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November 10, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Focused approach; De-merger to unlock value
Revenues for the quarter grew 13% YoY to | 2628.5 crore (I-direct
estimate: | 2444 crore). The growth was accelerated by higher growth
in brand & retail segment grew by 20% YoY (adjusted for Tommy
Hilfiger & Calvin Klein) to | 1032.4 crore as compared to | 899 crore in
Q2FY17 and | 773 crore in Q1FY18. The revenue growth in textile
business, majorly driven by garments business (up 19% YoY) was
completely tapered by subdued performance in major business like
denim (down 9% YoY) and wovens (down 5% YoY) resulting a flattish
revenues of | 1437.6 crore
Higher cotton prices (up 15% YoY) impacted the EBITDA margins for
textile business which declined by 400 bps YoY to 13% (absolute
EBITDA at | 187 crore). However with improvement of margins in
speciality retail segment (Unlimited), EBITDA for brands improved by
210 bps YoY (absolute EBITDA | 63 crore). Higher employee expenses
(up 16% YoY) and other OH’s (up 8% YoY) continue to impact
consolidated EBITDA margins which contracted by 190 bps YoY to
8.1% (I direct estimate: 9%). Subsequently, absolute EBITDA de-grew
by % YoY to | 212.3 crore (I-direct estimate: | 219 crore)
The positive impact of lower interest cost (down 15% YoY) and high
other income (up 16% YoY) was completely offset by higher
depreciation expenses (up 16% YoY). The reported PAT was further
impacted by exceptional expense of | 4.5 crore pertaining to
retrenchment, post which PAT stood at | 64.5 crore. Excluding the
same PAT stood at | 69 crore (I-direct estimate: | 64.5 crore)
The company has announced the demerger of its Branded apparel and
Engineering business. The branded apparel business will be demerged
into Arvind Fashion’s Limited (AFL) and existing shareholders will be
allotted 1 share of AFL for five shares held. Moreover, engineering
business will be demerged into Anveshan (post listing name would
change to Anup Engineering) and existing shareholders would be
allotted one share of Anup for every 27 shares held. The expected
timeline for the same would be 6-8 months
Realigning focus - Stepping stone to aggressive targets; maintain BUY
With de-merger to be effective by FY19, Arvind has charted an aggressive
growth strategy for each of these businesses. The cash flows from
Arvind’s textile business was earlier utilised supporting expansion plans
of brands. On account of under investment in the revenues for textile
business grew by merge 5% CAGR over FY14-FY17 to | 5453 crore in
FY17. However the investment led strategy resulted robust growth in
brands business (AFL) which resulted revenues grow at a CAGR of >25%
over FY14-FY17 to | 2898 crore in FY17. With AFL now been able to fund
itself, Arvind has announced a capital expenditure of | 1500 crore for its
textile business. Although break-up of capex is not available, garmenting
and technical textiles would form a major part of the allocation. Given the
asset turns of these businesses are high; the management expects Arvind
Ltd. to grow at a CAGR of 10-11% over FY17-FY22 to | 9000-10000 crore.
AFL, which houses 15 brands, is expected to continue its upward
trajectory with revenues expected to grow at a CAGR of 22-25% to ~|
9000 crore over FY17-FY22. However, Anup engineering with its debt free
balance sheet and robust growth of 25% CAGR over FY13-17 is expected
to continue its growth trajectory.
With this de-merger, we believe Arvind would be able efficiently
channelise its resources to full potential leading optimised results. We
expect Arvind to play a pivotal role capturing a larger pie of the Indian
textile industry thereby maintaining a BUY and a target price of | 480.
Arvind Ltd (ARVMIL) | 430
Rating matrix
Rating : Buy
Target : | 480
Target Period : 12 months
Potential Upside : 12%
What’s changed?
