Arvind - Good Show, But Another Muted Quarter Ahead; Result Update Q3FY15 ::Edelweiss, report

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Arvind’s Q3FY15 EBITDA at INR2.9bn, up 10.1% YoY, was 24% above estimate. The beat was due to higher margin in the textile segment as the company booked lower cost inventory. Brands & Retail (B&R) revenue jumped 21% YoY, lower than 29% in Q2FY15. PAT was up mere 7% YoY at INR1.1bn due to higher tax rate. While Q3FY15 did see a better-than-expected performance, management has still guided for a muted Q4FY15. As distribution growth tapers off, we anticipate growth to slow down in the B&R segment.

Textiles: Denim surprises positively; woven continues to grow

Compared to the disappointment in Q2FY15, the textile segment had a good quarter as overall revenue increased by 9.7% YoY. This was led by denims and woven, which surged 11.8% and 11.7%, respectively; majority of this growth was volume led. Garments still disappointed with revenue growing only 3.9% YoY. The company finally exhausted its high cost inventory in Q3FY15 and the benefit of low cotton prices was reflected in the 9% YoY drop in average cotton cost. Overall EBITDA margin increased by 40bps YoY to 18%. While margin may stay stable/improve marginally, Arvind expects some softness in denims and woven revenues as weakness from retail markets starts flowing in.

B&R growth coming off, but power brands continue to thrive

While B&R segment revenues jumped 21% YoY, the growth has been coming off and in Q3FY15 clocked the slowest rise in the past 8 quarters, even for brands alone. Margin fell 110 bps YoY to 7% because of a weak Diwali and revenue decline in Megamart. However, it improved QoQ as Megamart’s restructuring has started showing effect. Power brands were not impacted by the slowdown and posted robust growth of 25% YoY along with significant margin surge. However, the overall like-to-like (LTL) sales trend has been worrying and came in at only 1.9% /-2.3% in brands/Megamart.

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https://www.edelweiss.in/research/Arvind--Good-Show,-But-Another-Muted-Quarter-Ahead;-Result-Update-Q3FY15/28267.html