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Transcript of 450 - Moneycontrolchats.moneycontrol.com/plus/upload_pdf_file/Arvind_PYT_Ventura.pdf · Arvind is...
Arvind Ltd
BUY
- 1 of 22 - Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
ST
OC
K P
OIN
TE
R
Target Price ₹ 624 CMP ₹ 369 FY20E EV/EBITDA 8.1x
Index Details
Arvind Ltd (Arvind) is expected to be one of the biggest beneficiaries of
GST, as the tax arbitrage enjoyed by the unorganized sector (~75% of
market) is expected to be eliminated in the post GST regime. We expect
aggressive market share gains to play out over the forecast period FY17-
20. Further, its garmenting foray in Ethiopia, high growth of brand
portfolio and expanding retail footprint of Unlimited are expected to
propel top line growth and profitability.
We initiate coverage on Arvind as a BUY with a SOTP price objective of
Rs.624, representing a potential upside of 69.1% from the CMP of Rs. 369
over a period of 30 months.
Our optimism stems from the following:
The textiles segment is expected to grow at a CAGR of 9% to Rs.
7,440 crore on the back of an expected increase in the fabric
conversion rate to ~20-22% from the present ~7-8%.
The garmenting capacity expansion (10-12 mn pieces) in Ethiopia
will boost the overall capacity and support its verticalisation
strategy. Significant manufacturing incentives and duty free access
to international customers in Europe and USA will boost the
garmenting business revenues to Rs. 2,092 crore by FY20 (CAGR
of 23%).
The strong portfolio of iconic brands across all market segments,
with a clear set of priorities, is poised to capture the “brand
conscious” Indian apparel industry. Further, an extensive
distribution network, with more than 1900 KA counters covering
1.6mn sq. ft. of retail area, across the country is expected to drive
the brands and retail business revenue growth by 22.7% CAGR
over FY17-20 to Rs. 5,334 crore in FY20.
Sensex 32,245
Nifty 9,967
Industry Textile
Scrip Details
Mkt Cap (₹cr) 9,461
BVPS (₹) 138.1
O/s Shares (Cr) 25.8
Av Vol (Lacs) 7.4
52 Week H/L 426/286
Div Yield (%) 0.6
FVPS (₹) 10
Shareholding Pattern
Shareholders %
Promoters 42.9
Public 57.1
Total 100.0
Arvind vs. Sensex
050100150200250300350400450
0
5000
10000
15000
20000
25000
30000
35000
SENSEX Close (Unit Curr)
Key Financials (₹ in Cr)
Y/E Mar
Net Revenue
EBIDTA PAT Adj. EPS
EPS Growth (%)
RoE (%) RoCE
(%) P/E(x)
EV/EBIDTA
2017 9235.5 943.4 320.1 12.4 - 10.3 10.3 29.8 13.0
2018E 10471.5 1135.8 434.1 16.8 35.6 11.6 12.0 22.0 10.9
2019E 11862.3 1504.3 636.5 24.6 46.6 15.1 15.0 15.0 8.5
2020E 13502.7 1579.0 680.1 26.3 6.8 14.1 14.0 14.0 8.1
- 2 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Company Background:
Incorporated in 1931, Arvind Ltd is the flagship company of the Lalbhai Group and is
India’s leading vertically integrated textile company. Apart from the textile space, Arvind
has developed a strong portfolio of marquee brands which include Arrow, US Polo,
Flying Machine, Tommy Hilfiger, Calvin Klein, etc. The company also operates value
retail stores “Unlimited”, which is one of the largest retail chains in India.
Corporate Structure of Arvind
Source: Company, Ventura Research
- 3 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Key investment highlights:
Indian textile industry growth to continue
Over the years, the textile industry has continued to maintain its importance in the
country’s development. The industry not only contributes ~4 percent to the GDP of the
country but also contributes ~14 percent to the industrial production, thereby employing
~45 million people (the textile industry is the largest source of development in the
country).
Apart from manufacturing capabilities, India has a heads-on advantage in terms of raw-
material availability. The country’s geography is well suited for cotton production and
other raw-materials required.
Key facts of the Indian textile and apparel industry:
India accounts for 63 percent of the market share of textiles & garments
With a production of 6,106 mn kgs, India was the largest producer of cotton in 2016-17.
India has the highest loom capacity (including handlooms) with 63 percent of the world’s market share.
