Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Arvind Ltd
Arvind is the largest textile manufacturer in the country with presence
across denim, shirtings, voiles, khakis and knits. After incurring a loss in
FY09, it turned around in FY10 with a net profit of `530mn. In FY11 its
earnings tripled to `1.6bn on the back of strong growth in domestic sales
driven by rising consumer spending.
Company Background
Arvind, established in 1931 is the largest denim manufacturer in the country with
an installed capacity of ~108mn mtrs. It is a preferred supplier to internationally
renowned brands like Polo, Armani exchange, Diesel, GAP, Banana Republic, Zara
etc. Besides this it also has a strong brand portfolio comprising of licensed brands
like Lee, Wrangler, New Port, Arrow, Tommy Hilfiger etc. It also manufactures
shirtings, khakis and knits (with an installed capacity of 66mn mtrs) and knits (with
an installed capacity of 38mn mtrs).
Recent Financial Performance
Arvind posted a stellar performance in 2QFY12 with an earnings growth of 60%
on a YoY basis. This was driven by 23% growth in revenues (led by 21% and 6%
growth in denim and shirting/khaki fabrics respectively) and 174bps improvement
in margins (driven primarily by lower other expenses). The earnings growth of 60%
was despite Arvind booking a forex loss (mark to market loss on account of
revaluation of forex liabilities) of `189mn.
Outlook
Consumer’s rising focus towards premium brands augurs well for Arvind given its
strategy of focusing towards premium and luxury brand. Arvind is also planning to
introduce new brands (launching “ELLE” in FY12) and brand extensions (planning
to venture into technical textiles). Also it is planning to change its business model
from B2B to B2C. The share of B2C is likely to increase to 41% in FY2013E from
32% in FY2011 and 28% in FY2010. The stock is currently trading at 9x FY12
consensus eps. Compared to BRFL, the stock is trading at a discount of 25%, which
we think is unjustified despite higher RoE for FY12 (13% v/s 9% for BRFL) and
higher FY11-13 earnings CAGR (59% v/s 14% for BRFL).
Conference Meeting Notes
Arvind Mills represented by Mr Resham Jain, Manager – Finance
Analyst:
Bhargav Buddhadev, bhargavbuddhadev@ambitcapital.com, +91 22 3043 3252
1. Structural shift in the export market: China is losing its share of the export
pie given: (a) rising labour cost, (b) reducing cotton acreage, (c) rupee
depreciation, and (d) subsidy rollback. This augurs well for Indian textile
manufacturers. Note that the global textile export market is US$300bn, of
which China’s share is 50% compared with India’s 10%.
2. Structural changes in the domestic market: Rising demand for branded
apparels on the back of rising share of disposable income (CAGR of 14.7%
from 2005-2010), higher consumption levels and changing consumption
patterns augur well for Indian branded apparel manufacturers.
3. Diversified product portfolio and reducing share of denim: Arvind’s
dependence on denim has consistently been coming down to 54% in FY2011
from 61% in FY2010. Management is guiding to further reduce this to 42% in
FY2012 and to 33% in FY2013 on the back of rising share of branded retail,
real estate and technical textiles. The share of these businesses is likely to
increase from 23%, 1% and 0% in FY2011 to 33%, 4% and 7% respectively in
FY2015.
4. Deleveraging through sale of land bank: Arvind is sitting on a land bank
of 500 acres, which is likely to generate cash in excess of `10bn in a span of
four years. This is sizeable given that Arvind is sitting on a debt of `22bn
(which includes `11bn of long term debt). Arvind has already realized cash
flow of `800mn in FY2011 and expects `2bn in FY2012.
5. Rising share of B2C sales: Arvind is focusing on ramping up its B2C business
model, and thereby its profitability, given the better pricing power with
consumers. After increasing its B2C revenue share from 22% in FY2010 to
32% in FY2011, management has an objective to increase this further to 43%
in FY2015.
