CMP 233.55

Target Price 271.00

ISIN: INE034A01011

AUGUST 5th

2014

ARVIND LIMITED Result Update (PARENT BASIS): Q1 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Textiles

BSE Code 500101

Face Value 10.00

52wk. High / Low (Rs.) 247.40/65.00

Volume (2wk. Avg. Q.) 570000

Market Cap (Rs. in mn.) 60295.60

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 47754.80 56589.44 65360.80

EBITDA 8789.40 10262.69 11639.06

Net Profit 3613.90 4762.36 5693.13

EPS 14.00 18.45 22.05

P/E 16.68 12.66 10.59

Shareholding Pattern (%)

1 Year Comparative Graph

ARVIND LIMITED BSE SENSEX

SYNOPSIS

Arvind Ltd, one of the largest integrated textile and

branded apparel players, with the presence of

almost eight decades in this industry. It is among

the largest denim manufacturers in the world.

Net profit of the company’s rose by 42.81% to Rs.

1133.20 million in 1st quarter of FY15 from Rs.

793.50 million in the corresponding quarter last

year.

Net sales of the company registered 16.85%

increase in 1st quarter of FY15 and stood at Rs.

12775.30 million from Rs. 10932.70 million over

the corresponding quarter last year.

For Q1 FY15, Earnings before Interest, Tax, Dep

stood at Rs. 2375.40 million, rose by 19.22% y-o-y

compared to Rs.1992.40 million for Q1 FY14.

The Brand & Retail revenue segment increased by

47% to Rs 185.50 million in Q1 FY15 from Rs.

125.80 million in Q1 FY14.

Revenues from Textiles division rose by 16% YOY

from Rs. 10698.50 million to Rs. 12396.30 million in

the June quarter of current financial year.

Arvind Ltd has decided to demerge its real-estate

business and transfer it to the company's wholly

owned subsidiary Arvind Infrastructure Ltd (AIL).

Net Sales and PAT of the company are expected to

grow at a CAGR of 20% and 28% over 2013 to

2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Arvind Ltd 233.55 60295.60 14.00 16.68 2.55 23.50

Vardhman Textiles Ltd 492.50 31348.60 102.41 4.81 1.07 45.00

Orbit Exports Ltd 179.00 2559.50 14.21 12.60 3.67 32.50

Raymond Ltd 417.80 25644.90 16.19 25.81 2.33 20.00

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q1 FY15,

Arvind Ltd, one of the largest integrated textile and branded apparel players, with the presence of almost eight

decades in this industry. EBIDTA and PAT reported very strong improvement and reported its financial results

for the quarter ended 30th JUNE, 2014.

Net profit of the company Jumps to Rs. 1133.20 million for the 1st quarter of the current year 2014-15 against Rs.

793.50 million in the corresponding quarter of the previous year. Achieved net sales of Rs. 12775.30 million in

Q1 FY15 as against Rs. 10932.70 million in the corresponding quarter of the previous year. The company has

reported an EBITDA of Rs. 2375.40 million, rose by 19.22% y-o-y. The company has reported an EPS of Rs. 4.39

for the June quarter of current year as against an EPS of Rs. 3.08 in the corresponding quarter of the previous

year.

Break up of Expenditure:

Rs. In Million Q1 FY15 Q1 FY14 CHNG %

Cost of Materials Consumed 5492.50 4857.60 13%

Depreciation & Amortisation 301.30 376.40 (20)

Employees Benefit Expenses 1346.20 1225.70 10%

Other Expenditure 1578.40 1194.20 32%

Purchase of Stock-in-Trade 155.30 193.50 (20)

Project Expenses 38.30 25.20 52%

Power & Fuel 1147.30 994.30 15%

Stores Consumption 1080.60 852.80 27%

Rs. In Million JUNE-14 JUNE-13 % Change

Net Sales 12775.30 10932.70 16.85

PAT 1133.20 793.50 42.81

EPS 4.39 3.08 42.74

EBITDA 2375.40 1992.40 19.22

Segment Revenue

Revenue Mix from Textile Business

(Rs. In millions) Q1 FY15 Q1 FY14 CHNG %

Wovens fabrics 4680.00 4150.00 13%

Denim 4970.00 4620.00 8%

Garments 1470.00 1260.00 17%

Voiles 980.00 860.00 14%

Knits 630.00 360.00 75%

COMPANY PROFILE

Arvind Limited started in the year 1931 with the aim of manufacturing the high-end superfine fabrics. Company

invested in very sophisticated technology with 52,560 ring spindles, 2552 doubling spindles and 1122 looms. It

was one of the few companies in those days to start along with spinning and weaving facilities in addition to full-

fledged facilities for dyeing, bleaching, finishing and mercerizing. Arvind is India’s Largest textiles & Clothng

conglomerate, has Achieved a turnover of US$ 1 Bn in FY 2013-14. The company enjoys a global leadership

positions in textiles as well as Carries an unmatched domestic portfolio of apparel brands and retail formats.

