arvind ltd. absolute : relative : n/a trade ), tp ( strong...

May 13, 2016 Analyst:Maulik Patel [email protected] (+91-8128694110) of 13

Before reading this report, you must refer to the disclaimer on the last page.

Arvind Ltd. Absolute : TRADE

Relative : N/A

4QFY16 Result: Estimate (), TP (), Rating () Regular Coverage -1% ATR in 17 months

Strong Performance driven by Power Brands, Maintain TRADE Textile

© 2016 Equirus All rights reserved

Rating Information

Price (Rs) 302

Target Price (Rs) 294

Target Date 30th Sep'17

Target Set On 12th May'16

Implied yrs of growth (DCF) 15

Fair Value (DCF) 179

Fair Value (DDM) 52

Ind Benchmark SPBSMIP

Model Portfolio Position -

Stock Information

Market Cap (Rs Mn) 77,873

Free Float (%) 56.22 %

52 Wk H/L (Rs) 365.7/216.2

Avg Daily Volume (1yr) 2,125,516

Avg Daily Value (Rs Mn) 602

Equity Cap (Rs Mn) 2,582

Face Value (Rs) 10

Bloomberg Code ARVND IN

Ownership Recent 3M 12M

Promoters 43.8 % 0.0 % 0.3 %

DII 16.3 % 0.2 % 1.5 %

FII 14.7 % -0.5 % -6.3 %

Public 25.1 % -0.3 % 4.5 %

Price % 1M 3M 12M

Absolute 10.2 % 10.2 % 20.5 %

Vs Industry 6.5 % -6.5 % 11.3 %

KPRMILL -15.6 % 0.0 % -36.7 %

ORBITEXP 17.2 % 29.5 % 10.7 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (16A) 2.3 3.7 4.1 4.3

EPS (17E) 4.0 4.1 4.1 4.3

After three quarters of muted performance, Arvind delivered strong revenue/EBITDA/PAT

growth of 14%/16%/16% yoy driven by strong performance in B&R. FY16 was another year of

consolidation with mid-single digit growth in operating profit as restructuring in MegaMart

and low single digit growth in textile offset strong performance in Power brands. Though

management guidance for FY17 is strong at 15-16% revenue growth with slightly lower

margin we expect RoCE expansion in FY17. However, we need few quarters of sustainable

improvement in B&R margin performance without B/S expansion to upgrade our view and

thus we maintain our TRADE rating and roll over target date to Sep’17 to arrive at revised

SoTP target price of Rs. 294 (based on average of FY17-18 SoTP target) (vs. earlier Mar’17

TP of Rs. 284). Garment shining in muted textile performance: Textile revenue growth was 4% yoy as

strong growth 27% in garment was offset by 10% decline in voiles sales and higher

intersegment sales. Despite INR depreciation, textile EBITDA decline by ~70bps due to

change in product mix towards low margin garment and lower revenue in high margin

denim. FY17 growth is likely to back-ended as garment expansion in Ethiopia will be

commissioned in 2QFY17. Strong growth in power brand led to margin expansion: B&R revenue increased 30% yoy as

44% growth in brands offset by 4% decline in MM revenue. Power brand growth was 31% yoy,

highest in last 9 quarters, driven by category extension and push in wholesale segment as

L2L growth in brand was 2.7% only. This aggressive push has led to Rs. 2.9bn increase in

account receivable at subsidiary level. Margin in Power brands expanded by ~270bps to

14.4% and overall B&R expansion by 370bps to 7.9%. MM restructuring is complete and likely

to see strong high single digit growth on low base and customer acceptance of Unlimited

format. Speciality retail will drive B&R revenue growth in FY17 to 22-25% but management

guidance on margin expansion of 75-100bps is tad lower than our expectations. After 8 quarters, strong double digit PAT growth: EBITDA increased 16% yoy and came 7%

above EE. Interest expense increased by 4% yoy. As per management, debt will largely

remain flat in FY17. Other income was lower by 9% yoy. Tax rate moved to 29%. Recurring

consolidated PAT was Rs. 1.1bn, up 16% yoy and in-line with EE. Stock to remain range bound unless B&R RoCE improve: We have been TRADE since last

few quarters as clear trends of RoCE improvements are missing in current environment, not

only that demand pull is also missing. To upgrade our view, we need few quarters of steady

improvement in margin without B/S expansion or price correction to make it attractive on

valuation.

