CMP 283.45

Target Price 325.00

ISIN: INE034A01011

NOVEMBER 7th 2015

12th h, 2013

ARVIND LIMITED

Result Update (CONSOLIDATED BASIS): Q2 FY16

BUY

Index Details

Stock Data

Sector Textiles

BSE Code 500101

Face Value 10.00

52wk. High / Low (Rs.) 327.50/216.20

Volume (2wk. Avg. Q.) 185000

Market Cap (Rs. in mn.) 73198.13

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

YEARS FY15A FY16E FY17E

Net Sales 78514.00 86679.46 94480.61

EBITDA 11060.50 12132.10 13104.97

Net Profit 3411.00 3618.98 3911.00

EPS 13.21 14.01 15.14

P/E 21.46 20.23 18.72

Shareholding Pattern (%)

(QUARTERLY) As on Sep-15 As on Jun-15

PROMOTER 43.78 43.78

FIIs 15.23 14.69

DIIs 16.13 15.79

OTHERS 24.86 25.74

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.

The company has achieved net sales of Rs. 20964.30

million, rose by 6.71% y-o-y in Q2 FY16 as against

Rs. 19646.30 million in Q2 FY15.

For Q2 FY16, Earnings before Interest, Tax, Dep

stood at Rs. 2933.30 million, rose by 7.69% y-o-y

compared to Rs. 2723.80 million for Q2 FY15.

Net profit stood at Rs. 910.30 million for the 2nd

quarter of the financial year 2016 as against Rs.

932.60 million in the corresponding quarter of the

previous.

Arvind Ltd has entered into the beauty and

cosmetics segment through a Partnership with

world's leading beauty retailer SEPHORA.

The revenue from Brands & Retail business rose by

9% of Rs. 7028.60 million in Q2 FY16 as compared

to Rs. 6442.40 million in Q2 FY15.

In Q2 FY16, Textile segment registered a growth of

5% i.e., Rs. 12958.50 million as compared to Rs.

12315.00 million in Q2 FY15.

For the end of H1 FY16, Net sales grew by 6.32% at

Rs. 39733.60 million compared to Rs. 37371.80

million for the end of H1 FY15.

Net Sales and PAT of the company are expected to

grow at a CAGR of 16% and 12% over 2014 to

2017E 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 283.45 73198.13 13.21 21.46 2.98 25.50

Vardhman Textiles Ltd 724.00 46084.00 62.98 11.50 1.49 100.00

Orbit Exports Ltd 390.00 5576.70 20.26 19.25 5.96 45.00

Raymond Ltd 410.85 25218.30 15.58 26.37 2.16 30.00

QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q2 FY16,

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

decades in this industry. The company reported its financial results for the quarter ended 30th September, 2015.

The company has achieved net sales of Rs. 20964.30 million in Q2 FY16 as against Rs. 19646.30 million in the

corresponding quarter of the previous year. Net profit of the company stood at Rs. 910.30 million for the 2nd

quarter of the financial year 2016 against Rs. 932.60 million in the corresponding quarter of the previous year.

The company has reported an EBITDA of Rs. 2933.30 million, rose by 7.69% y-o-y in Q2 FY16. The company has

reported an EPS of Rs. 3.53 for the current Sept quarter as against an EPS of Rs. 3.61 in the corresponding

quarter of the previous year.

Break up of Expenditure:

Rs. In Million Q2 FY16 Q2 FY15 % Chng

Cost of materials Consumed 5706.10 6236.30 -9%

Purchase of Stock in trade 4447.50 529.90 739%

Project Expenses 83.80 199.80 -58%

Employees Benefit Exp 2306.90 2030.90 14%

Dep & Amortization Exp 613.70 515.80 19%

Power & Fuel 1292.00 1301.30 -1%

Stores Consumption 1222.00 1125.90 9%

Other Expenses 4357.90 3826.60 14%

Rs. In Million Sep-15 Sep-14 % Chg

Net Sales 20964.30 19646.30 6.71

PAT 910.30 932.60 (2.39)

EPS 3.53 3.61 (2.42)

EBITDA 2933.30 2723.80 7.69

Segment Revenue

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. 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 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 (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31, 2014 -2017E FY-14A FY-15A FY-16E FY-17E

