Buy Arvind, may rise by 35-40 percent: Rahul Arora

Rahul Arora - CEO at Nirmal Bang Institutional told CNBC-TV18, "The story in Arvind is just shifting from textiles to a brand in retail place. So the market perception of looking at Arvind traditionally right from may be 2005 to 2013 was this was essentially a textile company through a better part of the last bull run. The way people are looking at it form hereon is it is a brand in retail player which is looking at tapping the ecommerce market in a very big way. So, our thesis on this is very simple we have 35-40 percent upside from the current price. I am advising a buy."

"Our main thesis on the brand retail division which is about a 5-5.50 margin currently and over the next two years between 2015-2017 we think that it will probably get award between 8.50 percent. It is a very high debt company but it has about 4 power brands which includes Tommy Hilfiger, Arrow, Flying Machine. They are planning to take that up to 2010-2011 so as that happens this company will be valued on EV to EBITDA or EV to sales," he said.

"The analysts expects about a Rs 900 crore or so operation cash flow over the next two years which will actually help to repay the debt. That like I said is predominantly going to come from the operating leverage that they are going to see in the brand and retail division. On the textiles side the capex that they have done over the last 3-4 years is pretty much behind them. I don’t see them doing aggressive capex. The return on capital employed overall will probably go up on a pre-tax basis."

He further said, "We are expecting about a 200 basis points improvement in the pre-tax return on capital (ROC). If your perception is and if you compare it to say even a V-Mart which is under coverage for us or a Shoppers Stop, or a Kewal Kiran or any largecap to midcap retail name it was at a very substantial discount if you don’t look at it from a PE perspective. It is a good entry point, the stocks corrected about 25-30 percent from its 52 week high and if you have a couple of years worth of horizon is providing a decent entry point. We value the company on FY17."