Change in estimates:

Rs Mn FY17E %

Change FY18E

%

Change

Revenue 94,571 2% 106,316 3%

EBITDA 11,833 -5% 13,021 -7%

EBIT 9,010 -7% 9,982 -10%

Interest

Exp. 3,635 -4% 3,577 -3%

PAT 4,253 -3% 4,973 -8%

Consolidated Financials

Rs. Mn YE Mar FY16A FY17E FY18E FY19E

Sales 84,504 94,571 106,316 117,607

EBITDA 10,651 11,833 13,021 14,459

Depreciation 2,559 2,822 3,039 3,233

Interest Expense 3,811 3,635 3,577 3,459

Other Income 964 700 700 600

Reported PAT 3,627 4,253 4,973 5,857

Recurring PAT 3,707 4,253 4,973 5,857

Total Equity 29,117 32,474 36,400 41,024

Gross Debt 32,090 33,763 34,743 34,743

Cash 687 1,154 805 1,306

Rs. Mn YE Mar FY16A FY17E FY18E FY19E

Earnings 14.0 16.5 19.3 22.7

Book Value 113 126 141 159

Dividends 2.4 3.0 3.5 4.1

FCFF 21.9 9.3 8.5 16.1

P/E (x) 21.5 18.3 15.7 13.3

P/B (x) 2.7 2.4 2.1 1.9

EV/EBITDA (x) 10.4 9.4 8.6 7.7

ROE (%) 13 % 14 % 14 % 15 %

Core ROIC (%) 9 % 10 % 10 % 11 %

EBITDA Margin (%) 13 % 13 % 12 % 12 %

Net Margin (%) 4 % 4 % 5 % 5 %

Arvind Ltd. Absolute – TRADE Relative – N/A -1% ATR in 17 months

May 13, 2016 Maulik Patel [email protected] (+91-8128694110) of 13

Exhibit 1: Denim stabilized but Garment shines, more fabric going into garment

manufacturing led to increase in intersegment sales

Source: Company Exhibit 2: Increase in cotton price led to realization increase

Source: Company, Equirus

Exhibit 3: Denim volume down 4% yoy whereas woven volume grew by 3% yoy; FY17 to see higher woven volume growth

Source: Company Exhibit 4: Margin decline in textile on change in product mix and some upfront cost related to garment facility


4,620 4,730 4,400 5,150 4,970 4,620 4,920 4,760 4,900 4,710 4,370 4,810

4,150 4,350 4,710 4,760 4,680 4,680

5,260 4,820 4,710 4,850 5,510 5,080

360 520 580 610 630 700

710 710 740 710 800 770

1,260 1,900 1,790

1,770 1,470 1,740 1,860

2,050 1,970 2,240 2,010 2,610 860

900 730 770 980 1,000

750 870 930 900 840 780

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Denim Shirting Khakis Knits Garments Voiles

104 109

114 110

116 116

104 95

102 102 102 103

171 180 179 179 177 177

182 180 183 181 187 189

56% 56%

56% 55%

56%

60% 60%

57%

59%

61% 61%

60%

52%

53%

54%

55%

56%

57%

58%

59%

60%

61%

62%

40

60

80

100

120

140

160

180

200

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Cotton Prices Rs/Kg RHS Denim Average Realization RHS (Rs Mtr) Gross Margins LHS

