February 9, 2016 ICICI Securities Ltd | Retail Equity Research Result Update Brand & retail growth at par; upbeat for Q4… • Arvind’s Q3FY16 results were in line with our expectations. Consolidated revenues grew 4% YoY to | 2158 crore (I-direct estimate: | 2172 crore). Absence of real estate revenues in the current quarter moderated the earnings momentum • Brand & retail continued its growth momentum with growth of 12% YoY to | 737 crore. Revenues from ‘Power’ brands grew 15% YoY to | 415 crore. The growth was moderated by intentional ramp down in its Mega mart business, which de-grew 24% YoY to | 136 crore • Textile business remained flattish in the quarter at | 1290 crore. Majority of the textile business was driven by growth in garments, which grew 8% to | 201 crore. Denim volumes were hit by a price hike coupled with a change in the product mix. Wovens and voiles grew 4.8% and 12% respectively. • EBITDA for the quarter de-grew 2.3% YoY to | 281 crore (I-direct estimate: | 277 crore). Following this, margins sequentially declined 80 bps QoQ (up 60 bps YoY) to 13.1%. Higher traded goods coupled with increase in employee expenses impacted margins • Benefit from lower interest expense was completely offset by higher depreciation and tax expense. Subsequently, PAT de-grew 5% YoY (up 13.5% QoQ) to | 103 crore (I-direct estimate | 102 crore) Marching ahead on ‘brand’wagon; acceleration from new stores For 9MFY16, Arvind has opened 47 new stores adding up to 998 stores under its brands & retail segment. Majority of this is dedicated to its brands business, which totalled 92 stores in 9MFY16. However, consolidation/closure of 45 stores under Megamart adversely impacted overall store numbers. For FY16, the company is on target for new store opening for GAP, Aeropostale and The Children Place (TCP). As in current quarter, Arvind has four stores of GAP and five stores for Sephora (four- Inherited and one-new store), two stores for TCP and one for Aeropostale. The management indicated that it is done with the current year capex and would reduce its debt by | 150 crore. The enhanced retail coverage with maturity of older stores would provide a boost to earnings in the next quarter and in the subsequent year (FY17). Megamart restructuring concludes; stabilisation to take time The management has concluded its “Megamart” restructuring strategy, which was initiated a few years back. The store consolidation has been concluded by containing the number of Megamarts under 100 stores. Furthermore, it will continue to rebrand its large format Megamart stores (>10000 sq ft) as “Unlimited”, helping it shed its discount store image. Unlimited would enhance the offerings from mass brands like Cherokee, Geoffrey Beene to premium brands like Arrow, US Polo. Following the restructuring, the management would take another year to stabilise the change that would help it to maintain the fall in Megamart margins. We believe this strategic decision would entail expansion in consolidated margins that were previously dented by underperformance in Megamart. Arvind to remain preferred pick in textile, retail space Following the expansion in Ethiopia, the company would double its shirt manufacturing capacity. Increased contribution from garmenting to standalone revenues would perk up higher margins. The dual advantage of manufacturing and retail presence makes Arvind the most preferred “Make & Distribute in India” partner for its associated brands. We continue to maintain our growth estimates for Arvind. We maintain BUY recommendation with a target price of | 370. Arvind Ltd (ARVMIL) | 290 Rating matrix Rating : Buy Target : | 370 Target Period : 12 months Potential Upside : 28% What’s changed? Target Unchanged EPS FY16E Changed from | 15.4 to | 13.5 EPS FY17E Changed from | 19.4 to | 15.9 EPS FY18E Introduced at | 19.7 Rating Unchanged Quarterly performance | Crore Q3FY16 Q3FY15 YoY (%) Q2FY16 QoQ (%) EBITDA 281.5 288.1 (2.3) 262.2 7.3 EBITDA (%) 13.0 13.9 -85 bps 12.5 54 bps PAT 103.3 109.0 (5.2) 91.0 13.5 Key financials | Crore FY15 FY16E FY17E FY18E Net Sales 7,851 8,558 9,562 10,347 EBITDA 1,013 1,088 1,241 1,360 Net Profit 341.1 348.0 411.0 507.4 EPS (|) 13.2 13.5 15.9 19.7 Valuation summary FY15 FY16E FY17E FY18E P/E (x) 21.9 21.5 18.2 14.7 