The Lalbhai family-promoted Arvind Mills is the largest cotton textiles manufacturer in India with an annual capacity in excess of 230 million meters. The company faced some tough times in the early 2000s when the whole textile business became commoditised.
The company then chartered a new course and built strong apparel brands that helped Arvind stand out in a cluttered market. Today Arvind is a leading player in branded garments and value retail in the domestic market. The company is the third largest Denim manufacturer in the world and largest producer of woven fabric in the country.
Its major business consists of textiles (denims, woven fabric, readymade garments, and voiles ), and manufacturing and selling of licensed and its own branded apparel. Arvind’s retail presence is pretty strong. It’s present in virtually every multi-brand outlet in the country and also has a franchisee network of exclusive brand outlets, and its own Megamart chain of large format value retail outlets. Arvind seems well placed to meet its target of being a Rs 10,000 crore company by 2018 with a mix of organic and acquisitions led strategy.
Arvind underperformed the benchmark Sensex and BSE Mid-Cap Index over the last one year due to subdued consumer sentiment in FY13 coupled with pressure on margin seen in its brands and retail division. However, it looks likely that the consumer sentiment could improve along with its margins in Q4FY13.
Compared to its peer-group, Arvind trades at lower valuations (6.6x FY15E EPS and 5.0x FY15E EBITDA). Therefore, it could be a good time to enter the stock.
A Diversified Portfolio
Arvind has a diversified and premium portfolio in the denim and woven segments. It is ranked amongst the top-3 fully-integrated denim manufacturers globally, and is the largest woven fabric manufacturer in India. Its denim and woven capacities are likely to grow by 7% and 15% CAGR respectively by 2015. Arvind has a portfolio of close to 30 brands. That includes 13 in-house brands (Flying Machine, Excalibur), 15 brand licenses (Arrow, Lee, Wrangler) and one JV (Tommy Hilfiger) in the ultra premium category.
Its Megamart stores range in size from 2000 sq ft to 65000 sq ft. There are six large format stores (average size of 40,000 sf. Ft) and 205 smaller stores across the country.
According to the company, it plans to tie-up brands in the fast growth segments without cannibalizing its own portfolio. The complete removal of excise duty from branded apparel should boost profitability of its Megamart stores.
Arvind has strong distribution network of about 750 retail stores across 150 cities. It has presence in 700 multibrand outlets and 656 departmental store in India. In addition, its present in seven retail stores and 113 counters at departmental stores in Middle East and South Africa. It plans to increase its retail space by 15-18% Y/Y over next 2-3 years to tap the growing retail potential.
Divestment of Realty
Arvind is expecting Rs 7-8 billion in net cash-flow over six years from the sale real estate. Cash-flows from realty divestment would act as a cushion for expanding operations. Arvind’s revenue and EBITDA are likely to grow 13.5% and 15.1% CAGR, while its PAT would grow by 11.8% CAGR in FY13-15E on higher tax payments. Its current market price is about Rs 80, and could touch Rs 103 representing a 30% upside in the next year or so.