India is the 2nd largest producer of manmade fibre & filament, with production of around 211 mn kgs in 2016-17.
The Indian textile industry is likely to continue its growth, buoyed by both strong domestic
consumption as well as export demand. The textile industry is currently estimated at
around $137 billion and is expected to grow at a CAGR of 7.4 percent to $226 billion by
2021.
Indian textile industry to grow at a CAGR of 7.4%
0
50
100
150
200
250
2009 2010 2011 2014 2015 2016 2023E
(Rs. in crore)
Source: IBEF (Textiles & Apparel) – May 2017, Ventura Research
- 4 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
The growth in the industry is expected on back of the following factors:
Robust demand - The demand is expected to grow on the back of rising income
levels and favourable demographics. Further, an increase in the penetration of
organized retail will drive the overall textile demand.
Competitive advantage – India has an advantage as it has ample availability of raw-
materials such as cotton, wool and silk. India also enjoys a comparative advantage
in skilled labour and cost of production.
Increasing Investments – Huge investments are being made by the government
under the Scheme for Integrated Textile Parks (SITP) & Technology Upgradation
Fund Scheme (TUFS) to encourage more private equity and to train workforce.
Policy Support – The government has allowed 100% FDI (automatic route) in the
Indian textile sector to facilitate expansion in the industry. Further, free trade
agreements with ASEAN countries and the European Union will boost exports.
Mature textile business – A significant contributor to revenue
Arvind is the largest cotton textile manufacturer in India with a 132mn meter capacity of
woven fabric. The company, with a capacity of 108mn meters, is also one of the largest
denim manufacturers globally. With denim and woven fabric operating at fairly high
utilization, 93% & 95% respectively, growth of this segment is expected to be spear
headed by the garmenting division.
Garmenting – Part of a verticalisation strategy
The company diversified into garmenting in FY01, as part of its verticalization strategy.
Thereon, the company has steadily added capacity in garmenting from 19mn pieces in
FY10 to 23mn pieces in FY16. This segment has witnessed a healthy revenue CAGR of
18% over FY12-16. We expect this healthy growth to continue on the back of the
following:
Details of Arvind’s textile capacity
Particulars Capacity
(in mn meters)
% share in textile
revenue (FY17)
Denim 108 31%
Woven 132 38%
Garments 29** 19%
Voiles 40 6%
Knits 9400* 5%
* in tons ** in mn pieces
Source: Ventura Research
- 5 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Addition of capacity in Ethopia: The company, in FY17, had an annual capacity of
29 mn pieces and plans to ramp up to 40mn pieces in the next few years. To support
its expansion plans, the company is expected to commence another 10-12mn pieces
capacity at a capex of ~Rs. 150 crores in Ethopia, given that a number of sops are
being provided by the Ethopian government. (enumerated below)
Duty free access and relative proximity to its international customers in Europe.
The facility has been provided by the local government of Ethopia, and thereby
required no investment in land and building.
Ethopia enjoys a significant cost advantage over India in terms of labour and
power costs.
The labour cost in Ethopia is ~70 dollars per month, whereas the average cost
in India is ~135 dollars - implying a significant cost advantage.
In the case of power, the average cost in Ethopia is Rs. 2 per unit whereas in
India the average cost ranges between Rs. 7 to 8 per unit, thereby giving a
significant cost advantage.
Increase in fabric conversion: The company presently converts ~7-8% (in FY17) of
its fabric to garments, which it plans to increase to ~20-22% in the next 4-5 years.
This increase in conversion will enable the company to improve its overall textile
segment margins.
Expected % increase in conversion of fabric to garment
0%
5%
10%
15%
20%
25%
FY17 FY20E
% of fabric output sold as garment
~ 7-8%
~ 20-22%
Source: Ventura Research
- 6 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
On the back of a planned capacity expansion and an increased fabric conversion,
we expect the garmenting vertical revenue to grow at a CAGR of 23% over FY17-20
to Rs. 2,093 crore in FY20.
Denim and woven operating at full capacity
Arvind is one of the largest manufacturers of denim globally and one of the few players
with high capacity utilization in an industry beset by over capacity. The company’s strong
expertise at every step of the denim fabric manufacturing value chain (i.e. spinning,
dyeing, weaving, finishing) and high-end design capabilities has enabled it to maintain its
utilization.