Target P/E (x) 20.5 20.1 17.0 13.8 EV/EBITDA (x) 10.7 10.0 8.8 8.1 P / BV (x) 2.8 2.5 2.2 0.9 RONW (%) 12.5 11.6 12.3 13.4 ROCE (%) 13.1 12.5 13.6 14.0 Stock data Particular Amount Market Capitalization (| Crore) 7,230.7 Total Debt (FY15) (| Crore) 3,396.7 Cash (FY15) (| Crore) 83.3 EV (| Crore) 10,544.1 52 week H/L 327 / 216 Equity Capital (| Crore) 258.2 Face Value (|) 10.0 Peer Comparison 1M 3M 6M 12M Arvind Ltd (16.25) 1.85 (5.28) 2.25 K P R Mill Ltd (15.96) (8.15) (10.50) 72.09 Vardhman Inds. (8.82) 11.91 (3.58) (18.85) Kewal Kir.Cloth. (9.44) (7.95) (11.30) 13.08 Research Analyst Bharat Chhoda [email protected]Ankit Panchmatia [email protected]Nirav Savai [email protected]
Transcript
February 9, 2016
ICICI Securities Ltd | Retail Equity Research
Result Update
Brand & retail growth at par; upbeat for Q4… • Arvind’s Q3FY16 results were in line with our expectations.
Consolidated revenues grew 4% YoY to | 2158 crore (I-direct estimate: | 2172 crore). Absence of real estate revenues in the current quarter moderated the earnings momentum
• Brand & retail continued its growth momentum with growth of 12% YoY to | 737 crore. Revenues from ‘Power’ brands grew 15% YoY to | 415 crore. The growth was moderated by intentional ramp down in its Mega mart business, which de-grew 24% YoY to | 136 crore
• Textile business remained flattish in the quarter at | 1290 crore. Majority of the textile business was driven by growth in garments, which grew 8% to | 201 crore. Denim volumes were hit by a price hike coupled with a change in the product mix. Wovens and voiles grew 4.8% and 12% respectively.
• EBITDA for the quarter de-grew 2.3% YoY to | 281 crore (I-direct estimate: | 277 crore). Following this, margins sequentially declined 80 bps QoQ (up 60 bps YoY) to 13.1%. Higher traded goods coupled with increase in employee expenses impacted margins
• Benefit from lower interest expense was completely offset by higher depreciation and tax expense. Subsequently, PAT de-grew 5% YoY (up 13.5% QoQ) to | 103 crore (I-direct estimate | 102 crore)
Marching ahead on ‘brand’wagon; acceleration from new stores For 9MFY16, Arvind has opened 47 new stores adding up to 998 stores under its brands & retail segment. Majority of this is dedicated to its brands business, which totalled 92 stores in 9MFY16. However, consolidation/closure of 45 stores under Megamart adversely impacted overall store numbers. For FY16, the company is on target for new store opening for GAP, Aeropostale and The Children Place (TCP). As in current quarter, Arvind has four stores of GAP and five stores for Sephora (four-Inherited and one-new store), two stores for TCP and one for Aeropostale. The management indicated that it is done with the current year capex and would reduce its debt by | 150 crore. The enhanced retail coverage with maturity of older stores would provide a boost to earnings in the next quarter and in the subsequent year (FY17). Megamart restructuring concludes; stabilisation to take time The management has concluded its “Megamart” restructuring strategy, which was initiated a few years back. The store consolidation has been concluded by containing the number of Megamarts under 100 stores. Furthermore, it will continue to rebrand its large format Megamart stores (>10000 sq ft) as “Unlimited”, helping it shed its discount store image. Unlimited would enhance the offerings from mass brands like Cherokee, Geoffrey Beene to premium brands like Arrow, US Polo. Following the restructuring, the management would take another year to stabilise the change that would help it to maintain the fall in Megamart margins. We believe this strategic decision would entail expansion in consolidated margins that were previously dented by underperformance in Megamart. Arvind to remain preferred pick in textile, retail space Following the expansion in Ethiopia, the company would double its shirt manufacturing capacity. Increased contribution from garmenting to standalone revenues would perk up higher margins. The dual advantage of manufacturing and retail presence makes Arvind the most preferred “Make & Distribute in India” partner for its associated brands. We continue to maintain our growth estimates for Arvind. We maintain BUY recommendation with a target price of | 370.