Target Unchanged
EPS FY18E Unchanged
EPS FY19E Unchanged
Rating Unchanged
Quarterly performance
| Crore Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)
Revenue 2,628.5 2,331.1 12.8 2,475.0 6.2
EBITDA 212.3 232.3 (8.6) 207.0 2.6
EBITDA (%) 8.1 10.0 -189 bps 8.4 -29 bps
PAT 64.5 76.7 (15.9) 56.8 13.6
Key financials
| Crore FY16 FY17 FY18E FY19E
Net Sales 8,011 9,236 10,508 11,829
EBITDA 951 943 1,014 1,203
Net Profit 316.1 320.1 360.2 494.0
EPS (|) 12.3 12.4 14.0 19.1
Valuation summary
FY16 FY17 FY18E FY19E
P/E (x) 31.8 31.4 27.9 20.4
Target P/E (x) 28.5 28.2 25.1 18.3
EV/EBITDA (x) 14.5 13.8 12.7 10.6
P / BV (x) 2.7 2.0 0.9 0.8
RONW (%) 11.9 9.0 9.6 11.7
ROCE (%) 11.0 9.9 10.4 12.3
Stock data
Particular Amount
Market Capitalization (| Crore) 11,109.5
Total Debt (FY17) (| Crore) 151.4
Cash (FY17) (| Crore) 1,478.8
EV (| Crore) 9,782.1
52 week H/L 460 / 320
Equity Capital (| Crore) 258.4
Face Value (|) 10.0
Peer Comparison
1M 3M 6M 12M
Raymond (0.69) (2.78) 50.78 66.52
Arvind Ltd (1.84) (13.52) (4.06) 23.59
K P R Mill Ltd (1.28) 5.03 31.43 44.47
Kewal Kir.Cloth. (5.42) (6.02) (3.49) (10.00)
Research Analyst
Bharat Chhoda
Ankit Panchmatia
Cheragh Sidhwa
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
| crore Q2FY18 Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments
Revenue 2,628.5 2,444.0 2,331.1 12.8 2,475.0 6.2 LTL: Power Brands (-) 1%: Unlimited: +20%: Overall 3%
RM Cost 1,280.1 1,099.8 1,065.5 20.1 1,130.7 13.2 Increase in cotton prices resulted in higher RM expenses
Employee Benefit Expenses 328.7 326.3 283.7 15.8 311.6 5.5
Other Expenditure 807.5 637.9 749.6 7.7 825.8 -2.2
Total Expense 2,416.2 2,225.3 2,098.8 15.1 2,268.0 6.5
EBITDA 212.3 218.7 232.3 -8.6 207.0 2.6
EBITDA Margin (%) 8.1 9.0 10.0 -189 bps 8.4 -29 bps
Depreciation 83.3 87.0 71.9 15.8 86.3 -3.5
Interest 62.0 64.5 73.1 -15.3 61.4 0.9 Decline in debt resulted in reduction interest expenses
Other Income 25.6 17.8 22.1 15.8 16.3 57.0
PBT 92.6 85.0 109.4 -15.4 75.6 22.6
Total Tax 23.6 15.4 27.0 -12.5 13.5 74.4
Exceptional Item -4.5 -7.9 -6.3 NM -6.9 -35.5 Exceptional expenses on account of retrenchment related compensation
Reported PAT (Incld Minority Int) 64.5 65.2 76.7 -15.9 56.8 13.6
Key Metrics Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)
Textiles 1,437.6 1,427.5 0.7 1,557.4 -7.7 Growth was mainly due to 19% growth in the garments business. Denim and
wovens de-grew by 9% and 5% respectivley
Brand & Retail 1,032.4 899.0 14.8 773.7 33.4 Adjusting for GST impact, growth would have been higher by 5%
Arvind Internet 1.9 3.0 -37.7 1.7 11.4
Others 179.2 168.9 6.1 152.8 17.3
Less: Intersegment 22.7 23.3 -2.8 10.5 115.9
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) % Change Old New % Change Old New % Change Comments
Revenue 9,235.5 2.4 10,507.5 10,507.5 0.0 11,829.2 11,829.2 0.0 Continue to maintain revenue growth estimates
EBITDA 943.4 -20.1 1,013.9 1,013.9 0.0 1,203.4 1,203.4 0.0
EBITDA Margin (%) 10.2 -287 bps 9.6 9.6 0 bps 10.2 10.2 0 bps Unchanged
PAT 320.1 -19.7 360.2 360.2 0.0 494.0 494.0 0.0
EPS (|) 12.4 -19.7 14.0 14.0 0.0 19.1 19.1 0.0 Unchanged
FY17
FY19EFY18E
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Details of de-merger:
Arvind currently operates different businesses under divisions and
subsidiaries. As on FY17, Arvind has 22 subsidiaries (Direct or Indirect)
and 5 joint venture companies.
