Buy Arvind Fashions; target of Rs 681: Anand Rathi

Anand Rathi's research report on Arvind Fashions

Arvind Fashions reported 8.5%/13% y/y revenue growth/EBITDA margin in FY25. Growth was aided by 5.5% comparable growth, network expansion (0.12m sq. ft. net addition in FY25), higher adjacent categories’ share (20%; 15% in FY24), premiumization and investments in marketing. Adj. PAT (post minority) grew ~70% y/y to Rs855m. Working capital days improved to 50 (53 in FY24), led by higher payables. OCF/FCF grew ~22%/24% y/y to Rs5.3bn/4.4bn in FY25. Net debt reduced to Rs2.2bn (~Rs3n in FY24). The RoCE rose to 20%+ in FY25 (16% in FY24), led by greater profitability. USPA reached Rs20bn NSV in FY25, while Tommy and CK continued with double-digit growth. Arrow and Flying Machine saw encouraging traction in H2 and reported low single-digit EBITDA margins (pre-IND AS); midsingle digit EBITDA margins targeted in the short term. Management retained its 12-15% revenue growth guidance, led by ~15% sq.ft. expansion CAGR in FY26; with 100bps EBITDA margin expansion every year.

Outlook

Our FY26e-27e revenue/EBITDA remain unchanged; we cut EPS by 8% on avg. due to higher depreciation/interest expense. We retain our Buy rating, with a TP of Rs681 (earlier Rs685) on 11x FY27e EV/EBITDA.