ETMarkets.com|Updated: Aug 08, 2018, 03.29 PM ISTThe current market price of Arvind is Rs 396.CLSA has a buy call on Arvind with a target price of Rs 550.The current market price of Arvind is Rs 396.Time period given by the brokerage is one year when Arvind price can reach the defined target.
CLSA's view on Arvind:Arvinds 1QFY19 Ebitda grew 18 per cent, driven by improving profitability in the Brands Retail (BR) and Advanced material businesses.
Textiles margins remained under pressure, largely due to lower DEPB incentives and unfavourable currency hedges.
Management highlighted that Arvind is in the middle of a capacity expansion in the garmenting segment at Ethiopia, Jharkhand and Gujarat; it expects garmenting segment revenues to increase by 30 per cent in FY19.
We cut FY19-20CL estimates by 7 per cent on account of lower-than-expected margins in the textiles segment.
Retain BUY with Rs 550 TP (was Rs 557).1QFY19 Mixed quarterArvinds 1QFY19 revenues grew 10 per cent, driven by strong growth in the BR and Advanced materials businesses.
Ebitda margins expanded by 54bps in spite of lower margins from the textiles business.
PAT grew by only 9 per cent, largely due to an exceptional expense of Rs86m on account of retrenchment compensation.
Arvinds net debt as on 30 June 2018 stood at Rs 34.5bn.Lower DEPB rates, currency hedges impact textiles marginsArvinds textiles segment revenues (excluding Advanced Materials) grew by 2 per cent during the quarter.
Denims revenues (nearly 30 per cent of textile revenues) declined by 15 per cent, largely due to higher base of 1QFY18 on account of aggressive pre-GST buying.
Textiles margins contacted by 244bps YoY, largely due to lower DEPB incentives and unfavourable currency hedges.
Management highlighted that current hedges are likely to return to around market rates in 2HFY19.
Advanced material segment reported 10 per cent revenue growth with 4.7 per cent margin expansion; management expects its profitability to further improve during FY19.Strong growth in BR continuesBR segments comparable revenues (adjusting for GST and IndAS) grew by 18 per cent YoY; while comparable Ebitda grew by 75 per cent driven by 195bps margin expansion.
However, LTL growth for the quarter was -5.8 per cent due to the advancement of EOSS last year.
Power brands continued its robust performance with 16 per cent revenue growth and 40 per cent comparable Ebitda growth.
Management highlighted that Unlimited reported improvement in gross margins and store-level profitability.Focus shifts to demerger; Retain BUYArvind is in the final stages of approvals for the demerger and management expects to receive approvals by early 2QFY19.
We value the demerged entity (houses the textiles business) at an Enterprise Value of Rs79bn and BR business at Rs93.5bn.
Retain BUY with TP of Rs550/share.Read this article inHindiCLSA downgrades Ashok Leyland to sellCLSA upgrades Marico to 'buy' from 'underperform'CLSA downgrades Asian Paints to 'outperform' from 'buy'HUL's valuation likely to remain expensive, says CLSACLSA retains sell rating on Tata MotorsCommenting feature is disabled in your country/region.Disclaimer: This recommendation is analyst's own and does not represent those of economictimes.com ETMarkets.com.
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