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis | crore Q3FY16 Q3FY16E Q3FY15 YoY (%) Q2FY16 QoQ (%) CommentsRevenue 2,157.5 2,172.4 2,073.7 4.0 2,096.4 2.9 Revenue grew due to higher growth in brand & retail business on the back of
Textiles 1,290.7 1,290.7 0.0 1,295.9 -0.4 Growth was mainly due to 29% growth in the garments business
Brand & Retail 737.0 658.7 11.9 702.9 4.9 Brands/other formats grew 22% YoY; offset by de-growth of 16% in Megamart
Real Estate & Others 7.86 37 -78.7 6.09 29.06 Following the de-merger of real estate business
Source: Company, ICICIdirect.com Research Change in estimates
FY18E
(| Crore) Old New % Change Old New % Change Introduced CommentsRevenue 9,022.3 8,557.7 -5.1 10,045.6 9,562.4 -4.8 10,346.8 Revenue estimates reduced on the back of lower-than-expected performance in textile
EBITDA Margin (%) 13.1 12.7 -37 bps 13.3 13.0 -34 bps 13.1 Margins expected to gradually expand. Higher contribution from garments & completion of Megamart restructuring would help in improvement
PAT 398.5 348.0 -12.7 500.8 411.0 -17.9 507.4
EPS (|) 15.4 13.5 -12.7 19.4 15.9 -17.9 19.7
FY16E FY17E
Source: Company, ICICIdirect.com Research Assumptions
EV/EBITDA EV EBITDA Multiple EV EBITDA MultipleStandalone 3,571 893 4.0 4,172 1,043 4.0
Market Cap/Sales Sales Market Cap MCap/Sales Sales Market Cap MCap/SalesBrands & Retail 3,638 8,367 2.3 3,370 7,784 2.3
Current Earlier
Current (FY18E) Earlier (FY17E)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Company Analysis Indian textile market to be dominated by apparels The large population base of China and India has led to their inclusion among top apparel markets, even ahead of several developed economies. Though India is the sixth largest market by value, very often comparisons are drawn between the markets of China and India. However, it is interesting to note that India’s per capita spend on apparel is only a third of China’s $109 and a mere 3% of Australia’s per capita spent. Indian per capita spend on apparel is just $36, which is significantly below the global average of $153. According to India Brand Equity Foundation (IBEF), the current retail market is worth ~$525 billion and is expected to grow at a CAGR of 13% by 2020. Food & groceries (F&G) contribute the largest with 69% of the total retail market. Apparel is way behind with 8% of the retail pie. On the back of this, the current Indian apparel market is estimated at $42 billion (| 250000 crore). The Indian apparel market is expected to grow at a CAGR of 10% from the current $42 billion to $115 billion over CY14-25. The organised apparel market is expected to grow at a comparatively faster CAGR of 17% over the period compared to the unorganised market, which is expected to grow at a CAGR of 8%. Branded apparel is expected to outpace industry growth and grow at a CAGR of 22% in CY14-25. This would result in the share of branded garments of the organised apparel industry going up from 27% in CY12 to 50% in CY25.
Exhibit 2: Apparel market expected to touch US$115 billion…
42.054.4
79.4
115.8
0
20
40
60
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100
120
140
2014 2017 2021 2025
US$
Bn
Indian Apparel market (US$ Bn)
Source: Images yearbook 2014, ICICIdirect.com Research
Menswear dominates; womenswear to overtake by 2025 The apparel market can be further classified as menswear, womenswear and kidswear. Menswear contributes largest with ~42% of the total market i.e. | 105000 crore. This is dominated by options like shirts (30%), trousers (24%) and denims (13%). Womenswear is a tad lower at 38% with a market size of | 95000 crore, with major contributions from salwar kameez (36%), sari (30%) and innerwear (13%). Kidswear contributes the remaining 20%, which is dominated by uniform for boys as well as girls. The second largest category in kids wear is t-shirts & ethnic wear, respectively, for boys and girls. Though the current market share of womenswear is low compared to menswear, it is expected to achieve parity by 2025. Kidswear is expected to grow at the fastest pace, albeit on a lower base. The expected CAGR for each category is 9% for menswear, 10% for womenswear and 11% for kidswear over 2014-25.