Exhibit 1: Consolidated structure to be divided in three independent listed companies…
Sr. No Name of the Company Subsidiary %
1 The Anup Engineering Limited Subsidiary 93.5
2 Arvind Lifestyle Brands Limited Subsidiary 100.0
3 Syntel Telecom Limited Subsidiary 100.0
4 Arvind Brands and Retail Limited Subsidiary 100.0
5 Arvind PD Composites Private Limited Subsidiary 51.0
6 Arvind Envisol Limited Subsidiary 100.0
7 Arvind Goodhill Suit Manufacturing Private Limited Subsidiary 51.0
8 Arvind OG Nonwovens Private Limited Subsidiary 74.0
9 Dholka Textile Park Private Limited Subsidiary 100.0
10 Arvind Garments Park Private Limited Subsidiary 100.0
11 Arvind Internet Limited Subsidiary 100.0
12 Arvind Beauty Brands Retail Private Limited Subsidiary 100.0
13 Arvind Foundation Subsidiary 100.0
14 Arvind Fashions Limited Subsidiary 89.7
15 Arvind Ruf & Tuf Private Limited Subsidiary 100.0
16 Arvind Premium Retail Limited Subsidiary 51.0
17 Arvind True Blue Limited Subsidiary 87.5
18 Arvind Worldwide Inc., USA Subsidiary 100.0
19 Arvind Textile Mills Limited, Bangladesh Subsidiary 100.0
20 Arvind Niloy Exports Private Limited, Bangladesh Subsidiary 70.0
21 Arvind Lifestyle Apparel Manufacturing PLC, Ethopia Subsidiary 100.0
22 Westech Advanced Materials Limited, Canada Subsidiary 51.0
23 Arya Omnitalk Wireless Solutions Private Limited Associate (JV) 50.0
24 Tommy Hilfiger Arvind Fashion Private Limited Associate (JV) 50.0
25 Arya Omnitalk Radio Trunking Services Private Limited Associate (JV) 50.0
26 Arudrama Developments Private Limited Associate (JV) 50.0
27 Calvin Klein Arvind Fashion Private Limited Associate (JV) 49.0
JV/Associate
Subsidiaries
Source: ICICIdirect.com Research, Entities to be impacted on de-merger
Exhibit 2: Consolidated structure to be divided in three independent listed companies…
Source: ICICIdirect.com Research
The de-merger would result in three independent listed entities. The
textile business which includes denim, wovens, garments, technical
textiles etc. would continue to be a part of Arvind Ltd. The branded
apparel business which includes 15 brands (Tommy Hilfiger, U.S.Polo,
Arrow, Flying Machine, Gap, Aeropostale, The children place (TCP),
Sephora etc.) will be de-merged into Arvind Fashion Limited (AFL). The
consideration would be one share of AFL for every 5 existing Arvind
shares. In addition to the AFL shares, the engineering division (including
Anup and recently formed Anveshan) would also be de-merged. Anup
would be merged with Anveshan and the renamed listed entity would
Anup engineering. The consideration would be one share of Anup for
every 27 existing Arvind shares.
ICICI Securities Ltd | Retail Equity Research Page 4
Key indicators of independent entities…
Exhibit 3: Key indicators of de-merged entities…
Particulars Arvind Ltd.
Arvind
Fashions Ltd.