27 25 25

28 28 26 26 26 27 26

23 25 25 25

27 26 27 27

30 28 27

29

32

29

0

5

10

15

20

25

30

35

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Denim Volume Woven Volume

10,7

61

11,7

06

11,8

05

12,3

63

12,3

96

12,3

15

12,9

07

13,0

73

12,5

52

12,9

59

12,9

07

13,6

02

1,9

05

2,2

36

2,1

01

2,1

51

2,1

07

2,1

92

2,3

23

2,2

09

2,1

71

2,2

29

2,3

23

2,2

03

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

Textile Revenue Textile EBITDA EBITDAM (RHS)



Exhibit 5: Sharp expansion in margin on account of strong sales in power brand

Source: Company, Equirus Exhibit 6: Textile will grow on garment in expansion in FY17 but it will be back-ended growth; B&R to grow by 20%+


Exhibit 7: Revenue growth driven by higher volume in textile and expansion in brand biz; 12% CAGR in revenue over FY16-19E

Source: Company, Equirus Exhibit 8:11% CAGR in EBITDA over FY16-19E driven by brand business


3.2 4.7 5.0 5.0 4.6 6.0 6.6 4.6 5.3 7.0 7.4 7.6

2.5%

4.6%

8.2%

4.7%

3.5%

5.4%

7.0%

3.9%

2.6%

6.7%

7.6% 7.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Brand & Retail Sales (Rs Bn) RHS EBITDA Margins LHS

-3%

24% 24%

13%

6%

27%

9%

3% 6% 7% 6%

14%

5%

32% 31%

12%

39%

23%

16%

21% 20% 19%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Textile B&R

24.3 29.3 33.9 36.5 46.5 50.7 52.0 55.2 58.9 62.4 6.5

9.4 12.3 13.8

19.2 23.5 27.3

33.0 39.6

47.1

2.0 2.1

3.0 2.8

2.6 4.0

5.9

7.1

8.7 9.0

0

20

40

60

80

100

120

140

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Textile Brands & Retail Others

3.7 4.7 5.5 6.0

8.1 8.3 8.1 8.5 8.7 9.2 0.3

0.8 0.7

0.7

1.1 1.2 1.8 2.4

3.4 4.2

0.1

-0.2 0.0

0.3

0.4 0.6 0.8 0.9

1.0

1.1

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

FY10 FY11 FY12 FY13E FY14 FY15 FY16 FY17E FY18E FY19E

Textile Brands & Retail Others



Exhibit 9: Steady RoCE Improvement

Source: Company, Equirus Exhibit 10: SoTP Valuations of Arvind’s various businesses; Our TP is average of FY17/18

Rs Mn FY16 FY17E FY18E FY19E EV/EB

ITDA

FY16

EV

FY17E

EV

FY18E

EV

FY19E

EV

EBITDA

Textile 8,084 8,520 8,705 9,156 6.5 52,543 55,383 56,582 59,512

Brands 1,342 1,912 2,624 3,323 18 24,154 34,411 47,229 59,823

Retail 50 217 365 490 10 503 2,173 3,650 4,897

Brand JV 222 277 329 390 18 3,998 4,992 5,917 7,015

Total 9,698 10,927 12,023 13,359 81,198 96,958 113,378 131,248

Real Estate

4,000 4,000 4,000 4,000

Total EV

85,198 100,958 117,378 135,248

Consol Net

Debt 31,404 32,610 33,938 33,437

Market Cap

53,794 68,349 83,440 101,811

SoTP Price

209 265 323 395

CMP

282 282 282 282

% Upside

-26% -6% 15% 40%

Source: Equirus

4%

7%

10%

12% 12%

14% 13% 13%

14% 14% 15%

-7%

4%

9%

13% 12%

15% 15%

13% 14% 14% 15%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Pre-Tax RoCE RoE



Quarterly Results Table (Consolidated)

