Before reading this report, you must refer to the disclaimer on the last page.
Arvind Ltd. Absolute : TRADE
Relative : N/A
4QFY16 Result: Estimate (), TP (), Rating () Regular Coverage -1% ATR in 17 months
Strong Performance driven by Power Brands, Maintain TRADE Textile
© 2016 Equirus All rights reserved
Rating Information
Price (Rs) 302
Target Price (Rs) 294
Target Date 30th Sep'17
Target Set On 12th May'16
Implied yrs of growth (DCF) 15
Fair Value (DCF) 179
Fair Value (DDM) 52
Ind Benchmark SPBSMIP
Model Portfolio Position -
Stock Information
Market Cap (Rs Mn) 77,873
Free Float (%) 56.22 %
52 Wk H/L (Rs) 365.7/216.2
Avg Daily Volume (1yr) 2,125,516
Avg Daily Value (Rs Mn) 602
Equity Cap (Rs Mn) 2,582
Face Value (Rs) 10
Bloomberg Code ARVND IN
Ownership Recent 3M 12M
Promoters 43.8 % 0.0 % 0.3 %
DII 16.3 % 0.2 % 1.5 %
FII 14.7 % -0.5 % -6.3 %
Public 25.1 % -0.3 % 4.5 %
Price % 1M 3M 12M
Absolute 10.2 % 10.2 % 20.5 %
Vs Industry 6.5 % -6.5 % 11.3 %
KPRMILL -15.6 % 0.0 % -36.7 %
ORBITEXP 17.2 % 29.5 % 10.7 %
Consolidated Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
EPS (16A) 2.3 3.7 4.1 4.3
EPS (17E) 4.0 4.1 4.1 4.3
After three quarters of muted performance, Arvind delivered strong revenue/EBITDA/PAT
growth of 14%/16%/16% yoy driven by strong performance in B&R. FY16 was another year of
consolidation with mid-single digit growth in operating profit as restructuring in MegaMart
and low single digit growth in textile offset strong performance in Power brands. Though
management guidance for FY17 is strong at 15-16% revenue growth with slightly lower
margin we expect RoCE expansion in FY17. However, we need few quarters of sustainable
improvement in B&R margin performance without B/S expansion to upgrade our view and
thus we maintain our TRADE rating and roll over target date to Sep’17 to arrive at revised
SoTP target price of Rs. 294 (based on average of FY17-18 SoTP target) (vs. earlier Mar’17
TP of Rs. 284). Garment shining in muted textile performance: Textile revenue growth was 4% yoy as
strong growth 27% in garment was offset by 10% decline in voiles sales and higher
intersegment sales. Despite INR depreciation, textile EBITDA decline by ~70bps due to
change in product mix towards low margin garment and lower revenue in high margin
denim. FY17 growth is likely to back-ended as garment expansion in Ethiopia will be
commissioned in 2QFY17. Strong growth in power brand led to margin expansion: B&R revenue increased 30% yoy as
44% growth in brands offset by 4% decline in MM revenue. Power brand growth was 31% yoy,
highest in last 9 quarters, driven by category extension and push in wholesale segment as
L2L growth in brand was 2.7% only. This aggressive push has led to Rs. 2.9bn increase in
account receivable at subsidiary level. Margin in Power brands expanded by ~270bps to
14.4% and overall B&R expansion by 370bps to 7.9%. MM restructuring is complete and likely
to see strong high single digit growth on low base and customer acceptance of Unlimited
format. Speciality retail will drive B&R revenue growth in FY17 to 22-25% but management
guidance on margin expansion of 75-100bps is tad lower than our expectations. After 8 quarters, strong double digit PAT growth: EBITDA increased 16% yoy and came 7%
above EE. Interest expense increased by 4% yoy. As per management, debt will largely
remain flat in FY17. Other income was lower by 9% yoy. Tax rate moved to 29%. Recurring
consolidated PAT was Rs. 1.1bn, up 16% yoy and in-line with EE. Stock to remain range bound unless B&R RoCE improve: We have been TRADE since last
few quarters as clear trends of RoCE improvements are missing in current environment, not
only that demand pull is also missing. To upgrade our view, we need few quarters of steady
improvement in margin without B/S expansion or price correction to make it attractive on
valuation.
