Arvind - Brand Story Intact; Fairly Valued; Result Update Q2FY15 :: Edelweiss report link

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Arvind’s Q2FY15 PAT of INR933mn came below our estimate due to lower EBITDA and higher tax rate. Revenues at INR19.6bn jumped 22% YoY led by 29% YoY growth in the brands & retail segment. Overall EBITDA margin fell 200bps to 12.3% due to denim price reduction, increase in cotton cost and faster revenue growth of lower EBITDA margin brands. Management expects Q3 margins to be muted due to further correction in denim prices and continued slowdown in retail sales. Revenues from GAP and The Children’s Place (TCP) are expected to kick-in from FY17 onwards. While we see value over longer term as current brands mature, valuations seem to have factored the same.

Textiles: Denim business disappoints, growth in woven continues

Textile segment (62%/82% FY15E revenue/EBITDA share) revenue growth was subdued at 5% YoY to INR12.3bn because of decline in denims (down 2.3% YoY) and garment revenue (down 8.4% YoY). Denim realization fell on account of falling cotton prices. In the garments business, an INR100mn shipment got postponed to Q3FY15; ignoring this, growth would have been flat. Woven/Knits revenue surged 8%/35% YoY.

Continued growth in existing brands; added GAP and TCP

Brand & Retail segment (33%/15% FY15E revenue/EBITDA share) revenue jumped 29%YoY to INR6.4bn as Brands/Megamart grew at 35%/13%. Power brand revenue surged 27% YoY to INR3.8bn. Overall margin rose 30bps YoY to 5.3%. Margin of the brands business improved to 6.5% (up 50bps YoY). The area and store count under brands increased, whereas Megamart saw further store closures. Arvind signed franchising agreements with GAP and TCP and plans to open 40 GAP and 50 TCP stores.

LINK
https://www.edelweiss.in/research/Arvind--Brand-Story-Intact;-Fairly-Valued;-Result-Update-Q2FY15/27500.html