Further, the company is also strategically trying to balance its textile business by reducing
its dependence on denim and enhancing its capacity in the more lucrative woven (i.e.
shirting fabric) and garmenting businesses. The company currently has a denim capacity
of 108mn meters, which is operating at full utilization and the company has no plans for
expansion.
Garments volume & realization trend
430
440
450
460
470
480
490
500
0
5
10
15
20
25
30
FY13 FY14 FY15 FY16
mn pieces Avg. Realisation (in INR)
SourceS Source: Ventura Research
Garmenting revenue to grow at 23% CAGR
0
500
1000
1500
2000
2500
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(Rs. in crore)
SourceS Source: Ventura Research
- 7 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
The company also has a woven capacity of 132mn metres, which is operating at high
utilization levels.
Arvind also has a knit manufacturing capacity of 9400 tons, offering basic knits including
jersey, pique, rib & interlock and specialty knits, including yarn-dyed, auto stripers to
global brands such as Marks & Spencer, Zara and Josepha Banks.
Woven volume & realization trend
145
150
155
160
165
170
175
0
20
40
60
80
100
120
140
FY13 FY14 FY15 FY16 FY17
mn metres Avg. Realisation (in INR)
Source: Ventura Research
Denim revenue to grow at 8% CAGR
0
500
1000
1500
2000
2500
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(Rs. in crore)
SourceS Source: Ventura Research
Denim volume & realization trend
160
165
170
175
180
185
190
80
85
90
95
100
105
110
FY13 FY14 FY15 FY16 FY17
mn pieces Avg. Realisation (in INR)
SourceS Source: Ventura Research
Woven revenue to grow at 5% CAGR
0
500
1000
1500
2000
2500
3000
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(Rs. in crore)
Source: Ventura Research
- 8 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Further, the company intends to focus on “advanced material” (erstwhile technical textile)
which offers specialized products having industrial application such as filtration, belting,
coating and dying. This business is currently at a nascent stage. However, the
management expects to grow it to ~Rs. 1000 crore in the next 2 years.
Based on the above, we expect the textile segment revenue to grow at 9% CAGR to
Rs. 7,440 crore in FY20 from Rs. 5,734 crore in FY17.
Revenues to grow at a CAGR of 9%
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Denim Wovens Garments Voiles Knits
(Rs. in crore)
Source: Company, Ventura Research
Voiles revenue to grow at 6% CAGR
0
50
100
150
200
250
300
350
400
450
500
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(Rs. in crore)
Source: Ventura Research
Knits revenue to grow at 6.5% CAGR
0
50
100
150
200
250
300
350
400
450
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(Rs. in crore)
Source: Ventura Research
- 9 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Indian apparel market presents a gargantuan growth opportunity
Wazir Advisors’ analysis of the “Per-capita Expenditure on Apparel” (PEAP) reveals that
India has the lowest PEAP of US$ 45, which is less than 5% of the highest PEAP of US$
978 in USA. This vast difference suggests a huge opportunity for growth of the Indian
apparel market. Further, India’s apparel market, estimated at USD 59bn in 2015, is
expected to grow ahead of China’s and other developed economies to scale to USD
180bn (12% CAGR) by 2025. Given the significant upside potential, the heavy
investments undertaken by Arvind to grow its power brands should ensure a faster
apparel revenue growth than the industry.
Per-capita expenditure on Apparel in 2015 India’s Apparel market size projection – 2025
Source: Wazir Advisors- The Road to 2025, Ventura Research
Source: Wazir Advisors- The Road to 2025, Ventura Research
Further, within the apparel industry, the branded apparel market is expected to grow at a
comparatively faster CAGR of 12% over the period compared to the unbranded market,
which is expected to grow at a CAGR of 8%. This would result in the share of the
branded apparel market increasing from 25% in FY15 to 34% in FY21. This rapid growth
in the industry is expected based on the following:
Young population: The median age of the Indian population is 26 years, with
maximum population lying in the age bracket of 15-60years. It is further expected that
India will add another 140 mn people in this consuming age group by 2020. This
population has more aspiration and has higher spending power.
Higher disposable income: According to the Indian census report, the number of
households with an annual income of USD 7000 or more is going to treble from about
30 million today to 100 million by 2020. There will be approximately 400 million
individuals in the middle to high income bracket by 2020.
