Buy Arvind Fashions; target of Rs 728: Anand Rathi

Anand Rathi's research report on Arvind Fashions

With revenue/EBITDA up ~16% y/y and adj. PAT (post-minority) up to Rs128m (from Rs12m a year ago), Arvind Fashions started FY26 on a good note. EBITDA margin was flat y/y at 12% due to higher ad spends (up 140bps y/y). Growth was 5% above our estimates led by higher LTL growth at 8.1%. 10 EBOs (net) were added in Q1, taking the total to 987 stores across 1.23m sq.ft. USPA grew >20% while Tommy and CK continued to grow in double digits. Arrow and Flying Machine delivered double-digit L2L growth in Q1. FM’s profitability was impacted by channel-mix seasonality, which management expects to reverse in Q2. Both the brands are on the path to mid-single digit EBITDA margins (pre Ind AS), from low single-digit currently. Inventory turns continued at ~4x and net working capital days were steady. Over the past 12-18 months, AFL has strengthened its brands through retail expansion, marketing, and supply chain investments. Management retained its guidance of 12-15% medium-term revenue growth led by 15% growth in direct channels and high single-digit growth in the wholesale channel. Our FY26e/27e revenues are unchanged; EBITDA is ~3% lower on avg. due to higher marketing spends. The EPS cut is larger due to higher depreciation/interest.

Outlook

We retain our Buy rating, with a TP of Rs728 on 11x Sep’27e EV/EBITDA (earlier Rs681 on 11x FY27e EV/EBITDA).

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