Arvind Fashions Analysis On track to a turnaround
Call & Research Report by Anand Rathi Research
Sector : Automobile
CMP Rs. 245, Target Rs. 453 ( 84% upside)
Target Period : 12 Months
On track to a turnaround; maintaining a Buy
Arvind Fashions ended FY22 ahead of our estimates and on track to its
target of profitable growth, working capital optimisation, de-levered B/S
and rising cash-flows. Ahead, management expects revenue to grow 12-
15% (net of the Covid’19 impact), driven by 200 stores added and healthy
comparable growth. With better full-price sales and operating leverage,
it expects margins to increase. It will continue to focus on further debt
reduction and better inventory turns, leading to more cash-flows. Our
revenue estimates are unchanged. We have lowered our FY23e/FY24e
EBITDA ~4%/2% from earlier. With FY22 targets achieved, consistence
performance with profitable revenue growth and increasing return ratios
are key monitorables. We retain our Buy rating, at a Rs453 TP, based on
11x FY24e EV/EBITDA.
Driven by healthy comparable 15% growth. Q4 FY22 revenue rose ~34%
y/y to Rs9.2bn. Power brands grew ~32% y/y to Rs7.3bn and emerging
brands, 43% to Rs1.9bn. Comparable growth in Feb-Mar’22 was 20%.
Department stores grew 2x y/y and online, 20%+. The gross margin was flat
y/y at 44.9% despite inflation. Employee expenses were down ~6% y/y; other
expenses, up 57% y/y. EBITDA grew 8% y/y to Rs731m and the EBITDA
margin came at 8% (9.9% a year ago). Losses from discontinued operations
were nil (vs Rs584m loss the year prior) and minority interest was Rs216m
(Rs38m the previous year). PAT was Rs8m, vs Rs1,033m loss a year earlier.
On track with better balance sheet, cash flows. Working-capital days shrank
drastically to 42 (vs 84 in FY21) aided by reduced inventory and debtors.
Inventory turns were 4x. Ahead, the company expects to maintain the lower
working capital days of FY22. With less losses and reduced working capital, its
OCF was Rs3bn (vs. a negative Rs697m) and FCF was Rs3.2bn (vs a negative
Rs1,160m in FY21. Hence net debt shrank to 4bn from Rs9.2bn in FY21.
Arvind Fashions Analysis Valuation. We retain our Buy rating with a TP of Rs453 based on 11x FY24e
EV/EBITDA. Risks: Keen competition; lower revenue growth.
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