0
200
400
600
800
1000
1200
0 100 200 300 400
India China EU USA
Apparel market in US$ bn
0
20
40
60
80
100
120
140
160
180
200
2015 2025
- 10 of 22- Tuesday 25th July, 2017
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Growing media influence: The role of technology has changed the way people
receive/share information. From social networking sites to electronic channels,
information travels at the speed of light. The changing lifestyle and “western” culture
has also influenced consumer demands and aspirations. People are willing to
consume and develop a lifestyle akin to a developed world’s consumer.
Implementation of GST: The excise duty on apparel was ~5.5%. Further, the
organized players such as Arvind had to pay service tax on various services availed
during the course of business, such as works contract, rent, etc. of which no input tax
credit could be availed, thereby taking the effective tax rate to ~10-10.5%.
Under the previous tax regime, the unorganized sector (~75% of the ~137 USD bn
market) enjoyed a tax arbitrage due to tax evasion. However, the implementation of
GST, being a single tax regime, would not only solve the problem of set off but would
also eliminate the tax arbitrage enjoyed by the unorganized players, thereby
benefiting the organized players.
Strong portfolio of iconic brands across all market segments
Arvind is equipped with probably one of the best industry-wide brand portfolio (both
owned and licensed).
Strong portfolio of brands across all market segments
Source: Company, Ventura Research
Proven track record in launching and building brands
Source: Company, Ventura Research
- 11 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
This strategically built brand portfolio, which includes a blended combination of mass
brands, entry level brands and premium brands, enables the company to capture the
customers present across various price points in the market.
The growth trajectory of the brands business will be driven by three clear sets of
priorities set by the management:
a. Consolidate the existing business
Build on the power brands through category and channel expansion
Specialty retail to quickly gain strength due to strengths of brands
Enhance returns through operational efficiency
b. Strategically manage portfolio
Monitor evolution and performance of recent launches
Take calculated bets on new opportunities
Maintain financial discipline while making new investments
c. Powerful Omni/Digital play
Ensure seamless customer journeys across all channels/touch points
Extensive distribution network supporting brands
Arvind has a strong distribution network of ~1,014 stores with a total retail space of 1.62
million square feet in India, which enables it to reach to a large number of customers and
a huge potential market to sell its products. The company has been aggressive in retail
space expansion and has grown at a CAGR of 10%.
Extensive distribution network across India
No. of stores Sq ft. (mn) No. of stores Sq ft. (mn) No. of stores Sq ft. (mn) No. of stores Sq ft. (mn) No. of stores Sq ft. (mn)
Brands 487 0.50 698 0.72 811 0.76 764 0.67 897 0.77
Specialty Retails 197 0.71 166 0.74 140 0.83 111 0.82 117 0.86
Total 684 1.21 864 1.46 951 1.59 875 1.49 1,014 1.63
Exclusive KA counters
2016-17
532 19451567989692
Particulars2012-13 2013-14 2014-15 2015-16
Source: Ventura Research
- 12 of 22- Tuesday 25th July, 2017
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Strong store network growth Consistent growth in retail space
487
698811 764
897
197
166
140 111
117
0
200
400
600
800
1000
1200
2012-13 2013-14 2014-15 2015-16 2016-17
Brands Specialty Retails Total
(no. of stores)
1.21
1.46 1.59
1.49
1.63
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2012-13 2013-14 2014-15 2015-16 2016-17
Retail space
(in mn sq ft.)
Source: Company, Ventura Research
Source: Ventura Research
Future expansion of its distribution network entails:
Focus on specialty retail stores: The management is keen on developing a
“Specialty retail” channel. Formats under the specialty retail would include multi-
offerings under Unlimited, TCP, GAP and Sephora. The company is focusing on
setting up more speciality retail stores, which would contribute more to the brand &
retail revenue in FY18. The management expects to break even from this segment
by the end of the next fiscal.
Unlimited reinvented version of Megamart: Unlimited is a reinvented and
relaunched version of the earlier Megamart. By doing this, the company has
repositioned Megamart from a discount store to value retail store with a bigger
proportion of private labels such as Newport and Excalibur. The company has also
closed down several small stores and opened a few large format stores resulting in a
reduction in number of stores to 86 from 197 in FY12-13.
However, in FY17, Unlimited has witnessed an improving performance on all fronts.
The revenue grew 16% YoY and a 27.8% Like to Like (LTL) growth was witnessed,
which gives confidence about the success of the model.