Anup Engineering
Limited
FY17 Revenue (in crs)
(CAGR)
| 6158 crore
(13%)
| 2898 crore
(25%*)
| 179 crore
(25%)
FY17 EBITDA (in crs)
(CAGR)
| 819 crore
(5%)
| 145 crore
(~34%)
| 54 crore
(47%)
EBITDA Margin 13.3% 5.0% 30.0%
RoCE
(FY17)
11.9% 3.7% 43.3%
Net Debt as on Q2FY18 | 2792 crore | 696 crore Net Cash of | 36 crore
Shareholders Equity
as on Q2FY18
~| 2600 crore | 1108 crore | 179 crore
Source: ICICIdirect.com Research
Analyst meet takeaways…
Arvind Ltd:
With capabilities from yarn to garment, Arvind remains one of the
most vertically integrated company in the textile industry. With the
core capabilities developed from transition of textile manufacture to
brand player, the company has successfully positioned itself as the
most preferred choice of manufacturing & distribution partner
Arvind continues to foster new businesses and invest in future. The
capital expenditure of | 1500 crore would be channelized to develop
next generation clothing solutions. Garmenting also continues to be a
focus of the company and capacity expansion would be on the anvil.
The current captive consumption of fabric to garment stands at 8%.
Affirming its stance on value addition, the management intends to
scale this proportion up to 50%. The targeted customers involve
multi-billion dollar fast fashion brands like Zara, H&M, Uniqlo, etc.
which are eyeing aggressive expansion in India.
The vision includes developing IP driving smart clothing solutions
which would be developed using blends of man-made fibers. The
vision also involves a completely technology driven manufacturing
process.
Arvind Fashion Ltd (AFL):
AFL would continue its store expansion targets accelerating the
transition of its “new brands” to “growth brands” and “growth
brands” to “power brands”. The management is confident of
unleashing the potential of “Unlimited” and believes that the format is
currently at an inflection point.
For FY18, nearly 3 brands are expected to negatively impact the
EBITDA. Two of these brands are expected to turnaround by the end
of the year and exit the year with one loss making brand.
Creyate and Footwear category would be transferred to AFL.
However, of the two components of Arvind internet, NNOW would
transferred to AFL and the backend technology would continue to be
a part Arvind Ltd. The vision here includes offering digital and omni-
channel solutions to customer providing them seamless shopping
experience.
The management has now set high the threshold limits for acquisition
of new brands. The internal guidance involves targeting a brand not
less than | 500 crore or white space offering e.g. traditional wear, etc.
Exhibit 4: Targeted revenues - Arvind textile business
Revenues (in crs.)
46844958 5069
5453
2999
9000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
FY14
FY15
FY16
FY17
H1FY18
FY22
10% - 12% CAGR
Source: ICICIdirect.com Research
Exhibit 5: Targeted revenues - Arvind Fashion
Revenues (in crs.)
19152361
27402302
1818
9000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
FY14
FY15
FY16
FY17
H1FY18
FY22
22% - 24% CAGR
Source: ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 5
Company Analysis
Arvind - One stop shop for apparel requirements
Arvind possesses 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 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 6: Everything for everyone..!!!
Mens Wear
Formal Casual Denim
Kids Wear
(|44000 cr / $8 bn)
Brands
Inner Wear
(|18000 cr / $3 bn)
Men Women Brands
Women Wear
(|95000 cr / $15 Bn)Mkt. Size (|105000 cr / $18 bn)
Source: Company, ICICIdirect.com Research
Over a period of time, Arvind has strategically built up its brand portfolio,
which includes a blended combination of mass brands, entry level
brands, premium brands and super premium brands. With this
combination, the company manages to capture customers across the
income pyramid. For menswear, it has entry level brands like Excalibur
and Cherokee and power brands like Arrow, US Polo and Flying Machine.
For women, it has brands like Elle and Karigari. For kidswear, it has
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.
ICICI Securities Ltd | Retail Equity Research Page 6
Consistent L2L in Unlimited – Signs of successful restructuring…
Growth in Unlimited remained robust, revalidating the business model
correction initiated over the past two years. Arvind has been constantly
reinventing this retail segment from an initially launched discounted retail
store to a value retail format. In order to shed its “discount store” image,
Arvind has rebranded its large format Megamart stores (>10000 sq ft) as
Unlimited. Apart from mass brands like Cherokee and Geoffrey Beene, the
management started offering premium brands like Arrow and US Polo. It
also started selling exclusive brands like Ruggers, Skinn, Elitus, Donuts,
Karigari, Mea Casa, Auburn Hill, Bay Island, Colt, Leisha and Edge.