6. Reducing forex risk: With rising share of domestic sales (up from 58% in
FY2009 to 62% in FY2010), Arvind’s exposure to foreign exchange risk has
been reducing. Management has guided to increase this to 68% in FY2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Arvind Ltd
Arvind is the largest textile manufacturer in the country with presence
across denim, shirtings, voiles, khakis and knits. After incurring a loss in
FY09, it turned around in FY10 with a net profit of `530mn. In FY11 its
earnings tripled to `1.6bn on the back of strong growth in domestic sales
driven by rising consumer spending.
Company Background
Arvind, established in 1931 is the largest denim manufacturer in the country with
an installed capacity of ~108mn mtrs. It is a preferred supplier to internationally
renowned brands like Polo, Armani exchange, Diesel, GAP, Banana Republic, Zara
etc. Besides this it also has a strong brand portfolio comprising of licensed brands
like Lee, Wrangler, New Port, Arrow, Tommy Hilfiger etc. It also manufactures
shirtings, khakis and knits (with an installed capacity of 66mn mtrs) and knits (with
an installed capacity of 38mn mtrs).
Recent Financial Performance
Arvind posted a stellar performance in 2QFY12 with an earnings growth of 60%
on a YoY basis. This was driven by 23% growth in revenues (led by 21% and 6%
growth in denim and shirting/khaki fabrics respectively) and 174bps improvement
in margins (driven primarily by lower other expenses). The earnings growth of 60%
was despite Arvind booking a forex loss (mark to market loss on account of
revaluation of forex liabilities) of `189mn.
Outlook
Consumer’s rising focus towards premium brands augurs well for Arvind given its
strategy of focusing towards premium and luxury brand. Arvind is also planning to
introduce new brands (launching “ELLE” in FY12) and brand extensions (planning
to venture into technical textiles). Also it is planning to change its business model
from B2B to B2C. The share of B2C is likely to increase to 41% in FY2013E from
32% in FY2011 and 28% in FY2010. The stock is currently trading at 9x FY12
consensus eps. Compared to BRFL, the stock is trading at a discount of 25%, which
we think is unjustified despite higher RoE for FY12 (13% v/s 9% for BRFL) and
higher FY11-13 earnings CAGR (59% v/s 14% for BRFL).
Conference Meeting Notes
Arvind Mills represented by Mr Resham Jain, Manager – Finance
Analyst:
Bhargav Buddhadev, bhargavbuddhadev@ambitcapital.com, +91 22 3043 3252
1. Structural shift in the export market: China is losing its share of the export
pie given: (a) rising labour cost, (b) reducing cotton acreage, (c) rupee
depreciation, and (d) subsidy rollback. This augurs well for Indian textile
manufacturers. Note that the global textile export market is US$300bn, of
which China’s share is 50% compared with India’s 10%.
2. Structural changes in the domestic market: Rising demand for branded
apparels on the back of rising share of disposable income (CAGR of 14.7%
from 2005-2010), higher consumption levels and changing consumption
patterns augur well for Indian branded apparel manufacturers.
3. Diversified product portfolio and reducing share of denim: Arvind’s
dependence on denim has consistently been coming down to 54% in FY2011
from 61% in FY2010. Management is guiding to further reduce this to 42% in
FY2012 and to 33% in FY2013 on the back of rising share of branded retail,
real estate and technical textiles. The share of these businesses is likely to
increase from 23%, 1% and 0% in FY2011 to 33%, 4% and 7% respectively in
FY2015.
4. Deleveraging through sale of land bank: Arvind is sitting on a land bank
of 500 acres, which is likely to generate cash in excess of `10bn in a span of
four years. This is sizeable given that Arvind is sitting on a debt of `22bn
(which includes `11bn of long term debt). Arvind has already realized cash
flow of `800mn in FY2011 and expects `2bn in FY2012.
5. Rising share of B2C sales: Arvind is focusing on ramping up its B2C business
model, and thereby its profitability, given the better pricing power with
consumers. After increasing its B2C revenue share from 22% in FY2010 to
32% in FY2011, management has an objective to increase this further to 43%
in FY2015.
6. Reducing forex risk: With rising share of domestic sales (up from 58% in
FY2009 to 62% in FY2010), Arvind’s exposure to foreign exchange risk has
been reducing. Management has guided to increase this to 68% in FY2012.
No comments:
Post a Comment