Nnnow.com- a powerful omni channel portal: Nnnow.com is the official online
channel for Arvind’s brands such as Arrow, US Polo, Flying Machine, etc. This
channel enables digitization of Arvind’s brand stores and provides distinctive online
experience such as:-
- 13 of 22- Tuesday 25th July, 2017
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Authentic brand shops
Curated ensembles
Global brands
Based on the above, we expect the brands and retail business revenue to grow
at 22.7% CAGR over FY17-20 to Rs.5,334 crore in FY20 from Rs. 2,898 crore in
FY17.
Revenues to grow at CAGR of 22.7%
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
1000
2000
3000
4000
5000
6000
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Revenue EBIDTA EBIDTA margin
(Rs. in crore)
Source: Ventura Research
- 14 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financial Performance
Arvind’s consolidated revenue in Q4FY17 grew 10.4% YoY to Rs.2,464.8 crore from
Rs. 2,232.8 crore in Q4FY16. Growth was fuelled by a 22% YoY growth in its brands
& retail segment, which came in at Rs.829.2 crore and 8% YoY growth in its textiles
segment. The consolidated EBIDTA margin declined by 242 bps to 9.1% in Q4FY17
mainly due to an increase in cotton prices and INR appreciation, which impacted the
textile segment margins, although the brands & retail segment witnessed an
improvement in the EBIDTA margin to 7.1%.
During FY17, Arvind’s net sales stood at Rs. 9,235.5 crore, registering a robust
growth of 15.3% YoY. However, the EBIDTA margin decreased 180 bps YoY to 10%.
The consolidated PAT increased by 1.2% YoY to Rs.320.1 crore.
Financial Performance (Rs in crores)
DESCRIPTION Q4FY17 Q4FY16 Mar-17 Mar-16
Net Sales 2464.8 2232.8 9235.5 8010.6
Other operating income 0.0 0.0 0.0 0.0
Net Sales & Other Operating Income 2464.8 2232.8 9235.5 8010.6
Growth % 10.4% 15.3%
Total Expenditure 2241.3 1976.2 8307.4 7059.5
EBIDTA 223.5 256.6 928.2 951.1
EBIDTA Margin% 9.1% 11.5% 10.0% 11.9%
Depreciation 82.7 62.9 297.1 240.5
EBIT (Excl. OI) 140.8 193.7 631.1 710.6
Other Income 35.5 19.0 93.2 82.1
EBIT 176.3 212.7 724.3 792.7
Interest 58.5 90.0 288.4 358.6
Exceptional Items -8.9 0.0 -18.1 1.4
PBT 108.9 122.7 417.8 435.4
PBT Margin% 4.4% 5.5% 4.5% 5.4%
Tax 13.1 26.7 99.7 124.6
Profit After Tax 95.8 96.0 318.2 310.8
Profit Margin 3.9% 4.3% 3.4% 3.9%
Net Profit (after Extrodinary Items) 95.8 96.0 318.2 310.8
Minority Interest -3.8 0.1 -6.2 -2.0
Shares of JV 1.1 1.8 1.9 5.4
Consolidated Net Profit 93.2 97.9 313.8 314.2
So Source: Company, Ventura Research
- 15 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financial Outlook
As outlined elsewhere in the report, net revenues are expected to grow at a CAGR of
13.5% to Rs. 13,503 crore in FY20 on the back of ~9% CAGR in the textile business
and ~22.7% CAGR in the brands and retail business. Further, we expect the EBIDTA
to grow at a 3 year CAGR of 18.7% to Rs. 1,579 crore in FY20; the EBIDTA margin is
expected to expand to 11.8% in FY20 on the back of improving profitability in the
brands and retail segment. The PAT is expected to grow at a 3 year CAGR of ~28.6%
to Rs. 680.1 crore in FY20.
Further, the return ratios ROE & ROCE are also set to improve to ~14.1% (+382 bps)
& ~14% (+375 bps), respectively, by FY20.