Change in estimates:
Rs Mn FY17E %
Change FY18E
%
Change
Revenue 94,571 2% 106,316 3%
EBITDA 11,833 -5% 13,021 -7%
EBIT 9,010 -7% 9,982 -10%
Interest
Exp. 3,635 -4% 3,577 -3%
PAT 4,253 -3% 4,973 -8%
Consolidated Financials
Rs. Mn YE Mar FY16A FY17E FY18E FY19E
Sales 84,504 94,571 106,316 117,607
EBITDA 10,651 11,833 13,021 14,459
Depreciation 2,559 2,822 3,039 3,233
Interest Expense 3,811 3,635 3,577 3,459
Other Income 964 700 700 600
Reported PAT 3,627 4,253 4,973 5,857
Recurring PAT 3,707 4,253 4,973 5,857
Total Equity 29,117 32,474 36,400 41,024
Gross Debt 32,090 33,763 34,743 34,743
Cash 687 1,154 805 1,306
Rs. Mn YE Mar FY16A FY17E FY18E FY19E
Earnings 14.0 16.5 19.3 22.7
Book Value 113 126 141 159
Dividends 2.4 3.0 3.5 4.1
FCFF 21.9 9.3 8.5 16.1
P/E (x) 21.5 18.3 15.7 13.3
P/B (x) 2.7 2.4 2.1 1.9
EV/EBITDA (x) 10.4 9.4 8.6 7.7
ROE (%) 13 % 14 % 14 % 15 %
Core ROIC (%) 9 % 10 % 10 % 11 %
EBITDA Margin (%) 13 % 13 % 12 % 12 %
Net Margin (%) 4 % 4 % 5 % 5 %
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 2 of 13
Exhibit 1: Denim stabilized but Garment shines, more fabric going into garment
manufacturing led to increase in intersegment sales
Source: Company Exhibit 2: Increase in cotton price led to realization increase
Source: Company, Equirus
Exhibit 3: Denim volume down 4% yoy whereas woven volume grew by 3% yoy; FY17 to see higher woven volume growth
Source: Company Exhibit 4: Margin decline in textile on change in product mix and some upfront cost related to garment facility
Source: Company, Equirus
4,620 4,730 4,400 5,150 4,970 4,620 4,920 4,760 4,900 4,710 4,370 4,810
4,150 4,350 4,710 4,760 4,680 4,680
5,260 4,820 4,710 4,850 5,510 5,080
360 520 580 610 630 700
710 710 740 710 800 770
1,260 1,900 1,790
1,770 1,470 1,740 1,860
2,050 1,970 2,240 2,010 2,610 860
900 730 770 980 1,000
750 870 930 900 840 780
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Denim Shirting Khakis Knits Garments Voiles
104 109
114 110
116 116
104 95
102 102 102 103
171 180 179 179 177 177
182 180 183 181 187 189
56% 56%
56% 55%
56%
60% 60%
57%
59%
61% 61%
60%
52%
53%
54%
55%
56%
57%
58%
59%
60%
61%
62%
40
60
80
100
120
140
160
180
200
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Cotton Prices Rs/Kg RHS Denim Average Realization RHS (Rs Mtr) Gross Margins LHS
27 25 25
28 28 26 26 26 27 26
23 25 25 25
27 26 27 27
30 28 27
29
32
29
0
5
10
15
20
25
30
35
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Denim Volume Woven Volume
10,7
61
11,7
06
11,8
05
12,3
63
12,3
96
12,3
15
12,9
07
13,0
73
12,5
52
12,9
59
12,9
07
13,6
02
1,9
05
2,2
36
2,1
01
2,1
51
2,1
07
2,1
92
2,3
23
2,2
09
2,1
71
2,2
29
2,3
23
2,2
03
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
Textile Revenue Textile EBITDA EBITDAM (RHS)
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 3 of 13
Exhibit 5: Sharp expansion in margin on account of strong sales in power brand
Source: Company, Equirus Exhibit 6: Textile will grow on garment in expansion in FY17 but it will be back-ended growth; B&R to grow by 20%+
Source: Company, Equirus
Exhibit 7: Revenue growth driven by higher volume in textile and expansion in brand biz; 12% CAGR in revenue over FY16-19E
Source: Company, Equirus Exhibit 8:11% CAGR in EBITDA over FY16-19E driven by brand business
Source: Company, Equirus
3.2 4.7 5.0 5.0 4.6 6.0 6.6 4.6 5.3 7.0 7.4 7.6
2.5%
4.6%
8.2%
4.7%
3.5%
5.4%
7.0%
3.9%
2.6%
6.7%
7.6% 7.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Brand & Retail Sales (Rs Bn) RHS EBITDA Margins LHS
-3%
24% 24%
13%
6%
27%
9%
3% 6% 7% 6%
14%
5%
32% 31%
12%
39%
23%
16%
21% 20% 19%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Textile B&R
24.3 29.3 33.9 36.5 46.5 50.7 52.0 55.2 58.9 62.4 6.5
9.4 12.3 13.8
19.2 23.5 27.3
33.0 39.6
47.1
2.0 2.1
3.0 2.8
2.6 4.0
5.9
7.1
8.7 9.0
0
20
40
60
80
100
120
140
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Textile Brands & Retail Others
3.7 4.7 5.5 6.0
8.1 8.3 8.1 8.5 8.7 9.2 0.3
0.8 0.7
0.7
1.1 1.2 1.8 2.4
3.4 4.2
0.1
-0.2 0.0
0.3
0.4 0.6 0.8 0.9
1.0
1.1
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
FY10 FY11 FY12 FY13E FY14 FY15 FY16 FY17E FY18E FY19E
Textile Brands & Retail Others
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 4 of 13
