INSUBCONTINENT EXCLUSIVE:
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
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
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
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
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.
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