Expect topline growth of 13.5% CAGR EBIDTA to grow at 18.7% CAGR
0%
5%
10%
15%
20%
25%
30%
35%
0
2000
4000
6000
8000
10000
12000
14000
16000
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Net Revenue Net Revenue growth %
(Rs. in crore)
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
200
400
600
800
1000
1200
1400
1600
1800
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
EBIDTA EBIDTA margin %
(Rs. in crore)
Source: Ventura Research
Source:, Ventura Research
- 16 of 22- Tuesday 25th July, 2017
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Improving return ratios Improving solvency ratios
9%
10%
11%
12%
13%
14%
15%
16%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
ROE ROCE
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
2.0
2.5
3.0
3.5
4.0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Debt to EBIDTA Debt to Equity
Source: Ventura Research
Source:, Ventura Research
Healthy working capital ratios
15
25
35
45
55
65
75
85
95
105
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Inventory days Trade Receivable days Trade Payable days
(in no. of days)
Source: Ventura Research
- 17 of 22- Tuesday 25th July, 2017
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Key Risks
Raw material forms a significant part of costs
Raw material, mainly cotton/cotton yarn, constitutes a significant (~30-35%) portion of
total cost. Over the past few years, the cotton prices have been quite volatile. Any
significant further increase in the prices can impact the company’s profitability. However,
prices are expected to moderate given the abundant rainfall and expected increase in
production to 345 lakh bales in the crop season 2016-17, compared to 338 lakh bales in
crop season 2015-16. Further, with good rainfall in the current year, acreage under cotton
has also improved substantially, which should lead to subdued pricing in FY19 too.
Foreign exchange fluctuation risk
Arvind’s textile business is considerably dependent on exports (~26% of total revenue in
FY17). Hence, any unfavourable movement in the currency might impact the financial
performance of the company.
Historical movement of cotton prices
39%
40%
41%
42%
43%
44%
45%
46%
85
90
95
100
105
110
115
FY13 FY14 FY15 FY16 FY17
Avg. Cotton Rate (Rs/kg)
Movement of raw material cost as % of sales (RHS)
Source: Ventura Research
- 18 of 22- Tuesday 25th July, 2017
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Valuation
We initiate coverage on Arvind as a BUY, with a SOTP-based price objective of Rs. 624,
representing an upside of 69% over a period of 30 months from the CMP of Rs. 369.
We have valued the company using the Sum of The Parts (SOTP) methodology. We
have valued the Textiles at an EV/EBITDA of 11.0X FY20 and Brands & Retail segment
at an EV/EBITDA of 15.5X FY20.
Arvind SOTP valuation matrix
Multiple EV (Rs in crs)
11.0 12,925.0
15.5 6,525.5
Total EV 19,450.5
Less: FY20 Net Debt (3,332.1)
Market Capitalisation 16,118.4
No. of shares outstanding 25.8
Total value per share (in Rs.) 623.9
CMP (in Rs.) 369.0
Potential upside 69.1%
Textiles
Brands & Retail