Exhibit 9: Steady RoCE Improvement
Source: Company, Equirus Exhibit 10: SoTP Valuations of Arvind’s various businesses; Our TP is average of FY17/18
Rs Mn FY16 FY17E FY18E FY19E EV/EB
ITDA
FY16
EV
FY17E
EV
FY18E
EV
FY19E
EV
EBITDA
Textile 8,084 8,520 8,705 9,156 6.5 52,543 55,383 56,582 59,512
Brands 1,342 1,912 2,624 3,323 18 24,154 34,411 47,229 59,823
Retail 50 217 365 490 10 503 2,173 3,650 4,897
Brand JV 222 277 329 390 18 3,998 4,992 5,917 7,015
Total 9,698 10,927 12,023 13,359 81,198 96,958 113,378 131,248
Real Estate
4,000 4,000 4,000 4,000
Total EV
85,198 100,958 117,378 135,248
Consol Net
Debt 31,404 32,610 33,938 33,437
Market Cap
53,794 68,349 83,440 101,811
SoTP Price
209 265 323 395
CMP
282 282 282 282
% Upside
-26% -6% 15% 40%
Source: Equirus
4%
7%
10%
12% 12%
14% 13% 13%
14% 14% 15%
-7%
4%
9%
13% 12%
15% 15%
13% 14% 14% 15%
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
18%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Pre-Tax RoCE RoE
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 5 of 13
Quarterly Results Table (Consolidated)
Rs Mn Q4FY16 Q4FY16E Q3FY16 Q4FY15 % Change
Comments Q4FY16E Q3FY16 Q4FY15
Net Sales 23,196 20,156 21,575 20,405 15% 8% 14%
Raw Material 10,209 9,481 9,563 9,166 8% 7% 11%
Employee Cost 2,496 2,204 2,244 2,027 13% 11% 23%
Power & Fuel 1,182 1,115 1,241 1,097 6% -5% 8%
Stores consumption 1,236 1,186 1,104 1,119 4% 12% 10%
Other Expenditure 5,106 3386 4,619 4,446 51% 11% 15%
Total Expenditures 20,229 17,372 18,770 17,855 16% 8% 13%
EBITDA 2,967 2,784 2,805 2,550 7% 6% 16%
Depreciation 664 648 654 560 3% 2% 19%
EBIT 2,303 2,136 2,151 1,990 8% 7% 16%
Interest 945 874 895 910 8% 6% 4%
Other Income 208 273 188 230 -24% 11% -9%
PBT 1,566 1,535 1,445 1,310 2% 8% 20%
Tax 458 430 386 358 7% 19% 28%
Recurring PAT 1,109 1,105 1,059 953 0% 5% 16%
Extraordinaries 0 0 13 472 Reported PAT 1,108 1,105 1,046 481 0% 6% 130% EPS (Rs) 4.3 4.3 4.1 3.7 0% 5% 16%
EBITDA Margin 12.8% 13.4% 13.0% 12.5% -65 bps -21 bps 29 bps
EBIT Margin 9.9% 10.7% 10.0% 9.8% -78 bps -4 bps 17 bps
PBT Margin 6.8% 7.5% 6.7% 6.4% -76 bps 6 bps 33 bps
PAT Margin 4.8% 5.3% 4.8% 2.4% -48 bps -7 bps 242 bps
Tax Rate 29.2% 30.0% 26.7% 27.3% -77 bps 252 bps 193 bps
Textile Revenue 13602 - 12,907 13,073 - 5% 4%
Textile EBITDAM 16% - 18% 16.9% - -180 bps -70 bps
Brand & Retail Rev 7,628 - 7,370 5,843 - 4% 31%
Brand & Retail EBITDAM 4.3% - 4.4% 1.4% - -11 bps 280 bps
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 6 of 13
Key Concall Highlights General Business Outlook and future prospects:
The revenues for the quarter stood at Rs. 23.2bn vs. Rs. 20.41bn in 4QFY15. (+14%
growth yoy). EBITDA for the quarter stood at Rs. 2.97bn vs. Rs. 2.6bn in 4QFY15
(+16% growth yoy) and PAT for the quarter came at Rs. 1.1bn vs. 0.97bn in 4QFY15
(+16% growth yoy). The growth in the revenues was mainly attributed to 30% topline
growth in brands and retail business and 27% growth in garments business.
While the company was able to maintain margins in fabrics and garments business in
tough and uncertain business environment, it was able to achieve 130bps
improvement in margins for brand and retail business.
The company was able to achieve 30% revenue growth in brand and retail segment in
4QFY16 while for the full year, revenue growth stood at 16%. EBITDA margins for the
segment came at 7.9% for the quarter vs. 4.1% in 4QFY15. For the full year the
EBITDA margins stood at 6.5% vs. 5.2% in FY15.
In FY16, the company was able to successfully launch 4 speciality retail formats –
GAP, TCP, Sephora and Aeropostale which would be the key focus area for the
company in the future and is expected to contribute significantly to the revenues in
the future.
The company was successfully able to complete its MegaMart restructuring process in
FY16 within which all the loss making stores were closed and new value retail format
stores were launched under the name of “Unlimited”. After the restructuring, the
company currently operates 90 MegaMart stores of which 27 are converted in
Unlimited and the remaining ones have undergone some product mix changes in
which almost 85% of the products would be private brands and rest would be other
brands and thus making them profitable.
