Sanju Verma, CEO at Violet Arc Global Managers told CNBC-TV18, "We have been vouching for Arvind for a while now. I think in this case, it is easy to dismiss the story as something like Arvind being the jack of all trades given that they are present in retail, in brand and in real estate. But the way I look at it, this is perhaps the only integrated textile play available in India today because the company is basically doing both garment manufacturing right all the way up to fabric making."
She further added, "I think the only reason why the stock was a laggard for the last couple of years was because there were management related issues but now clearly there is a dichotomy between ownership and management, which I think bodes well for serious investors with a long-term perspective. My personal sense is that in FY16, they might easily do an EPS of Rs 23-24. If they do manage to do even an EPS of Rs 22 or Rs 23 for FY16, that will be more than 30 percent growth over FY15."
"I remember at Rs 150, my analyst telling me that the maximum the stock can do is Rs 215 or Rs 220 because at that price, it would trade at something like 6 times EV to EBITDA and its historical EV to EBITDA high has been 6.5 times. I think Arvind is a classic case. This stock today is at more than Rs 275 at which its EV to EBITDA multiple works out to be a steep more than 7.5 times. That is the beauty of a bull market. Companies which are beginning to restructure and which are beginning to fundamentally tell you a different perspective and the different story, there will be P/E expansion, there will be multiple expansions, valuations parameters will get redefined and that is exactly the case with Arvind," Verma said.
She further said, "You cannot go with what the past has to present because Arvind is redefining a different territory for itself. Not to mention the fact that they are tied up with gas, the foray into e-commerce and all this bodes well for the company but the big driver will be the fact that the brands and retail business where the margins have been 5.5 percent, that should go up to about 12-12.5 percent over the next two-three years. So you are talking of more than 600 basis points expansion in margins in less than three years, which is excellent."
"Also the fact that it is in private labels and a branded apparel where you make margins to the tune of 40-50 percent and that constitutes just about 40 percent of their sales now. It likely to go up all the way to 60-70 percent of their overall sales. If they do manage to do that which is what their target is, then I think the story in Arvind is just about unfolding," she said.
"So Arvind is a stock that one can still play for the long-term not to get carried away by the fact that yes, there has been a heady run but I think the best is still ahead of us. Though that sounds clichéd, the fundamentals still bear out a long-term story in the making," she added.
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