Arvind Fashions rise over 3% on Equirus "long" call, forecasts 45% potential upside

Over the past three months, the stock of the textile company has fallen more than 8 percent

Shares of Arvind Fashions rose over 3 percent to Rs 520 on January 7, following a "long" call initiated by Equirus, which set a target price of Rs 753, suggesting a potential upside of 45 percent from current levels.

Over the past three months, the stock of the textile company has fallen more than 8 percent, compared to a 4 percent drop in the benchmark Nifty 50 index.

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Equirus Securities anticipates that Arvind Fashions' profitability will improve as the company begins to benefit from corrective actions taken over the past three years. The brokerage also expects the company’s asset-light expansion and enhanced working capital efficiency to drive return on equity (RoE) and return on capital employed (ROCE) to 18.5 percent and 20 percent, respectively.

The brokerage finds Arvind Fashions' current valuation appealing, noting that the stock is trading at 10.5x FY27 EV/EBITDA.

Equirus expects the company’s premiumisation strategy, expansion into adjacent categories (which now contribute about 15 percent of revenues), and turnaround of brands like Arrow and FM to fuel a 10 percent CAGR in revenue, alongside significant profitability growth, with a 33 percent PAT CAGR by FY27E.

"With most corrective actions now complete, Arvind Fashions is positioned for strong growth, anticipating a 178 bps increase in operating margins over the next three years. While revenue growth is expected to be a steady 10 percent CAGR, Pre-IND AS EBITDA and PAT growth should be much stronger at 23 percent and 33 percent, driven by improved gross margins, positive operating leverage, and lower interest costs," the brokerage firm said.

However, key risks to this outlook include an economic slowdown, reduced discretionary spending, and potential challenges related to licensing or royalty payments. Increasing competition and issues with franchisee partners could also hinder growth.

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