FY20E EBIDTA - Rs 1175 cr
FY20E EBIDTA - Rs 421 cr
SOTP Valuation Basis
Source: Ventura Research
- 19 of 22- Tuesday 25th July, 2017
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
1 Yr Fwd P/E Band 1 Yr Fwd P/B Band
Source: Company, Ventura Research
Source: Company, Ventura Research
0
100
200
300
400
500
600
3/31/2013 3/31/2014 3/31/2015 3/31/2016 3/31/2017
CMP 5X 11.45X 17.9X 24.35X 30.8X
0
50
100
150
200
250
300
350
400
450
500
4/1/2010 4/1/2011 4/1/2012 4/1/2013 4/1/2014 4/1/2015 4/1/2016 4/1/2017
CMP 1X 1.52X 2.04X 2.56X 3.08X
1 Yr Fwd EV/EBITDA Band
Source: Company, Ventura Research
0
2000
4000
6000
8000
10000
12000
14000
16000
4/1/2013 4/1/2014 4/1/2015 4/1/2016 4/1/2017
EV 5.5X 7.75X 10X 12.25X 14.5X
- 20 of 22- Tuesday 25th July, 2017
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Peer comparison
Y/E March Sales EBITDA PAT EBITDA
Margin (%)
PAT Margin
(%)
ROE(%) ROCE(%) P/E P/BV EV/
EBITDA
Arvind Ltd
2016 8010.6 951.1 316.1 11.9% 3.9% 11.8 11.9 30.1 3.6 13.7
2017 9235.5 943.4 320.1 10.2% 3.5% 10.3 10.3 29.7 2.7 13.1
2018E 10471.5 1135.8 434.1 10.8% 4.1% 11.6 12.0 21.9 2.4 11.0
2019E 11862.3 1504.3 636.5 12.7% 5.4% 15.1 15.0 14.9 2.1 8.5
Raymond
2016 5140.6 506.3 84.8 9.8% 1.6% 5.1 9.3 57.1 1.5 13.3
2017 5353.3 422.7 25.5 7.9% 0.5% 1.5 7.0 152.4 2.3 18.3
2018E 5792.7 536.2 131.4 9.3% 2.3% 7.4 11.0 36.8 2.6 13.2
2019E 6431.0 641.7 173.9 10.0% 2.7% 9.2 12.4 27.8 2.4 10.5
KKCL
2016 453.1 104.1 67.9 23.0% 15.0% 22.0 31.6 32.0 7.3 19.5
2017 488.4 99.6 85.3 20.4% 17.5% 26.0 25.4 25.1 6.0 21.0
2018E 563.0 122.0 90.8 21.7% 16.1% 22.4 27.0 23.6 6.0 17.2
2019E 655.7 144.1 107.0 22.0% 16.3% 25.5 30.0 19.3 6.1 14.1
Nandan Denim
2016 1156.7 191.1 63.3 16.5% 5.5% 21.2 20.8 9.5 1.8 5.5
2017 1220.4 189.9 56.7 15.6% 4.6% 23.6 14.9 11.2 1.5 6.1
2018E 1315.0 234.0 93.0 17.8% 7.1% 23.5 20.4 7.1 1.3 5.0
2019E 1442.0 271.0 118.0 18.8% 8.2% 23.3 21.9 5.5 1.1 4.0
Aditya Birla Fashion and Retail Ltd
2016 6017.8 396.8 -104.1 6.6% -1.7% -16.2 12.4 39.1
2017 6453.3 437.5 53.5 6.8% 0.8% 5.6 8.2 221.6 12.4 35.4
2018E 7663.0 586.4 145.8 7.7% 1.9% 13.1 10.8 100.1 9.4 26.7
2019E 8882.6 764.0 273.6 8.6% 3.1% 20.7 14.6 50.7 7.9 20.5
Shopper's Stop Ltd
2016 4464.5 198.2 2.04 4.4% 0.0% 0.4 6.10 125.3 5.9 19.0
2017 4935.2 199.3 -24.45 4.0% -0.5% -4.9 5.70 128.0 6.4 18.9
2018E 5574.1 243.6 24.9 4.4% 0.4% 1.0 6.90 123.7 5.9 15.2
2019E 6233.2 334.0 72.66 5.4% 1.2% 11.0 11.60 43.3 5.4 11.4
Vardhman Textiles
2016 6636.9 1401.8 578.6 21.1% 8.7% 16.0 17.9 7.7 1.2 5.9
2017 6066.8 1717.4 981.4 28.3% 16.2% 24.2 25.3 8.1 1.8 4.8
2018E 6526.5 1369.4 713.3 21.0% 10.9% 15.3 13.9 9.2 1.3 6.0
2019E 7265.5 1602.3 861.7 22.1% 11.9% 16.4 19.1 7.6 1.2 5.2
Trent Ltd
2016 2353.3 136.9 59.55 5.8% 2.5% 4.20 4.40 90.48 3.61 60.91
2017 1833.9 125.7 85.4 6.9% 4.7% 5.70 5.00 151.09 5.73 66.33
2018E 2954 237.9 126 8.1% 4.3% 8.40 10.40 63.1 5.48 34.14
2019E 3542.2 300.3 169.7 8.5% 4.8% 10.40 12.60 42.23 4.87 27.12
Source: Ventura Research
- 21 of 22- Tuesday 25th July, 2017
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Financials & Projections