Rs Mn Q4FY16 Q4FY16E Q3FY16 Q4FY15 % Change

Comments Q4FY16E Q3FY16 Q4FY15

Net Sales 23,196 20,156 21,575 20,405 15% 8% 14%

Raw Material 10,209 9,481 9,563 9,166 8% 7% 11%

Employee Cost 2,496 2,204 2,244 2,027 13% 11% 23%

Power & Fuel 1,182 1,115 1,241 1,097 6% -5% 8%

Stores consumption 1,236 1,186 1,104 1,119 4% 12% 10%

Other Expenditure 5,106 3386 4,619 4,446 51% 11% 15%

Total Expenditures 20,229 17,372 18,770 17,855 16% 8% 13%

EBITDA 2,967 2,784 2,805 2,550 7% 6% 16%

Depreciation 664 648 654 560 3% 2% 19%

EBIT 2,303 2,136 2,151 1,990 8% 7% 16%

Interest 945 874 895 910 8% 6% 4%

Other Income 208 273 188 230 -24% 11% -9%

PBT 1,566 1,535 1,445 1,310 2% 8% 20%

Tax 458 430 386 358 7% 19% 28%

Recurring PAT 1,109 1,105 1,059 953 0% 5% 16%

Extraordinaries 0 0 13 472 Reported PAT 1,108 1,105 1,046 481 0% 6% 130% EPS (Rs) 4.3 4.3 4.1 3.7 0% 5% 16%

EBITDA Margin 12.8% 13.4% 13.0% 12.5% -65 bps -21 bps 29 bps

EBIT Margin 9.9% 10.7% 10.0% 9.8% -78 bps -4 bps 17 bps

PBT Margin 6.8% 7.5% 6.7% 6.4% -76 bps 6 bps 33 bps

PAT Margin 4.8% 5.3% 4.8% 2.4% -48 bps -7 bps 242 bps

Tax Rate 29.2% 30.0% 26.7% 27.3% -77 bps 252 bps 193 bps

Textile Revenue 13602 - 12,907 13,073 - 5% 4%

Textile EBITDAM 16% - 18% 16.9% - -180 bps -70 bps

Brand & Retail Rev 7,628 - 7,370 5,843 - 4% 31%

Brand & Retail EBITDAM 4.3% - 4.4% 1.4% - -11 bps 280 bps



Key Concall Highlights General Business Outlook and future prospects:

The revenues for the quarter stood at Rs. 23.2bn vs. Rs. 20.41bn in 4QFY15. (+14%

growth yoy). EBITDA for the quarter stood at Rs. 2.97bn vs. Rs. 2.6bn in 4QFY15

(+16% growth yoy) and PAT for the quarter came at Rs. 1.1bn vs. 0.97bn in 4QFY15

(+16% growth yoy). The growth in the revenues was mainly attributed to 30% topline

growth in brands and retail business and 27% growth in garments business.

While the company was able to maintain margins in fabrics and garments business in

tough and uncertain business environment, it was able to achieve 130bps

improvement in margins for brand and retail business.

The company was able to achieve 30% revenue growth in brand and retail segment in

4QFY16 while for the full year, revenue growth stood at 16%. EBITDA margins for the

segment came at 7.9% for the quarter vs. 4.1% in 4QFY15. For the full year the

EBITDA margins stood at 6.5% vs. 5.2% in FY15.

In FY16, the company was able to successfully launch 4 speciality retail formats –

GAP, TCP, Sephora and Aeropostale which would be the key focus area for the

company in the future and is expected to contribute significantly to the revenues in

the future.

The company was successfully able to complete its MegaMart restructuring process in

FY16 within which all the loss making stores were closed and new value retail format

stores were launched under the name of “Unlimited”. After the restructuring, the

company currently operates 90 MegaMart stores of which 27 are converted in

Unlimited and the remaining ones have undergone some product mix changes in

which almost 85% of the products would be private brands and rest would be other

brands and thus making them profitable.

The company has reduced its debt levels by Rs. 2.3bn on qoq basis which stood at Rs.