Closure of unviable lossmaking stores led store count to reduce from 140
in FY15 to 90 stores in Q2FY18. Post completion of restructuring the
management intends to add 30-40 stores under this format and targets
revenue of | 800 crore for FY18 as compared to | 600 crore in FY17.
Technical textiles - future ahead
After the recent stake dilution, the company now intends to focus on the
textile division with major thrust in the field of “advanced material”
(erstwhile technical textiles). Technical textiles has immense potential,
particularly in developing countries. India currently accounts for less than
5% of the world technical textile production (value). Indian technical
textile industry has grown at a CAGR of 12% in 2008-16 from | 36755
crore to | 92499 crore. The growth has been driven by higher domestic
consumption and increased exports. Though still in the nascent stage,
Arvind has been constantly building on the technical textile business and
have been looking for newer opportunities for joint ventures with global
companies to either bring in technology or access to international
customers. As of FY16, the company had made investments of around
| 200 crore. The management believes that due to its varied application
and utility, technical textiles would position Arvind in the league of high
growth phase.
Focus on specialty retail store
The management of AFL is keen on developing “Specialty retail” channel.
Formats under the specialty retail would include multi-offerings under
Unlimited, TCP, Aeropostale, GAP and Sephora. The company is focusing
on setting up more speciality retail stores, which would contribute ~30%
of the brand & retail revenue in FY18. The management expects to break
even from this segment in three years of its operations and generate
positive EBITDA in the range of 7-9% by FY22.
Nnow.com: Arvind’s foray into omni-channel play
In the quest to upgrade customer experience through Omni channel and
leverage its global brands on a digital platform Arvind has launched
‘nnnow.com’, which provides access to a complete range of Arvind
brands online. The current stores pan-India are acting as warehouses for
the online platform. Approximately, 40-50% of the online business is
fulfilled through its own stores in the vicinity. Investments made in Arvind
internet for FY17 were around | 55-60 crore.
ICICI Securities Ltd | Retail Equity Research Page 7
Valuation
Given the investments, Standalone business to be re-rated at 6.5x
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 17% in FY11-17. Majority of this growth was driven by growth in
its fabric division, which grew at 16% CAGR in FY11-17. The increase in
fabrics revenues was mainly supported by 16% CAGR in woven, followed
by denim revenues, which grew at a modest CAGR of 4%. 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 17% in 2012-17.
Over the past few years, the company’s investments in augmenting its
garmenting capacities and textile capabilities were insignificant. With the
recent demerger the investments in expansion of its intention to double
its garmenting capacity to a targeted 40 million pieces by 2020. Further,
currently only 7% of fabrics produced are used for production of
garments that the company intends to increase to 25% by 2020 and 50%
by 2022. With the enhancement of capacity, standalone revenues would
be mainly driven by garments. Garment revenues have increased at a
CAGR of 17% in 2012-17, which is further expected to grow at a CAGR of
~20% in FY17-19E. Furthermore, additional investments in new segments
like technical textiles will drive standalone revenues. We believe the
standalone business has different dynamics and has very different
working capital cycle.
Exhibit 7: Peer comparison for standalone business….
Figures (Rs crs)
Company Price Sales EBIDTA OPM PAT PAT % FY17 FY18E FY19E
Nandan Denim 170.0 1,220.4 189.9 15.6 56.7 4.6 6.2 4.9 4.4
KPR Mills 730.0 2,816.0 590.7 21.0 286.2 10.2 10.6 9.6 8.5
Vardhman Textiles 1,290.0 6,066.8 1,226.0 20.2 981.4 16.2 7.5 8.2 6.4
Average EV/EBIDTA 8.1 7.6 6.4
FY17 EV/EBIDTA
Source: ICICIdirect.com Research
The renewed focus on the cash gusher segment commands a re-rating on
the textile business. We value the standalone business on the basis of
EV/EBITDA and assign an industry average EV/EBITDA multiple of 6.5x
FY19E arriving at a targeted market capitalization of | 3100 crore and
SOTP value of | 120/share.
Exhibit 8: Valuing standalone business….
SOTP
Arvind Standalone & other businesses
Target EV/EBITDA (x) 6.5
EBITDA (FY19E) (| Crore) 832.6
Net Debt (| Crore) 2,274.5
Enterprise Value (| Crore) 5,378.7
Target Market cap Core business (| crore) 3,104.2
Value/Share 120
Source: ICICIdirect.com Research
Anup valued at 5x EV/EBITDA…
We value Anup Engineering at 5x EV/EBITDA which could result a
targeted market capitalization of | 270 crore post listing, ascribing a per
share value of | 10/share.
ICICI Securities Ltd | Retail Equity Research Page 8
Brands & retail business – stability to remain crucial…
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 ~| 2700 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.
Majority of 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 powerbrands in 2018. On account of this,
powerbrand revenues are expected to grow at 33% CAGR while due to
the shift, growth of other brands would be lower at 11% CAGR in 2017-
19. We believe this business would be valued on the basis of sales 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 2x and arrive at a value of | 350 per
share and a targeted market capitalization of | 9025 crore.
Exhibit 9: Peer comparison brands & retail business….
Figures (Rs crs)
Company
Market
Capitalization FY15 FY16 FY17 FY18E FY19E FY17 FY18E FY19E
Kewal Kiran 2,324.7 405.1 453.0 492.0 526.0 608.0 4.7 4.4 3.8
Monte Carlo 1,156.0 582.6 621.5 584.1 584.1 789.6 2.0 2.0 1.5
Raymond 5,857.6 5,332.6 5,176.8 5,391.3 2,822.2 6,673.7 1.1 2.1 0.9
Trent 10,567.1 2,284.3 1,589.3 1,833.9 2,366.0 2,740.0 5.8 4.5 3.9
Average Mcap/Sales 3.4 3.2 2.5
Sales Market Cap/Sales
Source: ICICIdirect.com Research
Exhibit 10: Valuing brands & retail business….
SOTP
Arvind Lifestyle & Brands
Target Market Cap/Sales (x) 2.0
Sales (FY19E) 4,593
Market Capitalization (FY19E) 9,025.2
No. of Shares 25.8
Price target (|) 350
Source: ICICIdirect.com Research
Consolidated valuation
Applying the EV/EBITDA multiple of 6.5x to its standalone business (|
120/share) and market capitalisation to sales multiple of 2x to its brands &
retail business (| 350/share) and Anup engineering at 5x EV/EBITDA (|
10/share), we continue to maintain our consolidated target price of |
480/share and BUY recommendation on the stock.
ICICI Securities Ltd | Retail Equity Research Page 9
Recommendation history vs. Consensus
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
150
200
250
300
350
400
450
500
Nov-17Aug-17Jun-17Apr-17Jan-17Nov-16Aug-16Jun-16Mar-16Jan-16
(%
)(|)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Dec-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%
May-16 Launch of nnnow.com
Aug-16 Reports Q1FY17 results in line with expectation. Textiles grew by 13%; brand & retail grew by 26%
Oct-16 Reports Q2FY17 results. Stake sale of 10% to "Multiples" at | 740 crore in ALBL. Revenues grew by 19% YoY; Brands & Retail grew by 33% YoY, textile grew by
9%
Jan-17 Reports Q3FY17 results with revenues growth of 15% YoY; Brands & Retail grew by 25% YoY, textile grew by 8%. Debt reduced to | 2780 crore
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Investor Name Latest Filing Date % O/S Position Change (m)
1 Aura Securities Pvt. Ltd. 30-Sep-17 36.96% 95.6 0.0
2 Life Insurance Corporation of India 30-Sep-17 3.26% 8.4 0.0
3 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-17 2.68% 6.9 0.2
4 Nordea Funds Oy 31-Aug-17 2.62% 6.8 0.0
5 Dimensional Fund Advisors, L.P. 30-Sep-17 2.60% 6.7 -0.5
6 AML Employees Welfare Trust 30-Sep-17 2.45% 6.3 0.0
7 Kotak Mahindra Asset Management Company Ltd. 30-Sep-17 2.34% 6.1 -0.2
8 Sundaram Asset Management Company Limited 30-Sep-17 2.08% 5.4 0.5
9 Multiples Alternate Asset Management Private Limited 30-Sep-17 1.91% 4.9 0.0
10 Reliance Nippon Life Asset Management Limited 30-Sep-17 1.66% 4.3 0.2
(in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
Promoter 43.8 43.8 43.1 42.9 42.9
FII 22.5 22.6 24.8 25.9 27.1
DII 16.2 16.4 15.3 13.8 14.1
Others 17.5 17.2 16.8 17.3 15.9
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor Name Value Shares Investor Name Value Shares
Sundaram Asset Management Company Limited 3.0 0.5 Tata Asset Management Limited -6.1 -1.1
LGT Capital Partners Ltd. 2.5 0.4 Dimensional Fund Advisors, L.P. -2.8 -0.5
Reliance Nippon Life Asset Management Limited 1.2 0.2 Jyske Invest Fund Management A/S -1.4 -0.2
Franklin Templeton Asset Management (India) Pvt. Ltd. 1.1 0.2 Kotak Mahindra Asset Management Company Ltd. -1.3 -0.2
Aditya Birla Sun Life AMC Limited 0.9 0.2 Driehaus Capital Management, LLC -1.3 -0.2
BUY SELL
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
.