The company has reduced its debt levels by Rs. 2.3bn on qoq basis which stood at Rs.
35.39bn at the end of 4QFY16 vs. Rs. 39.96bn at the end of 3QFY16.
The debt levels are expected to rise to the tune of 5-7% including the Non-
convertible debenture issue of Rs. 5bn. The company has given capex guidance of Rs.
5bn for all the business combined for FY17.
The textiles business continues to run at 90-95% utilization levels and is expected to
do so in coming years also.
The company expects robust growth to come from brands and retail business of
above 24% in coming years Brand and Retail EBITDA growth momentum of 75bps to
100bps is expected to continue in coming years.
Digital Foray:
The company today launched its omni channel portal named nnnow.com which would
be a fine integration of online and offline shopping.
The USP of the portal would be the distinctive online experience with authentic
brand shops, curated ensembles and global brands.
The portal would be a unique combination of offline and online retailing by sourcing
the order placed by the customer from the nearby stores and delivering it as fast as
in 4 hours.
The company expects 8-10% revenue contribution of branded sales through omni
portal in near future.
Strategic Focus and Future direction:
The company has maintained 14% overall topline growth during last 5 years with the
share of brand and retail business in the total revenues constantly increasing. The
contribution of B&R business increased to 32% in FY16 vs. 27% in FY12.
The margins on the other hand been maintained on an overall basis with textiles
margins at ~17% and B&R margins at ~6%.
For Brands and Retail business, the company owns industry leading portfolio of
brands with a strategic focus to grow in speciality retail aggressively.
For the fabrics and apparel business, the company differentiates itself with vertical
and asset light models with focus on vertical garmenting and differentiating denim
business.
The Brand and Retail business has successfully contributed in Arvind’s growth story
with revenues from the segment increased by 2.5x and EBITDA growth at 27% in last
5 years.
The company’s future action in Brand and Retail business would be 3 steps priority
model which would initially focus on consolidating the existing business by building
on the power brands and increased focus on speciality retail while enhancing the
returns through operational efficiency. The next priority would be to carefully
manage the continuously monitoring the portfolio evolution and take calculated bets
while maintaining the fiscal discipline. The third priority would be to focus on
powerful omni/digital play by seamless customer experience complementing to
brands and retail business.
The company expects the B&R topline to grow at 25-26% in next two years with
maximum contribution coming from power brands and growth brands. The EBITDA is
expected to grow at 35%-38% with increased contribution coming from growth brand
which recently turned positive.
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 7 of 13
Company Snapshot
How we differ from Consensus.
- Equirus Consensus % Diff Comment
EPS FY17E 16.5 17.4 -5 % We need few quarters of sustainable
improvement in B&R margin
performance without B/S expansion to
upgrade our view.
FY18E 19.3 22.3 -13 %
Sales FY17E 94,571 94,437 0 %
FY18E 106,316 108,064 -2 %
PAT FY17E 4,253 4,470 -5 %
FY18E 4,973 5,745 -13 %
Our Key Investment arguments:
Increasing competitiveness of Indian textile industry, diversified product mix and
operating scale continue to deliver margin higher than historical average
Building strong portfolio of brands to ride on consumer shift towards premium/luxury
brands. Brand business expected to grow at 20% CAGR over FY16-19E in revenue
against industry slowdown
Land monetization and strong internal accruals to meet capex requirement without
stretching balance sheet
Expect 11%/17% EBITDA/EPS CAGR over FY16-19E but stretched valuation offers
limited risk reward
Key Assumptions:
Rs Mn FY16 FY17E FY18E FY19E
Textile Revenue 52,019 55,184 58,865 62,446
Brand & Retail Revenue 27,297 29,328 35,237 41,980
Textile EBITDA 8,084 8,520 8,705 9,156
B&R EBITDA 1,774 2,129 2,989 3,813
Risk to Our View
Margin pressure due to lower demand, deterioration in operating performance in brands.
Losses in e-commerce
Key Triggers
Strong earnings growth, 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
7.5 % 1.2 14.7 % 2.5 % 45.2 %
- FY17E FY18E FY19-21E FY22-26E FY27-31E
Sales Growth 12 % 12 % 12 % 11 % 10 %
NOPAT Margin 7 % 7 % 7 % 7 % 7 %
IC Turnover 1.41 1.47 1.58 1.78 2.03
RoIC 9.7 % 10.0 % 11.0 % 12.3 % 14.0 %
Years of strong growth 1 2 5 10 15
Valuation as on date (Rs) 87 94 120 147 170
Valuation as of Sept'17 92 99 126 155 179
Based on DCF, assuming 15 years of 10% CAGR growth and 14% average ROIC, we derive
current fair value of Rs. 170 and 30th Sept’17 fair value of Rs. 179.