Exhibit 1: Global apparel market size & growth rate
Source: Images yearbook 2014, ICICIdirect.com Research
Source: Images yearbook 2014, ICICIdirect.com Research
Exhibit 4: Indian apparel market - Audience wise
17.2
15.6
8.2
45.3
45.8
24.5
0 10 20 30 40 50
Menswear
Womenswear
Kidswear
US$ Bn
2014 2025
Source: Images yearbook 2014, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 4
Arvind - One stop shop for apparel requirements
Arvind possesses the 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 the 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. The company 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 5: Everything for everyone makes Jack happy..!!!
In menswear, the company is well positioned with its power brands like Arrow, US Polo and Flying Machine. Additionally, the company also has entry level brands like Excalibur and Cherokee. For women, the company has positioned brands like Elle and Karigari. Arvind is betting big on kidswear, having an 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. With these brands the company strategically covers the upper class and middle class customer categories. In the menswear segment, the company is considered to be the second largest and aspires to be the largest. In the kidswear segment, it aspires to be the largest. Also, in innerwear, it aspires to be the second largest brand after Jockey.
ICICI Securities Ltd | Retail Equity Research Page 5
Extensive distribution network – Complimenting brands
Arvind has a strong distribution network of ~810 stores across 150 cities with a total retail space of ~1.42 million square feet (sq ft) in India, which enables it to reach a large number of consumers and a huge potential market to sell its products. The company has been aggressive in retail space expansion in its brands business. Over FY11-14, brand retail space has grown at a CAGR of 50% to 0.8 million sq ft.
Arvind has big plans on large retail formats, which enable it to offer multiple products. Among its extensive reach, ~35% consists of exclusive brand outlets (EBOs) in the name of respective brands. Further, the company also distributes through key channel partners like Lifestyle, Shoppers Stop, etc, forming another 30-35% of the distribution channel. Moreover, multi-brand outlets (MBOs) form 25-27% and e-commerce ~5% of the distribution channel. With an enviable brand portfolio and a presence in menswear, womenswear and kids segment, it envisages higher footfalls though large retail format stores at some prime locations.
The company plans to open an additional seven GAP stores over the next year, with a store size of ~8000-10000 sq ft. Furthermore, for Aeropostale, the company plans to open 40-45 stores by 2020. These stores would have an average size of 2000-3000 sq ft due to which we believe the average space per store will increase.
Megamart restructuring to aid margins Arvind’s value retail business, which is housed under Megamart, has been struggling with sluggish revenue growth and low margins over the last two years. Megamart’s strategy is to attract customers by offering discounts on reputed brands like Arrow, Park Avenue, Van Heusen and try and convert them into buying its own private labels. The brands that are sold exclusively at Megamart include Ruggers Skinn, Elitus, Donuts, Karigari, Mea Casa, Auburn Hill, Bay Island, Colt, Leisha and Edge. Megamart stores range in size from 2000 sq ft to 6500 sq ft. The past few years have been challenging for Megamart as it registered negative LTL growth of 3.8% and experienced pressure on operating margins owing to incidence of higher excise duty and higher cost of finished goods due to an increase in cotton prices. To counter the decline in margins, the management has repositioned Megamart from a discount store to value retail with a higher proportion of private labels. To improve its margins, Megamart is looking to increase the share of private labels from 40% to 60%. Also, several small stores have been closed while some large format stores have been opened resulting in a reduction in the number of Megamart stores from 216 in FY12 to 95 stores in Q3FY16. The large format Megamart stores have been positioned as Unlimited with a size of 10000 sq ft per store. Arvind currently has ~20% area under the power Megamart format and is planning to scale up the area under power Megamart format to 50% over the next two years. The shift in favour of large format stores has led the area per store for Megamart to increase from 3100 sq ft in FY12 to 7679 sq ft in Q3FY16. The repositioning of Megamart as value retail is expected to boost revenue growth and enhance margins, going ahead.
Exhibit 6: Pan-India presence for brands & retail Paticulars
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Arvind’s presence across garment value chain The company has successfully shifted from a pure B2B textile player to a combination of B2B and B2C player. Earlier, it used to be a major supplier of fabrics and denim. With the introduction of home grown brands like Ruff & Tuff, the company successfully shifted from a fabric supplier to a garment manufacturer. Following the same, Arvind introduced retail chains like Megamart and ventured into in-licensing/franchisee of international brands, which positioned it as a major retail player. We believe the company has transitioned from a low margin textile business, having subdued return ratios. Going ahead, the performance in its brands and retail business would affirm higher margins and better return ratios.