Arvind Ltd., a US $ 1 Bn Lalbhai Group company is one of the largest apparel brand and retail companies and a

pioneer of denim in India. It has the largest portfolio of foreign licensed apparel brands like Arrow, US Polo,

GANT, Nautica, Izod and Tommy Hilfiger. The company owns & operates India’s largest 225-outlet strong value

retail chain under the brand name ‘Megamart’. It is setting-up exclusive stores across the country - ‘The Arvind

Store’ that brings the best of fabric and ready-mades to its customers. It also manufactures a range of cotton

shirting, denim, knits and bottom weights (Khakis) fabrics and Jeans and Shirts Garments. Arvind, through its

subsidiary company Arvind Lifestyle Brands Limited, is marketing in India the branded apparel under various

brands and is also licensee in India for various international brands.

Apart from this, company is present in Denim, Woven’s and Voiles Fabrics, Technical Textiles, Real Estate and

Organic Cotton Production through cotton farming. The company has forayed into real estate to realize the cash

flow of large land bank either through sale or development in form of joint venture or on its own. It entered

technical textile segment to cater to large demand in the industrial sectors Like Personal Protection, Industrial

Filtration, Wind Energy, Defence, Auto Components, Transportation, and Housing & Infrastructure.

Arvind Ltd has decided to demerge it's real-estate business and transfer it to the company's wholly owned

subsidiary Arvind Infrastructure Ltd (AIL). Arvind also plans to list AIL on the stock exchanges. The demerger

will allow Arvind to deploy its resources fully in its core activities and allow AIL to raise further capital and debt

as required for its growth,

� Business Division

• Denim

• Wovens

• Garments

• Voiles

• Knits

• Arvind Brands

• Mega Mart Retail

• Arvind store

• Engineering

• Real Estate

• Telecom

• Other

Subsidiary Companies

• Asman Investment Limited

• The Anup Engineering Limited

• Arvind Lifestyle Brands Limited

• Arvind Accel Limited

• Syntel Telecom Limited

• Arvind Infrastructure Limited

• Arvind Brands and Retail Limited

• Arvind Envisol Private Limited

• Arvind Worldwide Inc., USA

• Arvind Worldwide (M) Inc.,

• Arvind Overseas (M) Limited,

• Arvind Spinning Limited,

• Arvind Textile Mills Limited,

• Arvind Spinning Park Private Limited

• Arvind Processing Park Private Limited

• Arvind Hebbal Homes Private Limited

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31, 2013 -2016E FY13A FY14A FY15E FY16E

I. EQUITY AND LIABILITIES:

A. Shareholders’ Funds:

a) Share Capital 2580.40 2581.70 2581.70 2581.70

b) Reserves and Surplus 20414.70 23779.80 25595.10 28410.57

Sub-Total Net worth 22995.10 26361.50 28176.80 30992.27

B. Non-Current Liabilities:

a) Long-term borrowings 9471.00 11544.60 14015.14 16187.49

b) Deferred Tax Liabilities [Net] 128.20 600.20 894.30 1055.27

c) Long Term Provisions 119.80 185.90 245.39 314.10

Sub-Total Long term liabilities 9719.00 12330.70 15154.83 17556.86

C. Current Liabilities:

d) Short-term borrowings 10155.40 10947.20 12151.39 13184.26

e) Trade Payables 6644.80 7151.90 7681.14 8065.20

f) Other Current Liabilities 2453.30 2783.70 3128.88 3441.77

g) Short Term Provisions 869.60 760.10 714.49 678.77

Sub-Total Current Liabilities 20123.10 21642.90 23675.91 25369.99

TOTAL EQUITY AND LIABILITIES (A + B + C) 52837.20 60335.10 67007.54 73919.12

II. ASSETS:

D. Non-Current Assets:

Fixed Assets

i. Tangible Assets 23340.10 24906.20 26301.14 27641.63

ii. Intangible Assets 56.50 55.80 58.59 60.93

iii. Capital work-in-progress 2003.20 723.20 303.74 136.68

a) Total Fixed Assets 25399.80 25685.20 26663.47 27839.25

b) Other non-current assets 5.40 0.10 0.13 0.17

c) Non Current Investments 4928.60 7003.30 8385.88 9643.76

d) Long Term Loans and Advances 2359.30 3506.30 4628.32 5924.24

Sub-Total Non Current Assets 32693.10 36194.90 39677.80 43407.42

E. Current Assets:

a) Inventories 8779.60 9426.10 9991.67 10491.25

b) Trade Receivables 4424.20 5189.30 5967.70 6803.17

c) Cash and Bank Balances 1506.00 1238.20 1349.64 1457.62

d) Short Term Loans and Advances 2502.40 5030.40 6438.91 7855.47

e) Other Current Assets 2931.90 3256.20 3581.82 3904.18

Sub-Total Current Assets 20144.10 24140.20 27329.74 30511.69

TOTAL ASSETS (D + E) 52837.20 60335.10 67007.54 73919.12

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 37802.90 47754.80 56589.44 65360.80