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 FY16A FY17E FY18E FY16A FY17E FY18E FY16A FY17E FY16A FY17E FY18E FY16A FY17E
Arvind Ltd. TRADE 302 77,873 294 30th Sep'17 14.0 16.5 19.3 21.5 18.3 15.7 112.8 2.4 13 % 14 % 14 % 0.8 % 1.0 %
Alok NR 4 5,578 NR NR 0.6 - - 10.7 - - 26.5 - 3 % - - - -
Raymond NR 468 28,702 NR NR 15.0 25.9 34.9 31.2 18.1 13.4 265.8 1.8 6 % 7 % 9 % 0.6 % 0.7 %
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 8 of 13
Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q16A 2Q16A 3Q16A 4Q16A 1Q17E 2Q17E 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E FY16A FY17E FY18E FY19E
Revenue 18,769 20,964 21,575 23,196 22,981 23,643 23,643 24,305 25,516 26,579 26,579 27,642 84,504 94,571 106,316 117,607 Raw Material 8,129 9,163 9,563 10,209 10,091 10,297 10,297 10,503 11,071 11,532 11,532 11,994 37,064 41,187 46,129 51,665
Employee Cost 2,230 2,307 2,244 2,496 2,494 2,598 2,598 2,702 2,793 2,909 2,909 3,026 9,278 10,391 11,638 13,034
Power & Fuel 1,234 1,292 1,241 1,182 1,204 1,254 1,254 1,304 1,220 1,271 1,271 1,322 4,949 5,016 5,085 5,154
Stores consumption 1,096 1,222 1,104 1,236 1,208 1,258 1,258 1,308 1,304 1,359 1,359 1,413 4,659 5,032 5,434 5,869
Other Expenditure 3,813 4,366 4,619 5,106 5,173 5,278 5,278 5,384 6,002 6,252 6,252 6,502 17,904 21,113 25,009 27,426 EBITDA 2,266 2,614 2,805 2,967 2,812 2,958 2,958 3,104 3,125 3,255 3,255 3,385 10,651 11,833 13,021 14,459 Depreciation 628 614 654 664 649 706 706 762 729 760 760 790 2,559 2,822 3,039 3,233 EBIT 1,638 2,000 2,151 2,303 2,163 2,253 2,253 2,342 2,396 2,495 2,495 2,595 8,092 9,010 9,982 11,226 Interest 1,025 947 895 945 872 909 909 945 858 894 894 930 3,811 3,635 3,577 3,459 Other Income 248 320 188 208 175 175 175 175 175 175 175 175 964 700 700 600 PBT 861 1,373 1,445 1,566 1,466 1,519 1,519 1,572 1,712 1,776 1,776 1,840 5,245 6,075 7,105 8,367 Tax 268 406 386 458 440 456 456 472 514 533 533 552 1,517 1,823 2,131 2,510 PAT bef. MI & Assoc. 593 967 1,059 1,109 1,026 1,063 1,063 1,101 1,199 1,243 1,243 1,288 3,728 4,253 4,973 5,857 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 21 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 593 967 1,059 1,109 1,026 1,063 1,063 1,101 1,199 1,243 1,243 1,288 3,707 4,253 4,973 5,857 Extraordinaries 29 38 13 0 0 0 0 0 0 0 0 0 80 0 0 0 Reported PAT 564 930 1,046 1,108 1,026 1,063 1,063 1,101 1,199 1,243 1,243 1,288 3,627 4,253 4,973 5,857
EPS (Rs) 2.30 3.75 4.10 4.30 3.98 4.12 4.12 4.26 4.64 4.82 4.82 4.99 14.05 16.47 19.26 22.68
Key Drivers
Textile Production (Mn Mtrs/p.a.)
299 315 326 334
Textile Realization (Rs/mtr)
171 175 181 187
Brand & Retail Revenue Growth - - - - - - - - - - - - 23 % 10% 18% 17%
Sequential Growth (%)
Revenue -8 % 12 % 3 % 8 % -1 % 3 % 0 % 3 % 5 % 4 % 0 % 4 % - - - - Raw Material -11 % 13 % 4 % 7 % -1 % 2 % 0 % 2 % 5 % 4 % 0 % 4 % - - - - EBITDA -11 % 15 % 7 % 6 % -5 % 5 % 0 % 5 % 1 % 4 % 0 % 4 % - - - - EBIT -18 % 22 % 8 % 7 % -6 % 4 % 0 % 4 % 2 % 4 % 0 % 4 % - - - - Recurring PAT -18 % 63 % 9 % 5 % -7 % 4 % 0 % 4 % 9 % 4 % 0 % 4 % - - - -
EPS -38 % 63 % 9 % 5 % -7 % 4 % 0 % 4 % 9 % 4 % 0 % 4 % - - - -
Yearly Growth (%)
Revenue 6 % 7 % 4 % 14 % 22 % 13 % 10 % 5 % 11 % 12 % 12 % 14 % 8 % 12 % 12 % 11 % EBITDA 3 % 8 % -3 % 16 % 24 % 13 % 5 % 5 % 11 % 10 % 10 % 9 % 5 % 11 % 10 % 11 % EBIT -4 % 5 % -7 % 16 % 32 % 13 % 5 % 2 % 11 % 11 % 11 % 11 % 1 % 11 % 11 % 12 % Recurring PAT -9 % 48 % 11 % 53 % 73 % 10 % 0 % -1 % 17 % 17 % 17 % 17 % 23 % 15 % 17 % 18 %
EPS -34 % 1 % -4 % 16 % 73 % 10 % 0 % -1 % 17 % 17 % 17 % 17 % 6 % 17 % 17 % 18 %
Margin (%)
EBITDA 12 % 12 % 13 % 13 % 12 % 13 % 13 % 13 % 12 % 12 % 12 % 12 % 13 % 13 % 12 % 12 % EBIT 9 % 10 % 10 % 10 % 9 % 10 % 10 % 10 % 9 % 9 % 9 % 9 % 10 % 10 % 9 % 10 % PBT 5 % 7 % 7 % 7 % 6 % 6 % 6 % 6 % 7 % 7 % 7 % 7 % 6 % 6 % 7 % 7 %