Y/E March, Fig in ` Cr FY16 FY17 FY18E FY19E FY20E Y/E March, Fig in ` Cr FY16 FY17 FY18E FY19E FY20E
Profit & Loss Statement Per Share Data (Rs)
Net Sales 8010.6 9235.5 10471.5 11862.3 13502.7 Adj. EPS 12.2 12.4 16.8 24.6 26.3
% Chg. 2% 15% 13% 13% 14% Cash EPS 21.6 23.9 29.6 38.5 41.3
Total Expenditure 7059.5 8292.2 9335.7 10358.0 11923.7 Book Value 102.5 138.1 152.4 174.5 198.4
% Chg. 3% 17% 13% 11% 15%
EBDITA 951.1 943.4 1135.8 1504.3 1579.0 Capital, Liquidity, Returns Ratio
EBDITA Margin % 11.9% 10.2% 10.8% 12.7% 11.7% Debt / Equity (x) 1.3 0.8 0.8 0.8 0.7
Other Income 82.1 78.0 87.8 89.7 92.6 Current Ratio (x) 1.0 1.0 1.1 1.2 1.1
PBDIT 1033.1 1021.4 1223.7 1593.9 1671.6 ROE (%) 11.8 10.3 11.6 15.1 14.1
Depreciation 240.5 297.1 329.1 356.6 386.6 ROCE (%) 11.9 10.3 12.0 15.0 14.0
Interest 358.6 288.4 291.3 346.0 326.9 Dividend Yield (%) 10% 20% 20% 20%
Exceptional items 1.4 -18.1 0.0 0.0 0.0 Valuation Ratio (x)
PBT 435.4 417.8 603.2 891.3 958.1 P/E 30.1 29.8 22.0 15.0 14.0
Tax Provisions 124.6 99.7 162.9 245.1 268.3 P/BV 3.6 2.7 2.4 2.1 1.9
Reported PAT 310.8 318.2 440.3 646.2 689.9 EV/Sales 1.6 1.3 1.2 1.1 0.9
Minority Interest 2.0 6.2 8.6 12.7 13.5 EV/EBIDTA 13.6 13.0 10.9 8.5 8.1
Share in JV 5.4 1.9 2.4 3.0 3.7 Efficiency Ratio (x)
PAT 316.1 320.1 434.1 636.5 680.1 Inventory (days) 86 93 93 95 97
PAT Margin (%) 4% 3% 4% 5% 5% Debtors (days) 35 32 34 35 36
RM / Sales (%) 43% 46% 47% 48% 49% Creditors (days) 55 57 57 57 58
Balance Sheet Cash Flow Statement
Share Capital 258.2 258.4 258.4 258.4 258.4 Profit Before Tax 440.8 417.8 603.2 891.3 958.1
Reserves & Surplus 2388.2 3309.8 3679.3 4251.2 4866.7 Depreciation 240.5 297.1 329.1 356.6 386.6
Minority Interest 55.6 151.4 160.1 172.7 186.2 Working Capital Changes & Other Adj. 88.3 (64.7) (147.2) (451.8) (205.9)
Long Term Borrowings 1530.0 801.6 763.0 1151.0 688.1 Tax Paid (119.2) (106.7) (162.9) (245.1) (268.3)
Long Term Provision 28.7 40.7 47.8 51.1 49.2 Operating Cash Flow 650.3 543.5 622.3 551.1 870.6
Other Non Current Liabilities 98.0 117.1 134.0 152.8 176.2 Capital Expenditure (555.8) (438.1) (511.3) (561.9) (612.5)
Total Liabilities 4358.7 4679.1 5042.5 6037.3 6224.8 Other Investment Activities 53.4 469.1 86.3 92.2 96.0
Gross Block 5703.1 6082.8 6582.8 7132.8 7732.8 Cash Flow from Investing (502.5) 31.0 (425.0) (469.7) (516.5)
Less: Acc. Depreciation 2243.5 2540.6 2869.8 3226.4 3613.0 Changes in Share Capital - - - - -
Net Block 3476.8 3542.2 3713.1 3906.4 4119.8 Changes in Borrowings 285.6 (853.6) 200.2 694.0 (129.0)
Capital WIP 146.8 226.2 237.5 249.4 261.8 Dividend, Interest & Others (436.5) 272.2 (355.9) (410.6) (391.4)
Non Current Investments 69.7 74.2 84.2 94.2 104.2 Cash Flow from Financing (150.9) (581.5) (155.7) 283.4 (520.5)
Long Term Loans & Advances & OA 823.4 741.3 769.2 837.6 878.5 Net Change in Cash (3.0) (7.0) 41.5 364.8 (166.3)
Net Current Assets -158.0 95.1 238.5 949.7 860.5 Opening Cash Balance 69.7 66.7 59.6 101.1 465.9
Total Assets 4358.7 4679.1 5042.6 6037.3 6224.9 Closing Cash Balance 66.7 59.6 101.1 465.9 299.6
- 22 of 22- Tuesday 25th July, 2017
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