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Arvind Ltd. is the largest manufacturer, marketer and exporter of textile fabric and garments in the country. The
company has registered 230.1% growth in FY11 net profits, led by growth in domestic market on the back of strong
B2C business model. With the growth momentum carrying forward and improvement in margins, we expect the
company to show a faster growth in its top-line as well as bottom-line.
Growth Upswing Propelled by Strong Domestic Demand
The Indian domestic Textile and Apparel market size in 2009 was
US$ 47Bn and is expected to grow @ 11% CAGR to reach US$140Bn
by 2020. The company derived ~67% of its business from domestic
sales with 28% accounted by B2C and 72% by B2B model. Going
ahead the company is in process of increasing its B2C share to
41% by FY13E due to better pricing power compared to B2B
segment.
Advantage Brand 'Arvind'
Solid demand growth for apparel in the domestic segment has
correspondingly led to increased fabric demand. Strong distributor
network and an impressive bouquet of established brands
developed over the last couple of years has helped the company's
brand & retail business grow by 47% with the share of apparel &
fabric retailing growing to 32% in FY11 from 28% in FY10.
Improving ROCE by way of Land Monetizing
The company has around 520 acres of surplus land around
Gujarat which is expected to generate INR 10,000mn over the next
4 years. The amount will be used for capex funding and will help
improve ROCE from 10.7% to 15.8% over FY11-FY13E. Debt/EBITDA
multiple of 3.7x in FY11 is expected to improve to 2.1x by FY13E.
Shareholding (%)
Promoter 43.4
FII 10.3
DII 16.9
Others 29.3
Price Performance vs Sensex
Manas Majumdar
manas.majumdar@spagroupindia.com
Ph. No. 91 22 4289 5600 Ext.629
August 30, 2011 INITIATING COVERAGE
Expanding Product Line - Driving Growth Ahead
Arvind is planning to introduce new brands to occupy vacant segment
opportunities. The company is planning to launch Brand 'Elle' in
FY12 catering to the women's premium spaces as well as venturing
into technical textiles. Going ahead, the company expects this segment
to contribute INR 5,000mn by FY15E. Denim Fabric which constituted
around 46% of Textiles sales and 33% of overall revenue is expected
to come down below 30% on account of increased contribution by
other segments, mainly brands & retailing.
Capacity Expansion to Push Up Volumes
Current denim capacity of 108mn mtrs will be increased to
117.6mn mtrs by FY12 while additional 12mn mtrs capacity would
be added to the Woven division taking the total capacity to 84mn
mtrs by FY12. Aggressive capacity expansion across the segments
will result in volume expansion, thereby accelerating growth.
VALUATION AND RECOMMENDATION
We expect Arvind's topline and bottomline to grow at a CAGR of
20.5% & 66.8% respectively over the period FY11-13E coupled with
margin expansion, due to aggressive growth in existing businesses
and expansion in the high margin retail space and low gearing due
to land monetization. We recommend a buy on the stock with a
target of INR 108 implying a discount of 6x on FY13E earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Arvind Ltd. is the largest manufacturer, marketer and exporter of textile fabric and garments in the country. The
company has registered 230.1% growth in FY11 net profits, led by growth in domestic market on the back of strong
B2C business model. With the growth momentum carrying forward and improvement in margins, we expect the
company to show a faster growth in its top-line as well as bottom-line.
Growth Upswing Propelled by Strong Domestic Demand
The Indian domestic Textile and Apparel market size in 2009 was
US$ 47Bn and is expected to grow @ 11% CAGR to reach US$140Bn
by 2020. The company derived ~67% of its business from domestic
sales with 28% accounted by B2C and 72% by B2B model. Going
ahead the company is in process of increasing its B2C share to
41% by FY13E due to better pricing power compared to B2B
segment.
Advantage Brand 'Arvind'
Solid demand growth for apparel in the domestic segment has
correspondingly led to increased fabric demand. Strong distributor
network and an impressive bouquet of established brands
developed over the last couple of years has helped the company's
brand & retail business grow by 47% with the share of apparel &
fabric retailing growing to 32% in FY11 from 28% in FY10.
Improving ROCE by way of Land Monetizing
The company has around 520 acres of surplus land around
Gujarat which is expected to generate INR 10,000mn over the next
4 years. The amount will be used for capex funding and will help
improve ROCE from 10.7% to 15.8% over FY11-FY13E. Debt/EBITDA
multiple of 3.7x in FY11 is expected to improve to 2.1x by FY13E.
Shareholding (%)
Promoter 43.4
FII 10.3
DII 16.9
Others 29.3
Price Performance vs Sensex
Manas Majumdar
manas.majumdar@spagroupindia.com
Ph. No. 91 22 4289 5600 Ext.629
August 30, 2011 INITIATING COVERAGE
Expanding Product Line - Driving Growth Ahead
Arvind is planning to introduce new brands to occupy vacant segment
opportunities. The company is planning to launch Brand 'Elle' in
FY12 catering to the women's premium spaces as well as venturing
into technical textiles. Going ahead, the company expects this segment
to contribute INR 5,000mn by FY15E. Denim Fabric which constituted
around 46% of Textiles sales and 33% of overall revenue is expected
to come down below 30% on account of increased contribution by
other segments, mainly brands & retailing.
Capacity Expansion to Push Up Volumes
Current denim capacity of 108mn mtrs will be increased to
117.6mn mtrs by FY12 while additional 12mn mtrs capacity would
be added to the Woven division taking the total capacity to 84mn
mtrs by FY12. Aggressive capacity expansion across the segments
will result in volume expansion, thereby accelerating growth.
VALUATION AND RECOMMENDATION
We expect Arvind's topline and bottomline to grow at a CAGR of
20.5% & 66.8% respectively over the period FY11-13E coupled with
margin expansion, due to aggressive growth in existing businesses
and expansion in the high margin retail space and low gearing due
to land monetization. We recommend a buy on the stock with a
target of INR 108 implying a discount of 6x on FY13E earnings.
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