PAT 3 % 5 % 5 % 5 % 4 % 4 % 4 % 5 % 5 % 5 % 5 % 5 % 4 % 4 % 5 % 5 %
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 9 of 13
Consolidated Financials P&L (Rs Mn) FY16A FY17E FY18E FY19E
Balance Sheet (Rs Mn) FY16A FY17E FY18E FY19E
Cash Flow (Rs Mn) FY16A FY17E FY18E FY19E
Revenue 84,504 94,571 106,316 117,607 Equity Capital 2,582 2,582 2,582 2,582 PBT 5,245 6,075 7,105 8,367
Op. Expenditure 73,853 82,739 93,295 103,148 Reserve 26,535 30,391 34,317 38,941 Depreciation 2,559 2,822 3,039 3,233
EBITDA 10,651 11,833 13,021 14,459 Networth 29,117 32,474 36,400 41,024 Others -80 0 0 0
Depreciation 2,559 2,822 3,039 3,233 Long Term Debt 32,090 33,763 34,743 34,743 Taxes Paid 1,517 1,823 2,131 2,510
EBIT 8,092 9,010 9,982 11,226 Def Tax Liability 1,362 689 709 709 Change in WC 2,407 -2,212 -3,814 -3,355
Interest Expense 3,811 3,635 3,577 3,459 Minority Interest 529 529 529 529 Operating C/F 8,614 4,864 4,198 5,735
Other Income 964 700 700 600 Account Payables 15,748 19,183 21,485 24,063 Capex -5,548 -5,000 -4,500 -4,000
PBT 5,245 6,075 7,105 8,367 Other Curr Liabi 6,873 8,597 9,665 10,692 Change in Invest -119 0 0 0
Tax 1,517 1,823 2,131 2,510 Total Liabilities & Equity 85,719 95,734 104,030 112,258 Others 0 0 0 0
PAT bef. MI & Assoc. 3,728 4,253 4,973 5,857 Net Fixed Assets 36,064 38,242 39,703 40,470 Investing C/F -5,667 -5,000 -4,500 -4,000
Minority Interest 21 0 0 0 Capital WIP 0 0 0 0 Change in Debt -1,876 1,673 980 0
Profit from Assoc. 0 0 0 0 Others 782 782 782 782 Change in Equity -1,748 0 0 0
Recurring PAT 3,707 4,253 4,973 5,857
Inventory 18,319 20,501 23,047 25,495 Others 515 -1,568 -1,027 -1,233
Extraordinaires 80 0 0 0 Account Receivables 14,173 12,955 14,564 16,110 Financing C/F -3,109 104 -47 -1,233
Reported PAT 3,627 4,253 4,973 5,857 Other Current Assets 15,695 22,101 25,130 28,095 Net change in cash -161 -32 -349 501
FDEPS (Rs) 14.0 16.5 19.3 22.7 Cash 687 1,154 805 1,306 RoE (%) 13 % 14 % 14 % 15 %
DPS (Rs) 2.4 3.0 3.5 4.1 Total Assets 85,719 95,734 104,030 112,258
RoIC (%) 10 % 10 % 11 % 11 %
CEPS (Rs) 24.3 27.4 31.0 35.2 Non-cash Working Capital 25,565 27,777 31,591 34,946
Core RoIC (%) 9 % 10 % 10 % 11 %
FCFPS (Rs) 21.9 9.3 8.5 16.1 Cash Conv Cycle 110.4 107.2 108.5 108.5 Div Payout (%) 0 % 21 % 21 % 21 %
BVPS (Rs) 112.8 125.8 141.0 158.9 WC Turnover 3.3 3.4 3.4 3.4 P/E 21.5 18.3 15.7 13.3
EBITDAM (%) 13 % 13 % 12 % 12 % FA Turnover 2.3 2.5 2.7 2.9 P/B 2.7 2.4 2.1 1.9
PATM (%) 4 % 4 % 5 % 5 % Net D/E 1.1 1.0 0.9 0.8 P/FCFF 13.8 32.3 35.4 18.7
Tax Rate (%) 29 % 30 % 30 % 30 % Revenue/Capital Employed 1.4 1.5 1.6 1.7 EV/EBITDA 10.4 9.4 8.6 7.7
Sales Growth (%) 8 % 12 % 12 % 11 %
Capital Employed/Equity 2.3 2.2 2.1 2.0
EV/Sales 1.3 1.2 1.1 1.0
FDEPS Growth (%) 6 % 17 % 17 % 18 %
Dividend Yield (%) 0.8 % 1.0 % 1.1 % 1.4 %
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
5x
10x
15x
20x
25x
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-
50
100
150
200
250
300
350
400
450
500
550
Sep/11
Dec/11
Mar/
12
Jun/12
Sep/12
Dec/12
Mar/
13
Jun/13
Sep/13
Dec/13
Mar/
14
Jun/14
Sep/14
Dec/14
Mar/
15
Jun/15
Sep/15
Dec/15
Mar/
16
Jun/16
Sep/16
Dec/16
Mar/
17
Jun/17
Sep/17
EPS Growth
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
-
100
200
300
400
500
600
700
800
Sep/
11
Dec
/11
Mar
/12
Jun/
12
Sep/
12
Dec
/12
Mar
/13
Jun/
13
Sep/
13
Dec
/13
Mar
/14
Jun/
14
Sep/
14
Dec
/14
Mar
/15
Jun/
15
Sep/
15
Dec
/15
Mar
/16
Jun/
16
Sep/
16
Dec
/16
Mar
/17
Jun/
17
Sep/
17
RoE
1x
2x
3x
5x
4x
-20%
-10%
0%
10%
20%
30%
40%
50%
10,000
40,000
70,000
100,000
130,000
160,000
190,000
Sep/
11
Dec
/11
Mar
/12
Jun/
12
Sep/
12
