Arvind -Target 145 :Anand Rathi

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Arvind                                                      CMP 83                                                              Target 145

Any change in the retail FDI policy by the government will be very positive for the company and may help to re-rate the company gradually and we may also re-rate the target on the higher side going forward.

Investment Rationale

~ The 'transformation' – change in business model –Focus shifts to BTC from BTB model

~ The USP – mega-mart retailing model

~ Capitalising on JV’s by also extending the product line - The JV – Arvind and PD Glass Composites

~ Monetization of land

~ Reducing foreign exchange risk

~ Aiming high… future plans

The Business

The largest cotton textile manufacturer and exporter in India, Arvind leads in brand-named garments in the domestic market. Its principal business is the manufacturing and marketing of denim fabric, shirting, shirts, knitted fabric and garments.

It has rights to market in India international brands such as Lee, Wrangler, Arrow and Tommy Hilfiger. It also owns popular brands such as Newport, Flying Machine, Excalibur and Ruf & Tuf.

It has plants at Ahmedabad, Mehsana and Gandhinagar in Gujarat, Pune in Maharashtra and Bangalore in Karnataka.

Arvind’s range is unmatched in India –

Owned – Flying Machine, Megamart, Excalibur, Newport University, Domuts, Bay Island, Ruggers.

Licensed – Arrow, US Polo Assn, Cherokee, Elle, IZOD, Energie

JV – Tommy Hilfiger

Arvind has 850 shop-in-shops and 45 exclusive Arvind stores. It has a distribution network of 250 distributors selling Arvind fabrics through 25,000 retail shops.

~ Valuation

Looking at the company’s approach and its range of successful brands, the potential for future growth is clear.

On the sectoral front, notwithstanding its inability to open multi-brand retailing to foreign investment, the government has notified 100% FDI in single-brand retailing, paving the way for global chains such as Adidas, Louis Vuitton and Gucci to have full contro (ownership) of their India operations.

Also looking at the company’s performance on financial basis the slowing down of the interest cost is showing lowering of debt levels which is a major positive for the company which is also accompanied by the stabilizing of the cotton prices which is in turn helping at the operating level margins as well. Also with major capex already done in last year the output will be visible from FY13-14 onwards.

With its huge range of brands, assured future revenue and growth and expansion plans, we have a positive outlook regarding the company. At the CMP, the stock trades at 8.4x and 6.9x the FY12 and FY13 earnings respectively. We see a price target of Rs.145 in the next two years.

Thanks & Regards