35.39bn at the end of 4QFY16 vs. Rs. 39.96bn at the end of 3QFY16.

The debt levels are expected to rise to the tune of 5-7% including the Non-

convertible debenture issue of Rs. 5bn. The company has given capex guidance of Rs.

5bn for all the business combined for FY17.

The textiles business continues to run at 90-95% utilization levels and is expected to

do so in coming years also.

The company expects robust growth to come from brands and retail business of

above 24% in coming years Brand and Retail EBITDA growth momentum of 75bps to

100bps is expected to continue in coming years.

Digital Foray:

The company today launched its omni channel portal named nnnow.com which would

be a fine integration of online and offline shopping.

The USP of the portal would be the distinctive online experience with authentic

brand shops, curated ensembles and global brands.

The portal would be a unique combination of offline and online retailing by sourcing

the order placed by the customer from the nearby stores and delivering it as fast as

in 4 hours.

The company expects 8-10% revenue contribution of branded sales through omni

portal in near future.

Strategic Focus and Future direction:

The company has maintained 14% overall topline growth during last 5 years with the

share of brand and retail business in the total revenues constantly increasing. The

contribution of B&R business increased to 32% in FY16 vs. 27% in FY12.

The margins on the other hand been maintained on an overall basis with textiles

margins at ~17% and B&R margins at ~6%.

For Brands and Retail business, the company owns industry leading portfolio of

brands with a strategic focus to grow in speciality retail aggressively.

For the fabrics and apparel business, the company differentiates itself with vertical

and asset light models with focus on vertical garmenting and differentiating denim

business.

The Brand and Retail business has successfully contributed in Arvind’s growth story

with revenues from the segment increased by 2.5x and EBITDA growth at 27% in last

5 years.

The company’s future action in Brand and Retail business would be 3 steps priority

model which would initially focus on consolidating the existing business by building

on the power brands and increased focus on speciality retail while enhancing the

returns through operational efficiency. The next priority would be to carefully

manage the continuously monitoring the portfolio evolution and take calculated bets

while maintaining the fiscal discipline. The third priority would be to focus on

powerful omni/digital play by seamless customer experience complementing to

brands and retail business.

The company expects the B&R topline to grow at 25-26% in next two years with

maximum contribution coming from power brands and growth brands. The EBITDA is

expected to grow at 35%-38% with increased contribution coming from growth brand

which recently turned positive.



Company Snapshot

How we differ from Consensus.

- Equirus Consensus % Diff Comment

EPS FY17E 16.5 17.4 -5 % We need few quarters of sustainable

improvement in B&R margin

performance without B/S expansion to

upgrade our view.

FY18E 19.3 22.3 -13 %

Sales FY17E 94,571 94,437 0 %

FY18E 106,316 108,064 -2 %

PAT FY17E 4,253 4,470 -5 %

FY18E 4,973 5,745 -13 %

Our Key Investment arguments:

Increasing competitiveness of Indian textile industry, diversified product mix and

operating scale continue to deliver margin higher than historical average

Building strong portfolio of brands to ride on consumer shift towards premium/luxury

brands. Brand business expected to grow at 20% CAGR over FY16-19E in revenue

against industry slowdown

Land monetization and strong internal accruals to meet capex requirement without

stretching balance sheet

Expect 11%/17% EBITDA/EPS CAGR over FY16-19E but stretched valuation offers

limited risk reward

Key Assumptions:

Rs Mn FY16 FY17E FY18E FY19E

Textile Revenue 52,019 55,184 58,865 62,446

Brand & Retail Revenue 27,297 29,328 35,237 41,980

Textile EBITDA 8,084 8,520 8,705 9,156

B&R EBITDA 1,774 2,129 2,989 3,813

Risk to Our View

Margin pressure due to lower demand, deterioration in operating performance in brands.