Financial summary
Profit and loss statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Total operating Income 8,010.6 9,235.5 10,507.5 11,829.2
Growth (%) 2.0 15.3 13.8 12.6
Raw Material Expenses 3,466.6 4,196.5 4,833.5 5,382.3
Employee Expenses 898.1 1,096.3 1,293.6 1,494.1
Manufacturing & Other Expenses 2,685.1 2,986.5 3,351.9 3,732.9
Project Expenses 9.7 12.9 14.6 16.5
Total Operating Expenditure 7,059.5 8,292.2 9,493.6 10,625.8
EBITDA 951.1 943.4 1,013.9 1,203.4
Growth (%) (0.8) 7.5 18.7
Depreciation 240.5 297.1 321.6 345.6
Interest 358.6 288.4 272.2 262.7
Other Income 82.1 78.0 70.2 73.7
PBT 434.0 435.9 490.3 668.7
Growth (%) (13.0) 0.4 12.5 36.4
Total Tax 124.6 99.7 120.1 164.7
PAT (adj. exceptional gains/loss) 316.1 320.1 360.2 494.0
Growth (%) (7.3) 1.2 12.5 37.2
EPS (|) 12.3 12.4 14.0 19.1
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Profit after Tax 316.1 320.1 360.2 494.0
Add: Depreciation 240.5 297.1 321.6 345.6
(Inc)/dec in Current Assets (308.8) (453.5) (84.9) (493.7)
Inc/(dec) in CL and Provisions 230.5 299.9 (30.4) 150.3
Others 0.2 - - -
CF from operating activities 478.5 463.5 566.5 496.3
(Inc)/dec in Investments (118.2) 147.8 (19.8) (20.8)
(Inc)/dec in Fixed Assets (572.1) (445.1) (246.3) (296.6)
(Inc)/dec in CWIP (2.9) 2.6 (19.1) (23.0)
Others - - - -
CF from investing activities (693.2) (294.8) (285.2) (340.4)
Issue/(Buy back) of Equity - 0.1 (0.1) -
Inc/(dec) in loan funds 278.8 (853.2) (100.0) (100.0)
Others (73.0) 677.3 (165.3) (49.3)
CF from financing activities 205.9 (175.8) (265.4) (149.3)
Net Cash flow (8.8) (7.0) 15.9 6.6
Opening Cash 69.7 60.9 53.9 69.8
Closing Cash 60.9 53.9 69.8 76.4
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Liabilities
Equity Capital 258.2 258.4 258.2 258.2
Reserve and Surplus 2,388.2 3,309.8 3,504.4 3,948.7
Total Shareholders funds 2,646.4 3,568.2 3,762.6 4,207.0
Total Debt 3,818.8 2,965.6 2,865.6 2,765.6
Deferred Tax Liability (124.0) (144.1) (151.3) (158.9)
Minority Interest / Others 55.6 151.4 159.0 167.0
Total Liabilities 6,396.8 6,541.1 6,635.9 6,980.6
Assets
Gross Block 3,659.5 4,012.6 4,288.2 4,608.6
Less: Accumlated depreciation 369.4 607.7 929.3 1,274.9
Net Block 3,290.1 3,404.9 3,358.9 3,333.7
Capital WIP 98.3 95.7 114.8 137.8
Intangibles 115.4 148.9 119.1 95.3
Total Fixed Assets 3,388.4 3,500.6 3,473.7 3,471.5
Investments 543.8 396.0 415.8 436.6
Inventory 1,920.5 2,382.8 2,303.0 2,592.7