Dec
/12
Mar
/13
Jun/
13
Sep/
13
Dec
/13
Mar
/14
Jun/
14
Sep/
14
Dec
/14
Mar
/15
Jun/
15
Sep/
15
Dec
/15
Mar
/16
Jun/
16
Sep/
16
Dec
/16
Mar
/17
Jun/
17
Sep/
17
8x
4x
6x
10x
12x
EBITDA Growth
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 10 of 13
Historical Consolidated Financials P&L (Rs Mn) FY13A FY14A FY15A FY16A
Balance Sheet (Rs Mn) FY13A FY14A FY15A FY16A
Cash Flow (Rs Mn) FY13A FY14A FY15A FY16A
Revenue 52,925 68,621 78,514 84,504 Equity Capital 2,580 2,582 2,582 2,582 PBT 2,483 4,237 4,991 5,245
Op. Expenditure 45,896 59,068 68,386 73,853 Reserve 19,959 23,248 24,655 26,535 Depreciation 2,043 2,252 2,124 2,559
EBITDA 7,029 9,553 10,129 10,651 Networth 22,540 25,830 27,238 29,117 Others 2,693 3,195 2,920 -80
Depreciation 2,043 2,252 2,124 2,559 Long Term Debt 22,857 29,919 33,967 32,090 Taxes Paid 620 1,078 1,308 1,517
EBIT 4,986 7,301 8,005 8,092 Def Tax Liability 293 918 1,006 1,362 Change in WC -1,700 -4,486 -3,142 2,407
Interest Expense 3,308 3,758 3,946 3,811 Minority Interest 108 242 348 529 Operating C/F 4,900 4,121 5,584 8,614
Other Income 806 694 932 964 Account Payables 10,978 12,495 13,494 15,748 Capex -2,690 -2,999 -5,386 -5,548
PBT 2,483 4,237 4,991 5,245 Other Curr Liabi 5,558 4,228 3,704 6,873 Change in Invest -703 -2,365 -1,131 -119
Tax 3 541 1,072 1,517 Total Liabilities & Equity 62,334 73,632 79,757 85,719 Others 137 -376 643 0
PAT bef. MI & Assoc. 2,481 3,696 3,920 3,728 Net Fixed Assets 26,945 28,927 32,082 36,064 Investing C/F -3,256 -5,740 -5,874 -5,667
Minority Interest -3 -13 -35 21 Capital WIP 2,076 1,347 1,000 0 Change in Debt 3,253 5,311 4,050 -1,876
Profit from Assoc. 0 0 0 0 Others 583 1,334 656 782 Change in Equity 0 10 11 -1,748
Recurring PAT 2,484 3,709 3,954 3,707 Inventory 14,129 16,281 18,450 18,319 Others -3,640 -3,849 -4,546 515
Extraordinaires 0 115 543 80 Account Receivables 7,547 10,093 11,658 14,173 Financing C/F -387 1,472 -485 -3,109
Reported PAT 2,484 3,595 3,411 3,627 Other Current Assets 9,089 13,974 15,062 15,695 Net change in cash 1,257 -148 -775 -161
EPS (Rs) 9.6 13.9 13.2 14.0 Cash 1,966 1,676 847 687
RoE (%) 12 % 15 % 15 % 13 %
DPS (Rs) 1.7 2.4 2.6 2.4
Total Assets 62,334 73,632 79,757 85,719
RoIC (%) 13 % 14 % 12 % 10 %
CEPS (Rs) 17.5 23.1 23.5 24.3 Non-cash Working Capital 14,228 23,626 27,972 25,565 Core RoIC (%) 12 % 13 % 11 % 9 %
FCFPS (Rs) 19.2 6.4 10.9 21.9 Cash Conv Cycle 98.1 125.7 130.0 110.4 Div Payout (%) 0 % 0 % 0 % 0 %
BVPS (Rs) 87.4 100.0 105.5 112.8 WC Turnover 3.7 2.9 2.8 3.3
P/E 31.3 21.7 22.8 0.0
EBITDAM (%) 13 % 14 % 13 % 13 % FA Turnover 1.8 2.3 2.4 2.3 P/B 3.5 3.0 2.9 0.0
PATM (%) 5 % 5 % 5 % 4 % Net D/E 0.9 1.1 1.2 1.1 P/FCFF 15.7 46.9 27.7 13.8
Tax Rate (%) 0 % 13 % 21 % 29 % Revenue/Capital Employed 1.4 1.6 1.5 1.4 EV/EBITDA 14.1 11.3 11.2 10.4
Sales growth (%) 7 % 30 % 14 % 8 %
Capital Employed/Equity 2.1 2.0 2.1 2.3
EV/Sales 1.9 1.6 1.4 1.3
FDEPS growth (%) 2 % 45 % -5 % 6 %
Dividend Yield (%) 0.5 % 0.8 % 0.8 % 0.8 %
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 11 of 13
Equirus Securities
Pankaj Sharma Executive Director pankaj.sharma@equirus.com 91-79-61909540/41
Research Analysts Sector/Industry Email
Equity Sales E-mail
Anirvan Sarkar Banking & Financial Services anirvan.sarkar@equirus.com 91-79-61909526 Vishad Turakhia vishad.turakhia@equirus.com 91-22-43320633
Ashutosh Tiwari Auto, Metals & Mining ashutosh@equirus.com 91-79-61909517 VibhorRastogi vibhor.rastogi@equirus.com 91-22-43320635
Devam Modi Power & Infrastructure devam@equirus.com 91-79-61909516 Subham Sinha subham.sinha@equirus.com 91-22-43320631
Dhaval Dama FMCG, Mid-Caps dhaval.dama@equirus.com 91-79-61909518 SwetaSheth sweta.sheth@equirus.com 91-22-43320634