Other Income 934.60 844.40 1038.61 1194.40

Total Income 38737.50 48599.20 57628.05 66555.20

Expenditure -31936.00 -39809.80 -47421.95 -54916.14

Operating Profit 6801.50 8789.40 10206.10 11639.06

Interest -2684.40 -2964.40 -3409.06 -3749.97

Gross profit 4117.10 5825.00 6797.04 7889.09

Depreciation -1504.90 -1575.10 -1631.80 -1680.76

Exceptional items 0.00 -164.00 0.00 0.00

Profit Before Tax 2612.20 4085.90 5165.24 6208.34

Tax 0.00 -472.00 -604.33 -738.79

Net Profit 2612.20 3613.90 4560.90 5469.54

Equity capital 2580.40 2581.70 2581.70 2581.70

Reserves 20414.70 21034.20 25595.10 28410.57

Face value 10.00 10.00 10.00 10.00

EPS 10.12 14.00 17.67 21.19

Quarterly Profit & Loss Statement for the period of 31st DEC 2013 to 30th SEP, 2014E

Value(Rs.in.mn) 31-Dec-13 31-Mar-14 30-Jun-14 30- Sep-14E

Description 3m 3m 3m 3m

Net sales 12080.00 12839.60 12775.30 13733.45

Other income 146.10 212.80 366.40 311.44

Total Income 12226.10 13052.40 13141.70 14044.89

Expenditure -10022.60 -10833.10 -10764.60 -11398.76

Operating profit 2203.50 2219.30 2377.10 2646.13

Interest -705.60 -786.00 -790.80 -838.25

Gross profit 1497.90 1433.30 1586.30 1807.88

Depreciation -402.90 -393.20 -301.30 -316.37

Exceptional Items -6.30 -0.10 -1.70 -2.52

Profit Before Tax 1088.70 1040.00 1283.30 1489.00

Tax -150.00 -91.10 -150.00 -169.75

Net Profit 938.70 948.90 1133.30 1319.25

Equity capital 2580.40 2581.70 2582.10 2582.10

Face value 10.00 10.00 10.00 10.00

EPS 3.64 3.68 4.39 5.11

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 10.12 14.00 17.67 21.19

EBITDA Margin (%) 17.99 18.41 18.04 17.81

PBT Margin (%) 6.91 8.56 9.13 9.50

PAT Margin (%) 6.91 7.57 8.06% 8.37

P/E Ratio (x) 23.07 16.68 13.22 11.02

ROE (%) 11.36 15.30 16.19 17.65

ROCE (%) 19.49 22.48 21.78 22.07

Debt Equity Ratio 0.85 0.95 0.93 0.95

EV/EBITDA (x) 8.86 6.86 5.91 5.18

Book Value (Rs.) 89.11 91.47 109.14 120.05

P/BV 2.62 2.55 2.14 1.95

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 233.55, the stock P/E ratio is at 13.22 x FY15E and 11.02 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.17.67 and

Rs.21.19 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 28% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 5.91 x for FY15E and 5.18 x for FY16E.

� Price to Book Value of the stock is expected to be at 2.14 x and 1.95 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.271.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The Indian Textile Industry counts among the leading textile industries in the world. Apart from providing the

basic necessities of life, its role in the country’s economic growth is significant. The Indian textiles industry

accounts for about 24 per cent of the world’s spindle capacity and 8 per cent of global rotor capacity. The

potential size of the Indian textiles and apparel industry is expected to reach US$ 223 billion by 2021, according

to a report by Technopak Advisors.

The textiles industry has made a major contribution to the national economy in terms of direct and indirect

employment generation and net foreign exchange earnings. The sector contributes about 14 per cent to

industrial production, 4 per cent to the gross domestic product (GDP), and 27 per cent to the country's foreign

exchange inflows. It provides direct employment to over 45 million people. The textiles sector is the second

largest provider of employment after agriculture. Thus, the growth and all round development of this industry

has a direct bearing on the improvement of the India’s economy.

Market Size

• The industry is expected to touch US$ 220 billion by 2020, according to estimates by Alok Industries Ltd.

Also, India has the capacity to improve its textile and apparel share in the world trade from the current 4.5

per cent to 8 per cent and reach US$ 80 billion by 2020.

• Garment exports from India grew by 19 per in the period July 2012–July 2013 to touch US$ 1.27 billion, on

the back of increasing demand in developed economies such as the US, according to the Apparel Export

Promotion Council (AEPC).