Losses in e-commerce

Key Triggers

Strong earnings growth, margin improvement in brand and retail business, land sale and

introduction of new brands

Sensitivity to Key Variables % Change % Impact on EPS

Textile Margin 1 % 11 %

Brand & Retail Revenue Growth 5 % 3 %

Brand & Retail EBITDA Margin 1 % 5 %

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

7.5 % 1.2 14.7 % 2.5 % 45.2 %

- FY17E FY18E FY19-21E FY22-26E FY27-31E

Sales Growth 12 % 12 % 12 % 11 % 10 %

NOPAT Margin 7 % 7 % 7 % 7 % 7 %

IC Turnover 1.41 1.47 1.58 1.78 2.03

RoIC 9.7 % 10.0 % 11.0 % 12.3 % 14.0 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 87 94 120 147 170

Valuation as of Sept'17 92 99 126 155 179

Based on DCF, assuming 15 years of 10% CAGR growth and 14% average ROIC, we derive

current fair value of Rs. 170 and 30th Sept’17 fair value of Rs. 179.

Company Description:

Arvind is one of the largest textile players in the country having more than 220Mn

Mtr/p.a. of installed capacity. It’s also a largest player in denim globally. In textile, it

has significant presence in shirting and khakis apart from denim. It has growing presence

in brand and retail segment and has significant advantage over competitors.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY16A FY17E FY18E FY16A FY17E FY18E FY16A FY17E FY16A FY17E FY18E FY16A FY17E

Arvind Ltd. TRADE 302 77,873 294 30th Sep'17 14.0 16.5 19.3 21.5 18.3 15.7 112.8 2.4 13 % 14 % 14 % 0.8 % 1.0 %

Alok NR 4 5,578 NR NR 0.6 - - 10.7 - - 26.5 - 3 % - - - -

Raymond NR 468 28,702 NR NR 15.0 25.9 34.9 31.2 18.1 13.4 265.8 1.8 6 % 7 % 9 % 0.6 % 0.7 %



Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q16A 2Q16A 3Q16A 4Q16A 1Q17E 2Q17E 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E FY16A FY17E FY18E FY19E

Revenue 18,769 20,964 21,575 23,196 22,981 23,643 23,643 24,305 25,516 26,579 26,579 27,642 84,504 94,571 106,316 117,607 Raw Material 8,129 9,163 9,563 10,209 10,091 10,297 10,297 10,503 11,071 11,532 11,532 11,994 37,064 41,187 46,129 51,665

Employee Cost 2,230 2,307 2,244 2,496 2,494 2,598 2,598 2,702 2,793 2,909 2,909 3,026 9,278 10,391 11,638 13,034

Power & Fuel 1,234 1,292 1,241 1,182 1,204 1,254 1,254 1,304 1,220 1,271 1,271 1,322 4,949 5,016 5,085 5,154

Stores consumption 1,096 1,222 1,104 1,236 1,208 1,258 1,258 1,308 1,304 1,359 1,359 1,413 4,659 5,032 5,434 5,869

Other Expenditure 3,813 4,366 4,619 5,106 5,173 5,278 5,278 5,384 6,002 6,252 6,252 6,502 17,904 21,113 25,009 27,426 EBITDA 2,266 2,614 2,805 2,967 2,812 2,958 2,958 3,104 3,125 3,255 3,255 3,385 10,651 11,833 13,021 14,459 Depreciation 628 614 654 664 649 706 706 762 729 760 760 790 2,559 2,822 3,039 3,233 EBIT 1,638 2,000 2,151 2,303 2,163 2,253 2,253 2,342 2,396 2,495 2,495 2,595 8,092 9,010 9,982 11,226 Interest 1,025 947 895 945 872 909 909 945 858 894 894 930 3,811 3,635 3,577 3,459 Other Income 248 320 188 208 175 175 175 175 175 175 175 175 964 700 700 600 PBT 861 1,373 1,445 1,566 1,466 1,519 1,519 1,572 1,712 1,776 1,776 1,840 5,245 6,075 7,105 8,367 Tax 268 406 386 458 440 456 456 472 514 533 533 552 1,517 1,823 2,131 2,510 PAT bef. MI & Assoc. 593 967 1,059 1,109 1,026 1,063 1,063 1,101 1,199 1,243 1,243 1,288 3,728 4,253 4,973 5,857 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 21 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 593 967 1,059 1,109 1,026 1,063 1,063 1,101 1,199 1,243 1,243 1,288 3,707 4,253 4,973 5,857 Extraordinaries 29 38 13 0 0 0 0 0 0 0 0 0 80 0 0 0 Reported PAT 564 930 1,046 1,108 1,026 1,063 1,063 1,101 1,199 1,243 1,243 1,288 3,627 4,253 4,973 5,857