Maulik Patel Oil and Gas maulik@equirus.com 91-79-61909519 Dealing Room E-mail
Nimish Mehta Pharma nimish.researchdelta@equirus.com 91-79-61909550 Ashish Shah ashishshah@equirus.com 91-79-61909504
UmeshRaut Industrials umesh.raut@equirus.com 91-79-61909529 IleshSavla ilesh.savla@equirus.com 91-79-61909505
Associates
JigarChokshi jigar.chokshi@equirus.com 91-79-61909506
Ankit Choudhary ankit.choudhary@equirus.com 91-79-61909550 Manoj Kejriwal manoj.kejriwal@equirus.com 91-79-61909508
Manoj Gori
manoj.gori@equirus.com 91-79-61909523 SandipAmrutiya sandipamrutiya@equirus.com 91-79-61909503
Meet Chande meet.chande@equirus.com 91-79-61909513 Compliance Officer E-mail
ParvaSoni parva.soni@equirus.com 91-79-61909541 Smita Sharma smita@equirus.com 91-79-61909509
Pranav Mehta pranav.mehta@equirus.com 91-79-61909514
Raj Kantawala raj.kantawala@equirus.com 91-79-61909532
Ram Varun ram.v@equirus.com 91-79-61909530
SayleeWarade saylee.warade@equirus.com 91-79-61909527
Vikas Jain vikas.jain@equirus.com 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 • SHORT: ATR <= negative 5% over investment horizon • TRADE: Stocks that do not meet the criteria for either LONG or SHORT 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 Target Price and Investment Horizon Target Price is a point value for stocks with Absolute rating of LONG or SHORT and a range value for stocks rated TRADE. Investment Horizon is set at a minimum 3 months to maximum 15 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
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 12 of 13
© 2016 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.
Disclaimers
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). There are no disciplinary actions that have been taken by
any regulatory authority. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker. ESPL/its affiliates provide investment banking services including but
not limited to Private Equity, Mergers & Acquisitions, Structured Finance and Institutional Equities.
ESPL/its affiliates might have, managed or co-managed public offering of securities of the subject company or have received a mandate from the subject company or might have received compensation from the
subject company for investment banking or brokerage services in the past twelve months. ESPL & its affiliates, 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 or its Analyst 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. Research Analyst might have
served as an employee of the subject company in the past.
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,
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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 stand on date, which are subject to change or modification. Any such changes could impact our interpretation of relevant information contained herein. While we
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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.
Additional 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 website. This Report and its respective
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"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.
Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months
May 13, 2016 Maulik Patel maulik@equirus.com (+91-8128694110) Page 13 of 13
Disclosures
Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest
Analyst/ESPL/Associate/Relatives’ financial interest No
Analyst/ESPL/Associate/Relatives’ actual/beneficial ownership of 1% or more No
Analyst/ESPL/Associate/Relatives’ material conflict of interest No
Whether ECPL managed any public offering in past 12 months No
* Associate means individual who assist Analyst