Buy Arvind Fashions; target of Rs 567: Anand Rathi

Anand Rathi's research report on Arvind Fashions

On completing its business reset in FY20-FY21, Arvind Fashions saw an upswing in the last four quarters; we expect the pace to accelerate. While growing 12-15% in the next 3-4 years it expects a double-digit EBITDA margin (pre-Ind AS) in 18 months. Revenue growth would be driven equally by like-to-like growth and store expansion, margin expansion by efficiencies as brands gain scale and on the Arrow turnaround. Management says it will focus on scaling up existing brands profitably and is not looking at adding brands. We expect its ~Rs3.8bn net debt to shrink to ~Rs1.3bn by end-FY25. We are positive on the stock and see a further re-rating, driven by a better sustainable performance.

Outlook

We retain our Buy rating at a higher TP of Rs567, based on 12x FY25e EV/ EBITDA (previously Rs516, at 11x FY25e EV/EBITDA).

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