EPS (Rs) 2.30 3.75 4.10 4.30 3.98 4.12 4.12 4.26 4.64 4.82 4.82 4.99 14.05 16.47 19.26 22.68

Key Drivers

Textile Production (Mn Mtrs/p.a.)

299 315 326 334

Textile Realization (Rs/mtr)

171 175 181 187

Brand & Retail Revenue Growth - - - - - - - - - - - - 23 % 10% 18% 17%

Sequential Growth (%)

Revenue -8 % 12 % 3 % 8 % -1 % 3 % 0 % 3 % 5 % 4 % 0 % 4 % - - - - Raw Material -11 % 13 % 4 % 7 % -1 % 2 % 0 % 2 % 5 % 4 % 0 % 4 % - - - - EBITDA -11 % 15 % 7 % 6 % -5 % 5 % 0 % 5 % 1 % 4 % 0 % 4 % - - - - EBIT -18 % 22 % 8 % 7 % -6 % 4 % 0 % 4 % 2 % 4 % 0 % 4 % - - - - Recurring PAT -18 % 63 % 9 % 5 % -7 % 4 % 0 % 4 % 9 % 4 % 0 % 4 % - - - -

EPS -38 % 63 % 9 % 5 % -7 % 4 % 0 % 4 % 9 % 4 % 0 % 4 % - - - -

Yearly Growth (%)

Revenue 6 % 7 % 4 % 14 % 22 % 13 % 10 % 5 % 11 % 12 % 12 % 14 % 8 % 12 % 12 % 11 % EBITDA 3 % 8 % -3 % 16 % 24 % 13 % 5 % 5 % 11 % 10 % 10 % 9 % 5 % 11 % 10 % 11 % EBIT -4 % 5 % -7 % 16 % 32 % 13 % 5 % 2 % 11 % 11 % 11 % 11 % 1 % 11 % 11 % 12 % Recurring PAT -9 % 48 % 11 % 53 % 73 % 10 % 0 % -1 % 17 % 17 % 17 % 17 % 23 % 15 % 17 % 18 %

EPS -34 % 1 % -4 % 16 % 73 % 10 % 0 % -1 % 17 % 17 % 17 % 17 % 6 % 17 % 17 % 18 %

Margin (%)

EBITDA 12 % 12 % 13 % 13 % 12 % 13 % 13 % 13 % 12 % 12 % 12 % 12 % 13 % 13 % 12 % 12 % EBIT 9 % 10 % 10 % 10 % 9 % 10 % 10 % 10 % 9 % 9 % 9 % 9 % 10 % 10 % 9 % 10 % PBT 5 % 7 % 7 % 7 % 6 % 6 % 6 % 6 % 7 % 7 % 7 % 7 % 6 % 6 % 7 % 7 %

PAT 3 % 5 % 5 % 5 % 4 % 4 % 4 % 5 % 5 % 5 % 5 % 5 % 4 % 4 % 5 % 5 %



Consolidated Financials P&L (Rs Mn) FY16A FY17E FY18E FY19E

Balance Sheet (Rs Mn) FY16A FY17E FY18E FY19E

Cash Flow (Rs Mn) FY16A FY17E FY18E FY19E

Revenue 84,504 94,571 106,316 117,607 Equity Capital 2,582 2,582 2,582 2,582 PBT 5,245 6,075 7,105 8,367