I. EQUITY AND LIABILITIES:

A. Shareholders’ Funds:

a) Share Capital 2581.70 2582.40 2582.40 2582.40

b) Reserves and Surplus 23248.10 24656.40 25889.22 26924.79

Sub-Total Net worth 25829.80 27238.80 28471.62 29507.19

B. Minority Interest 242.40 347.60 476.21 571.45

C. Non-Current Liabilities:

a) Long-term borrowings 13454.60 13940.90 14296.39 14582.32

b) Deferred Tax Liabilities 434.90 470.80 519.76 561.34

c) Other Long term Liabilities 252.40 327.80 394.67 457.82

d) Long Term Provisions 230.70 207.60 240.82 269.71

Sub-Total Long term liabilities 14372.60 14947.10 15451.64 15871.20

D. Current Liabilities:

a) Short-term borrowings 14487.70 17005.80 20066.84 22675.53

b) Trade Payables 12494.70 13493.90 14843.29 15837.79

c) Other Current Liabilities 5357.50 5641.10 5810.33 5943.97

d) Short Term Provisions 847.60 1082.20 952.34 876.15

Sub-Total Current Liabilities 33187.50 37223.00 41672.80 45333.44

TOTAL EQUITY AND LIABILITIES (A + B + C+D) 73632.30 79756.50 86072.28 91283.28

II. ASSETS:

E. Non-Current Assets:

Fixed Assets

i. Tangible assets 27708.00 30008.60 32109.20 33714.66

ii. Intangible assets 1218.80 2073.70 2446.97 2752.84

iii. Capital Work in Progress 1316.30 955.70 707.22 565.77

iv. Intangible assets under 30.40 44.40 50.17 55.19

a) Sub Total- Fixed Assets 30273.50 33082.40 35313.56 37088.46

b) Non Current Investments 1280.50 571.30 599.87 617.87

c) Long Term Loans and Advances 5599.60 6104.10 6323.85 6513.56

d) Other Non current Assets 53.80 84.90 118.35 147.94

Sub-Total Non Current Assets 37207.40 39842.70 42355.63 44367.83

F. Current Assets:

a) Current Investment 12.80 14.20 16.05 17.49

b) Inventories 16281.40 18450.30 19021.51 19880.64

c) Trade Receivables 10093.10 11658.10 13103.70 14361.66

d) Cash and Bank Balances 1663.30 833.20 941.52 988.59

e) Short Term Loans and Advances 5025.00 6343.60 7548.88 8273.58

f) Other Current Assets 3349.30 2614.40 3084.99 3393.49

Sub-Total Current Assets 36424.90 39913.80 43716.65 46915.45

TOTAL ASSETS (E+F) 73632.30 79756.50 86072.28 91283.28

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs.in.mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 68621.20 78514.00 86679.46 94480.61

Other Income 694.00 932.00 1071.80 1200.42

Total Income 69315.20 79446.00 87751.26 95681.02

Expenditure -59281.20 -68385.50 -75619.16 -82576.05

Operating Profit 10034.00 11060.50 12132.10 13104.97

Interest -3544.70 -3946.00 -4103.84 -4333.66

Gross profit 6489.30 7114.50 8028.26 8771.32

Depreciation -2252.10 -2123.50 -2463.26 -2709.59

Exceptional items -164.00 -543.30 -603.06 -641.66

Profit Before Tax 4073.20 4447.70 4961.94 5420.07

Tax -547.70 -1071.50 -1364.53 -1533.88

Profit After Tax 3525.50 3376.20 3597.40 3886.19

Minority Interest 13.40 34.80 21.58 24.81

Net Profit 3538.90 3411.00 3618.98 3911.00

Equity capital 2581.70 2582.40 2582.40 2582.40

Reserves 20502.50 21968.60 24648.77 27113.65

Face value 10.00 10.00 10.00 10.00

EPS 13.71 13.21 14.01 15.14

Quarterly Profit & Loss Statement for the period of 31st Mar, 2015 to 31st Dec, 2015E

Value(Rs.in.mn) 31-Mar-15 30-Jun-15 30-Sep-15 31-Dec-15E

Description 3m 3m 3m 3m

Net sales 20405.10 18769.30 20964.30 22117.34

Other income 229.70 248.00 319.70 223.79

Total Income 20634.80 19017.30 21284.00 22341.13

Expenditure -17809.60 -16503.60 -18350.70 -19065.14

Operating profit 2825.20 2513.70 2933.30 3275.98

Interest -955.60 -1025.00 -946.70 -971.31

Gross profit 1869.60 1488.70 1986.60 2304.67

Depreciation -560.00 -627.80 -613.70 -617.38

Exceptional Items -484.40 -28.70 -37.70 -42.22

Profit Before Tax 825.20 832.20 1335.20 1645.06

Tax -355.60 -267.80 -405.60 -526.42

Profit After Tax 469.60 564.40 929.60 1118.64

Minority Interest 12.70 16.00 -19.30 -10.04

Net Profit 482.30 580.40 910.30 1108.61

Equity capital 2582.40 2582.40 2582.40 2582.40

Face value 10.00 10.00 10.00 10.00

EPS 1.87 2.25 3.53 4.29

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 13.71 13.21 14.01 15.14

EBITDA Margin (%) 14.62 14.09 14.00 13.87

PBT Margin (%) 5.94 5.66 5.72 5.74

PAT Margin (%) 5.14 4.30 4.15 4.11

P/E Ratio (x) 20.68 21.46 20.23 18.72

ROE (%) 15.27 13.75 13.21 13.09

ROCE (%) 24.08 23.76 23.70 23.62

Debt Equity Ratio 1.21 1.26 1.26 1.25

EV/EBITDA (x) 9.91 9.34 8.79 8.35

Book Value (Rs.) 89.41 95.07 105.45 114.99

P/BV 3.17 2.98 2.69 2.46

Charts

OUTLOOK AND CONCLUSION

At the current market price of Rs. 283.45, the stock P/E ratio is at 20.23 x FY16E and 18.72 x FY17E

respectively.

Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.14.01 and

Rs.15.14 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 12% over 2014 to 2017E

respectively.

On the basis of EV/EBITDA, the stock trades at 8.79 x for FY16E and 8.35 x for FY17E.

Price to Book Value of the stock is expected to be at 2.69 x and 2.46 x respectively for FY16E and FY17E.

We recommend ‘BUY’ in this particular scrip with a target price of Rs.325.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India’s textiles sector is one of the oldest industries in Indian economy dating back several centuries. Even today,

textiles sector is one of the largest contributors to India’s exports with approximately 11 per cent of total

exports. The textiles industry is also labour intensive and is one of the largest employers. The industry realised

export earnings worth US$ 41.4 billion in 2014-15, a growth of 5.4 per cent, as per The Cotton Textiles Export

Promotion Council (Texprocil). The textile industry has two broad segments. First, the unorganised sector

consists of handloom, handicrafts and sericulture, which are operated on a small scale and through traditional

tools and methods. The second is the organised sector consisting of spinning, apparel and garments segment

which apply modern machinery and techniques such as economies of scale.

The Indian textiles industry is extremely varied, with the hand-spun and handwoven textiles sectors at one end

of the spectrum, while the capital intensive sophisticated mills sector at the other end of the spectrum. The

decentralised power looms/ hosiery and knitting sector form the largest component of the textiles sector. The

close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and

traditions of the country in terms of textiles make the Indian textiles sector unique in comparison to the

industries of other countries. The Indian textile industry has the capacity to produce a wide variety of products

suitable to different market segments, both within India and across the world.

Market Size

The Indian textiles industry, currently estimated at around US$ 108 billion, is expected to reach US$ 223 billion

by 2021. The industry is the second largest employer after agriculture, providing employment to over 45 million

people directly and 60 million people indirectly. The Indian Textile Industry contributes approximately 5 per

cent to India’s gross domestic product (GDP), and 14 per cent to overall Index of Industrial Production (IIP).

The Indian textile industry has the potential to reach US$ 500 billion in size according to a study by Wazir

Advisors and PCI Xylenes & Polyester. The growth implies domestic sales to rise to US$ 315 billion from

currently US$ 68 billion. At the same time, exports are implied to increase to US$ 185 billion from approximately

US$ 41 billion currently.

Investments

The textiles sector has witnessed a spurt in investment during the last five years. The industry (including dyed

and printed) attracted foreign direct investment (FDI) worth US$ 1,522.51 million during April 2000 to

December 2014.

Some of the major investments in the Indian textiles industry are as follows:

Reliance Industries Ltd (RIL) plans to enter into a joint venture (JV) with China-based Shandong Ruyi Science

and Technology Group Co. The JV will leverage RIL's existing textile business and distribution network in

India and Ruyi's state-of-the-art technology and its global reach.

Giving Indian sarees a ‘green’ touch, Dupont has joined hands with RIL and Vipul Sarees for use of its

renewable fibre product Sorona to make an ‘environment-friendly’ version of this ethnic ladieswear.

Snapdeal has partnered with India Post to jointly work on bringing thousands of weavers and artisans from

Varanasi through its website. “This is an endeavour by Snapdeal and India Post to empower local artisans,

small and medium entrepreneurs to sustain their livelihood by providing a platform to popularise their

indigenous products,” reported by CEO and Co-Founder, Snapdeal.

Welspun India Ltd (WIL), part of the Welspun Group has unveiled its new spinning facility at Anjar, Gujarat -

the largest under one roof in India. The expansion project reflects the ethos of the Government of Gujarat’s

recent ‘Farm-Factory-Fabric-Fashion-Foreign’ Textile Policy, which is aimed at strengthening the entire

textile value-chain.

American casual fashion retailer Aéropostale, Inc. has inked a licensing agreement with Arvind Lifestyle

Brands Ltd to open standalone stores in the country. Aéropostale will open 30 stores and 25 shop-in-shop

locations over the next three years.

Government Initiatives

The Indian government has come up with a number of export promotion policies for the textiles sector. It has

also allowed 100 per cent FDI in the Indian textiles sector under the automatic route.

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

The Ministry of Textiles launched Technology Mission on Technical Textiles (TMTT) with two mini-missions

for a period of five years (from 2010-11 to 2011-12 in the 11th five year plan and 2012-13 to 2014-15 in

12th five year plan) with a total fund outlay of Rs 2000.00 mn (US$ 30.1 million). The objective of TMTT is to

promote technical textiles by helping to develop world class testing facilities at eight Centres of Excellence

across India, promoting indigenous development of prototypes, providing support for domestic and export

market development and encouraging contract research.

The Government of India is expected to soon announce a new National Textiles Policy. The new policy aims at

creating 35 million new jobs by way of increased investments by foreign companies, as per Textiles

Secretary.

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.

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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 we do not represent that

it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its 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. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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