Most preferred “Make & Market in India” partner!!!
Arvind is strategically trying to balance its textiles business by reducing dependence on denim and enhancing capacity in the more lucrative wovens and garmenting businesses. The company has a denim capacity of 108 million metre while wovens have a capacity of 132 million metre. The garmenting capacity is currently 22 million pieces as on Q1FY16, which the company plans to double to 28 million pieces in FY16. The expansion of the garmenting capacity would be in line with its stated strategy of transforming itself into a powerhouse among brand with an asset light business model. The asset turnover of the garmenting business is typically 2-3x of the fabrics business yielding higher return on assets employed. Also, the garmenting business tends to have higher visibility and connect with the consumer aiding in brand building in the longer term.
Exhibit 7: Revenue share of B2C to increase for Arvind!!!
70.7 68.6 65.0 62.7 59.5 57.7
25.4 26.6 28.5 32.6 35.9 37.5
3.9 4.7 6.5 4.8 4.7
010203040
5060708090
100
FY13 FY14 FY15 FY16E FY17E FY17EB2B B2C Others
Source: Company, ICICIdirect.com Research
Exhibit 8: Denim volumes & realisation trend
89
105 106 105 109 110
174
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185187
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2013 2014 2015 2016E 2017E 2018E
Mn
MT
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Denim Average Realization
Source: Company, ICICIdirect.com Research
Exhibit 9: Woven volumes & realisation trend
87103
112 115 118 120
162
174176
178179
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2013 2014 2015 2016E 2017E 2018E
Mn
MT
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Wovens Average Realization
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
The company strategically has a vertically integrated alignment. On the back of this, higher emphasis on garmenting would create multiple levers for improvement. The current internal consumption for fabric was at 4% of total production. The company intends to increase this captive consumption to 25%. By converting a larger proportion of fabric revenue into garment revenue, Arvind would improve its average realisation rates and would keep utilisation levels elevated. The current realisation for woven and fabric was | 182/metre and | 174/metre, respectively. Realisation for garments was at | 481/piece.
Ramping up of its garmenting capacity Arvind is planning to increase its garment capacity to 40 million pieces over the next three years from 22 million pieces as on Q1FY16. On the back of this, the company plans to increase its current contribution from garments from 14% in FY15 to 20% by FY18. The increase in garmenting capacity would mainly be on account of replication of the Chinese dormitory model. The company provides residential accommodation and other livelihood facilities to migrant workers. It implemented this model at two of its manufacturing units in Chhatral and Dehgam in Gujarat. With the increase in garmenting capability, Arvind is positioning itself as the most preferred distribution partner in India. With majority of the brands targeting the Indian growth story, the company would help them formulate their manufacturing as well as distribution strategies. The current manufacturing capability includes production of denims and shirts. Arvind manufactures garments for associated international brands like Tommy Hilfiger, Calvin Klein and GAP for which it also has distributing licenses. For power brands like Arrow and Polo, the company manufactures 100% of its domestic requirements. Arvind also manufactures for non-associated brands like H&M, M&S, FCUK and Jack & Jones. In garments, majority of the revenues is from exports. However, approximately 10% of garments produced are marketed within India. The company expect this made and marketed in India proportion to increase to 25-30% by 2020.
Exhibit 10: Garments volume & realisation trend
10 12 14 18 20 23
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481491
500510
465
0
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2013 2014 2015 2016E 2017E 2018E
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pcs
420430440450460470480490500510520
Garments Average Realization
Source: Company, ICICIdirect.com Research
Exhibit 11: Product configuration in manufacturing business
ICICI Securities Ltd | Retail Equity Research Page 8
Valuation Standalone business valued at 4x EV/EBITDA 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 19% in FY11-15. Majority of this growth was driven by growth in its fabric division, which grew at 13.4% CAGR in FY11-15. The increase in fabrics revenues was mainly supported by 21% CAGR in woven, followed by denim revenues, which grew at a modest CAGR of 6%. 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 16% in 2012-15. Over the past few years, the company’s investments in augmenting its garmenting capacities were insignificant. The company now intends to double its garmenting capacity and has targeted 40 million capacity by 2020. Further, currently only 5% of the fabrics produced are used for production of garments that the company intends to increase to 25%. With the enhancement of capacities, standalone revenues would be mainly driven by garments. Garment revenues have increased at a CAGR of 16% in 2012-15, which is further expected to grow at a CAGR of 30% over two years. Majority of the revenues would be driven by volumes on the back of capacity enhancement with realisation at current levels. We believe the standalone business has different dynamics and has very different working capital cycle. Thus, we value the standalone business on the basis of EV/EBITDA in comparison to the industry. Exhibit 12: Peer comparison for standalone business….
