Arvind Fashions - A Focused Player; Attractive Valuations: Systematix Initiates Coverage With A 'Buy'

Systematix Research Report

Despite the near-term slowdown in consumption, we expect Arvind Fashions Ltd. to keep delivering on its stated objectives (100-150 basis points annual margin improvement, 12- 15% growth, 20% return on capital employed) at least until FY25, before it ruminates over other growth initiatives.

We have built in revenue/Ebitda/profit after tax compound annual growth rate of 12%/24%/96% over FY23-25E, respectively, with 21.6% RoCE for FY25E.

We initiate coverage with a 'Buy' rating and a target price of Rs 515, based on 10 times FY25E enterprise /Ebitda, which implies a 47 times FY25E price/earning.

Prolonged slowdown in demand, enhanced competition, failure to scale up the focus brands, deterioration in margin/working capital and attrition issues are key risks to our call.

Arvind Fashion is a leading player in the lifestyle space, with a strong portfolio of fashion brands across categories and price points like US Polo Association, Arrow, Tommy Hilfiger, Calvin Klein, Flying Machine and Sephora.

A combination of capital raises, portfolio rationalisation and margin improvement have helped the company in recovering from its painful past. With USPA forecast to cross Rs 20 billion revenue in FY24E and PVH (Tommy plus CK) achieving the Rs 10 billion mark in FY23, with double-digit pre Indian accounting standard Ebitda margins, these three brands seem to be in the autopilot mode currently.

Currently, the company’s focus is on scaling up its Arrow and Flying Machine brands, as these hold significant potential for both growth and margin improvement.

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