Emkay is bullish on Arvind ltd and has recommended buy rating on the stock with a target price of Rs 300 in its research report dated feburary 05, 2016
Emkays research report on ARVIND
Results below estimates led by both textiles and brand & retail– Consolidated revenue grew 4% yoy. EBITDA margins down 80bps to 13%. APAT down 4% yoy at Rs 1bn Overall brand revenues was hit by sharp decline in Megamart (-16%). However, power and other brands grew by 16% and 28% led by store expansion and new brands Real estate revenues in base quarter and pre-operating costs in garmenting led to margin decline. Reduced mega mart revenues and better mix in brand business led + 60bps in EBITDA margin to 7.6%. Expect brand business to drive margin to 14.2% by FY18 While we are positive on the growth aspects of Arvind led by expansion in the brand business and steady textile business, we expect interim pain on account of realignment in Megamart. We have cut revenue by 3%/6% and EBITDA by 8% each for FY16E/17E.
We downgrade to Accumulate with revised target price of Rs 300/share (SoTP).Other key highlights Company doesn’t expect any further store closures in Megamart. However, retail business is expected to go through c.12 months of consolidation before reporting growth Online platform currently contributes to c.6% of revenues. Company is targeting contribution of 8% to topline in FY17E.While there has been a sharp decline in inventory days in the brand business, the sale or return model followed by retailers has negatively impacted the receivable days. Working capital has declined by 19 days to 135 days.
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