• India has the advantage of abundant resources of raw materials. It is one of the largest producers of cotton

yarn in the world and there are good resources of fibres such as polyester, silk, viscose, etc. The country is

also home to a wide range of cotton fibre and has a rapidly developing synthetic fibre industry.

• The most significant change in the Indian textile industry has been the advent of man-made fibres (MMF).

India’s innovative range of MMF textiles finds presence in almost all the countries across the globe. MMF

production recorded an increase of 7 per cent in the month of August 2013 and grew by 4 per cent during

April–August 2013.

• Cotton yarn production increased by about 10 per cent during August 2013 and by about 11 per cent during

April–August 2013. Blended and 100 per cent non-cotton yarn production increased by 5 per cent during

August 2013 and by 8 per cent during April–August 2013.

• Cloth production by mill sector registered a growth of 4 per cent during August 2013 and 10 per cent during

April–August 2013. Cloth production by handloom and hosiery increased by 3 per cent and 12 per cent

during April–August 2013. The total cloth production grew by 6 per cent during August 2013 and by 3 per

cent during April–August 2013.

Investments

Investment is the key for Indian textiles to make rapid strides. The industry (including dyed and printed)

attracted FDI worth Rs 58837.10 mn (US$ 928.63 million) in the period April 2000–August 2013.

Some of the major investments in the Indian Textile Industry are as follows:

� Trident Ltd plans to invest Rs 16670.00 mn (US$ 263.24 million) to install 176,000 spindles and 500

looms to manufacture around 40,000 TPA of additional cotton yarn of higher count

� Exhilway, a US-based private equity firm, will fund a Kolkata-headquartered garments retail start-up firm

Sconto Retail Pvt Ltd. The initial investment will only be in equity of around Rs 60.00 mn (US$

947,490.36), with the graded funding, both in equity and debt, likely to go up to Rs 240.00 mn (US$ 3.79

million) by the first 18 months

� The DyStar Group and Arvind Ltd have signed an agreement for joint development in the field of denim.

Dedicated teams from DyStar and Arvind's Denim Division will work closely to implement new

technologies in indigo dyeing and finishing as well as develop new products, processes and effects for

denim fabrics and garments

� Gitanjali Group has entered into the apparels segment as part of its brand extension of its popular brands

and plans to set up 300 selling points across the country in 2013.

� Swedish retailer Rusta plans to import Indian textiles and handicraft worth Rs 2000.00 mn (US$ 31.58

million) annually over the next 3-4 years

Government Initiatives

India is expected to become a significant player in the global textile economy, both as a consumer and as a

producer of textiles. The efforts of the government have resulted in the industry growth rate of 8–9 per cent

during the past 2–3 years.

The Ministry of Textiles is responsible for policy formulation, planning, development, export promotion and

trade regulation in respect of the textile sector. This includes all natural and man-made cellulosic fibres that go

into the making of textiles, clothing and handicrafts.

Some of initiatives taken by the government to further promote the industry are as under:

� The Government of India plans to set up a Rs 1000.00 mn (US$ 15.79 million) venture capital fund to

provide equity support to start-ups in the textile sector, in order to encourage innovative ideas

� The Government has allowed 100 per cent FDI in the sector through the automatic route. In the 12thFive

Year Plan (2012–17), the government plans to spend US$ 9.1 billion on textiles as against US$ 4 billion in

the 11th Plan

� In order to make textile processing units more environment-friendly and globally competitive, the

Cabinet Committee on Economic Affairs (CCEA) has approved an Integrated Processing Development

Scheme (IPDS) with an investment of Rs 5000.00 mn (US$ 78.94 million)

� Under the Technology Upgradation Fund Scheme (TUFS), the cotton textile industry of India will receive

margin money from the Ministry of Finance. The industry is also expected to attract Rs 40000.00 mn (US$

631.65 million) in the form of investments over the next six months

� The Government of India has allotted Rs 7000.00 million (US$ 110.53 million) in the next Five Year Plan

for the development of technical textiles. In 2012–13, the technical textiles industry reached Rs 7.48

trillion (US$ 118.19 billion) at an annual growth rate of 3.5 per cent

� In the new textile policy, the Government of Gujarat has announced 5 per cent interest subsidy on bank

loans for five years, for those who establish new plants for value addition chain like ginning, processing,

weaving, knitting, and machine carpeting

Road Ahead:

The future for the Indian textile industry looks promising, buoyed by both strong domestic consumption as well

as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a

rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and

Next into the Indian market. The organised apparel segment is expected to grow at a compound annual growth

rate (CAGR) of more than 13 per cent over a 10-year period.

For the textiles industry, the proposed hike in FDI limit in multi-brand retail will bring in more players, thereby

providing more options to consumers. It will also bring in greater investments along the entire value chain –

from agricultural production to final manufactured goods

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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