Figures (Rs crs)Company Price Sales EBIDTA OPM PAT PAT % FY16E FY17E FY18E
We value the company at an EV/EBITDA of 4x, which is lower than the industry average, arriving at an SOTP value of the standalone business at | 46 per share. Exhibit 13: Valuing standalone business….
SOTP
Arvind Standalone
Target EV/EBITDA (x) 4.0
EBITDA (FY18E) 892.8
Net Debt 2,399.5
Enterprise Value (| Crore) 3,580.3
Target Market cap Core business (| crore) 1,180.8
Value/Share 46
Source: ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 9
Brands & retail business valued at 2.3x market capitalization to sales 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 ~| 2000 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. In addition, the garmenting capabilities of the company position it as the most preferred partner in India. Majority of the 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 that one of the brands would be converted into a powerbrand in 2018. On account of this, powerbrand revenues are expected to grow at 33% CAGR while due to the shift the growth of other brands would be lower at a CAGR of 11% in 2015-18. We believe this business would be valued on the basis of sales that the company is able to achieve and following this the estimated market capitalisation 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 2.3x and arrive at a value of | 324 per share.
Consolidated valuation Applying the EV/EBITDA multiple of 4x to its standalone business and market capitalisation to sales multiple of 2.3x to its brands & retail business, we arrive at a consolidated target price of | 370/share. We have a BUY recommendation on the stock.
ICICI Securities Ltd | Retail Equity Research Page 10
Company snapshot
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Target Price |370
Source: Bloomberg, Company, ICICIdirect.com Research Key events Date EventDec-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%
Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Aura Securities Pvt. Ltd. 30-Sep-15 0.38 97.8 0.02 Life Insurance Corporation of India 30-Sep-15 0.06 15.2 -0.43 Multiples Alternate Asset Management Private Limited 30-Sep-15 0.04 10.8 0.04 AML Employees Welfare Trust 30-Sep-15 0.02 6.3 0.05 UTI Asset Management Co. Ltd. 30-Nov-15 0.02 5.6 0.06 DSP BlackRock Investment Managers Pvt. Ltd. 31-Dec-15 0.02 4.9 0.07 Dimensional Fund Advisors, L.P. 30-Sep-15 0.02 4.6 1.18 Lalbhai Group 30-Sep-15 0.02 4.1 0.09 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Nov-15 0.01 3.8 0.510 Norges Bank Investment Management (NBIM) 30-Sep-15 0.01 3.7 -1.7
Source: Reuters, ICICIdirect.com Research Recent Activity
Investor name Value Shares Investor name Value SharesDimensional Fund Advisors, L.P. 4.878 1.144 Norges Bank Investment Management (NBIM) -7.253 -1.701Franklin Templeton Asset Management (India) Pvt. Ltd. 2.388 0.500 JM Financial Asset Management Pvt. Ltd. -1.971 -0.396The Vanguard Group, Inc. 1.489 0.275 Life Insurance Corporation of India -1.578 -0.370Indiabulls Asset Management Company Limited 1.098 0.230 Nomura Asset Management Singapore Ltd. -0.991 -0.234OppenheimerFunds, Inc. 1.167 0.216 Emerging Global Advisors, LLC -0.530 -0.106
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
ICICI Securities Ltd | Retail Equity Research Page 13
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com 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;
ICICI Securities Ltd | Retail Equity Research Page 14
ANALYST CERTIFICATION We /I, Bharat Chhoda, MBA and Ankit Panchmatia, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures: ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts 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 ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Bharat Chhoda, MBA and Ankit Panchmatia, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Abhishek Bharat Chhoda, MBA and Ankit Panchmatia, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report 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 ICICI Securities 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 certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
