Arvind Fashions Puts Up A Good Show On Listing Day
Arvind Fashions Ltd., the Lalbhai Group’s fastest-growing arm that was carved out in recent restructuring, hit an upper circuit of 5 percent from the discovery price after it was listed on the exchanges.
The pre-discovery price of the stock was of Rs 590.95 on NSE and Rs 591.75 on BSE. The stock closed at Rs 620.45 apiece.
Arvind Fashions, through licensing arrangements, retails brands like U.S. Polo Assn, Arrow, Tommy Hilfiger, CK, and is also setting up outlets for Unlimited, Sephora and GAP. According to a company presentation for the year ended March 2018, it ran 1,300 stores in 180 cities and towns.
The company was hived off from the flagship denim maker Arvind Ltd., when shareholders of Arvind got one share in Arvind Fashions for every five held. The group separated its brands and retail, textiles and engineering businesses to better focus on individual units. The fashion segment is betting on growing consumption and disposal incomes in India.
Financials And Outlook
Arvind Fashions’ sales rose at a 22 percent annualised rate in five fiscals through March 2018 while its operating income or earnings before interest, tax, depreciation and amortisation increased 26 percent.
The company, in a recent investor presentation, guided for a 20 percent sales growth till March 2022 along with one percentage point improvement in margin. A wider margin would translate into a 36 percent annualised growth in operating profit, it said. The company expects the return on capital employed to improve from 4.4 percent in 2017-18 to 25 percent by 2021-22.
The company said its optimism is based on a 19 percent annualised growth in the branded fashion market, helped by online and offline retail sales and improving discretionary spending in India.
Axis Capital expects a 16 percent and a 34 percent compounded annual growth in sales and profit, respectively, for Arvind Fashions till the year through March 2021. The brokerage, according to a note, has a Rs 1,400 per share target based on estimated 17 times enterprise value-Ebitda multiple for 2020-21.
Equirus Securities, however, said Arvind Fashions is an emerging business and is yet to deliver expected return on capital employed. The brokerage valued the company at 17-18 times its 2019-20 estimated EV/Ebitda. This multiple would be a discount of 18-20 percent to Aditya Birla Fashion. “That would narrow once we see earnings growth catch up and return ratios improve,” Maulik Patel, director research at Equirus Securities, said.
Based on recent brokerage estimates, here’s the implied fair value of the stock: