17 September 2014
Update | Sector: Textiles
Arvind
BSE Sensex
26,631
S&P CNX
7,976
CMP: INR319
TP: INR400
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Crown jewels added; prospects bright
ARVND IN
258.2
341/78
36/92/246
82.4
1.4
Beginning of a massive re – rating cycle; reiterate Buy
We extensively interacted with Mr. Sanjay Lalbhai, Mr. Kulin Lalbhai
and Mr. Jayesh Shah and came out extremely positive on their
approach and vision for brands and retail expansion plans in India. We
believe that the recent tie up with Children’s place and GAP are
transformational and major milestones for Arvind mills as it makes
them future ready and Brand Powerhouse in India.
Tie-up with GAP a big milestone; could change India’s retail landscape
GAP, a leading specialty brand retailer, with a global turnover of USD16.1b,
has tied up with ARVND to open 40-50 stores by FY18. The first store should
be operational by May 2015, with the launch of the GAP Summer 2015
collection. ARVND plans an initial footprint of 15-20 cities across India for GAP
stores. It will look at opportunities to penetrate beyond tier-1 cities/towns
over the long term. Each store, spread across 8,000-10,000sf, will be located in
the most prominent location of the city. The look-and-feel of the stores will be
similar to global GAP stores. Each store will need an investment of ~INR100m
for fixtures and other related capex, excluding working capital requirement.
ARVND will sell GAP’s global merchandise at global prices. GAP is present
across menswear, women’s wear, and most importantly, it is very strong in
kids and infant wear. Its product mix is spread across basic, fashion, modern,
and heritage categories. ARVND will also have rights to sell GAP products
through e-commerce platforms, a huge opportunity over the long term. The
management believes that GAP can generate annual revenue of INR10b in the
next five years, with 9-10% EBITDA margin in two years of operation.
Financial Snapshot (INR Million)
Y/E Mar
2015E 2016E 2017E
Net Sales
83,815103,577125,925
EBITDA
Adj PAT
EPS (INR)
Growth (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
11,315 14,128 17,554
4,299
16.7
11.2
113.2
15.6
16.0
19.2
2.8
5,622
21.8
30.8
130.3
17.9
18.2
14.7
2.4
7,903
30.6
40.6
156.2
21.4
21.0
10.4
2.0
Shareholding pattern (% )
As on
Jun-14 Mar-14 Jun-13
Promoter
DII
FII
Others
43.5
13.7
23.4
19.4
43.8
14.2
22.9
19.0
43.9
19.5
16.1
20.4
FII includes depository receipts
Expect quick scale-up of GAP in India, in line with global experience
Stock Performance (1-year)
Globally, GAP store launches have been huge impact events and the
management indicated that India would be no exception. ARVND is planning
innovative brand awareness campaigns like outdoor bus advertising, exciting
store formats in line with global GAP stores to provide great consumer
experience. Globally, GAP has seen a flood of footfalls on day-1 of its launch of
new stores, with long queues. GAP stores will be exclusive brand outlets
(EBOs) and not shops-in-shops, thus maintaining exclusivity. We believe
ARVND’s tie-up with GAP highlights the management’s vision to be future
ready and create large engines of growth for the long term.
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Atul Mehra
(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
Investors are advised to refer through disclosures made at the end of the Research Report.