ICICI Direct’s research report on Arvind Fashions
Arvind Fashions (Arvind’s hived-off brand & retail business) possesses the key ingredients that would enable it to capture the high trajectory growth opportunity in the discretionary consumption segment. The company has a presence in premium apparel and accessories through power/emerging brands, premium beauty products and value retail through its speciality retail formats. It has built a robust distribution network where products are sold through 1300 brand stores, 1400+ large format store outlets (LFS) and 1800 multi branded outlets (MBO). Over the years, the company has witnessed healthy revenue trajectory (20%+), with EBITDA margins improving significantly from 4.5% in FY16 to 5.8% as on 9MFY19.
We anticipate overall revenues will grow at a CAGR of 15% YoY in FY18-21E, driven by healthy growth in the Power brands (15%) and specialty retail formats (24%). Revamping of business model in ‘Unlimited format’, asset light store expansion for ‘GAP’ and curtailment of losses for emerging brands are key levers to result in margin expansion of 200 bps to 7.4% by FY21E. Enhanced profitability, with steady improvement in working capital cycle are expected to improve RoCE from current 5.5% to 15.0% by FY21E. We arrive at a valuation of Rs 1290 based on 17x FY21E EV/EBITDA.
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First Published on Mar 25, 2019 05:26 pm