Debtors 768.2 813.9 863.6 972.3
Loans and Advances 704.8 584.7 643.1 707.5
Other Current Assets 498.8 564.4 620.8 651.8
Cash 60.9 53.9 69.8 76.4
Total Current Assets 3,953.2 4,399.6 4,500.4 5,000.7
Trade Payables 1,214.2 1,478.8 1,402.7 1,509.6
Provisions 58.8 64.5 74.2 77.9
Other Current Liabilities 330.8 360.2 396.3 435.9
Total Current Liabilities 1,603.7 1,903.6 1,873.1 2,023.4
Net Current Assets 2,349.5 2,496.1 2,627.3 2,977.2
Application of Funds 6,396.8 6,541.1 6,635.9 6,980.6
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY16 FY17 FY18E FY19E
Per share data (|)
EPS 12.3 12.4 14.0 19.1
Cash EPS 21.6 23.9 26.4 32.5
BV 102.5 138.1 145.7 162.9
DPS 0.0 0.0 0.0 0.0
Cash Per Share 2.4 2.1 2.7 3.0
Operating Ratios
EBITDA Margin (%) 11.9 10.2 9.6 10.2
PBT Margin (%) 5.4 4.5 4.6 5.6
PAT Margin (%) 3.9 3.4 3.4 4.2
Inventory days 87.5 94.2 80.0 80.0
Debtor days 35.0 32.2 30.0 30.0
Creditor days 55.3 58.4 48.7 46.6
Return Ratios (%)
RoE 11.9 9.0 9.6 11.7
RoCE 11.0 9.9 10.4 12.3
RoIC 12.3 10.8 11.5 13.6
Valuation Ratios (x)
P/E 31.8 31.4 27.9 20.4
EV / EBITDA 14.5 13.8 12.7 10.6
EV / Net Sales 1.7 1.4 1.2 1.1
Market Cap / Sales 1.4 1.2 1.1 0.9
Price to Book Value 2.7 2.0 0.9 0.8
Solvency Ratios
Debt/EBITDA 4.0 3.1 2.8 2.3
Debt / Equity 1.4 0.8 0.8 0.7
Current Ratio 2.4 2.3 2.4 2.4
Quick Ratio 1.2 1.0 1.1 1.2
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
ICICIdirect.com coverage universe (Retail & Textile)
CMP M Cap
(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Kewal Kiran Clothing 1910 2260 Buy 2354 69.2 75.8 96.3 23.4 21.2 16.8 4.8 4.5 3.8 23.8 23.6 25.6 23.8 22.7 24.5
Page Industries
(PAGIND)
22350 15115 Hold 21065 260.9 335.1 429.1 85.7 66.7 52.1 8.4 6.7 5.4 59.2 63.2 68.9 51.6 56.8 62.2
Rupa & Company 452 475 Buy 3317 9.1 11.0 13.4 49.8 41.3 33.9 24.3 21.0 17.7 23.6 24.8 26.9 16.4 17.9 19.5
Vardhman Textiles 1310 1070 Hold 7455 179.0 75.2 157.3 7.3 17.4 8.3 6.6 7.5 5.9 14.5 7.7 15.4 23.0 9.0 16.6
Arvind Ltd 430 480 Buy 10143 12.3 12.4 14.0 35.1 34.7 30.8 14.5 13.8 12.7 11.0 9.9 10.4 11.9 9.0 9.6
RoCE (%) RoE (%)
Sector / Company
EPS (|) P/E (x) EV/EBITDA (x)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
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;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
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Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 13
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