Buy Arvind Fashions; target of Rs 1358: Sharekhan

Sharekhan's research report on Arvind Fashions

Hence, we Initiate Coverage on the stock with a Buy recommendation. Arvind Fashion’s revenue and operating profit reported a CAGR of 26% and 38%, respectively, over FY2016-FY2018 on account of strong growth with key business verticals including power brand, emerging brands and speciality retail (including Unlimited) growing in the upwards of 25% each over the past two years. Power brands will continue to deliver strong performance will double-digit revenue growth and OPM is likely to see consistent improvement, while profitability of emerging brands is expected to improve along with scale up inthe emerging brand’s revenue. Stable working capital and improvement in cash flows would strengthen the balance sheet in the near to medium term.

Outlook

Arvind Fashion Limited (AFL), the demerged entity of Arvind Limited, is a leading branded apparel company with an impressive brand portfolio and strong distribution reach. Shareholders holding five shares of Arvind Limited received one share of Arvind Fashion according to the share-swap ratio. The stock has listed at a significant discount to our target price of Rs. 1,358 (valuing at 20x its FY2021E EV/EBIDTA), providing an opportunity for investors to enter into quality retail play.