Op. Expenditure 73,853 82,739 93,295 103,148 Reserve 26,535 30,391 34,317 38,941 Depreciation 2,559 2,822 3,039 3,233

EBITDA 10,651 11,833 13,021 14,459 Networth 29,117 32,474 36,400 41,024 Others -80 0 0 0

Depreciation 2,559 2,822 3,039 3,233 Long Term Debt 32,090 33,763 34,743 34,743 Taxes Paid 1,517 1,823 2,131 2,510

EBIT 8,092 9,010 9,982 11,226 Def Tax Liability 1,362 689 709 709 Change in WC 2,407 -2,212 -3,814 -3,355

Interest Expense 3,811 3,635 3,577 3,459 Minority Interest 529 529 529 529 Operating C/F 8,614 4,864 4,198 5,735

Other Income 964 700 700 600 Account Payables 15,748 19,183 21,485 24,063 Capex -5,548 -5,000 -4,500 -4,000

PBT 5,245 6,075 7,105 8,367 Other Curr Liabi 6,873 8,597 9,665 10,692 Change in Invest -119 0 0 0

Tax 1,517 1,823 2,131 2,510 Total Liabilities & Equity 85,719 95,734 104,030 112,258 Others 0 0 0 0

PAT bef. MI & Assoc. 3,728 4,253 4,973 5,857 Net Fixed Assets 36,064 38,242 39,703 40,470 Investing C/F -5,667 -5,000 -4,500 -4,000

Minority Interest 21 0 0 0 Capital WIP 0 0 0 0 Change in Debt -1,876 1,673 980 0

Profit from Assoc. 0 0 0 0 Others 782 782 782 782 Change in Equity -1,748 0 0 0

Recurring PAT 3,707 4,253 4,973 5,857

Inventory 18,319 20,501 23,047 25,495 Others 515 -1,568 -1,027 -1,233

Extraordinaires 80 0 0 0 Account Receivables 14,173 12,955 14,564 16,110 Financing C/F -3,109 104 -47 -1,233

Reported PAT 3,627 4,253 4,973 5,857 Other Current Assets 15,695 22,101 25,130 28,095 Net change in cash -161 -32 -349 501

FDEPS (Rs) 14.0 16.5 19.3 22.7 Cash 687 1,154 805 1,306 RoE (%) 13 % 14 % 14 % 15 %

DPS (Rs) 2.4 3.0 3.5 4.1 Total Assets 85,719 95,734 104,030 112,258

RoIC (%) 10 % 10 % 11 % 11 %

CEPS (Rs) 24.3 27.4 31.0 35.2 Non-cash Working Capital 25,565 27,777 31,591 34,946

Core RoIC (%) 9 % 10 % 10 % 11 %

FCFPS (Rs) 21.9 9.3 8.5 16.1 Cash Conv Cycle 110.4 107.2 108.5 108.5 Div Payout (%) 0 % 21 % 21 % 21 %

BVPS (Rs) 112.8 125.8 141.0 158.9 WC Turnover 3.3 3.4 3.4 3.4 P/E 21.5 18.3 15.7 13.3

EBITDAM (%) 13 % 13 % 12 % 12 % FA Turnover 2.3 2.5 2.7 2.9 P/B 2.7 2.4 2.1 1.9

PATM (%) 4 % 4 % 5 % 5 % Net D/E 1.1 1.0 0.9 0.8 P/FCFF 13.8 32.3 35.4 18.7

Tax Rate (%) 29 % 30 % 30 % 30 % Revenue/Capital Employed 1.4 1.5 1.6 1.7 EV/EBITDA 10.4 9.4 8.6 7.7

Sales Growth (%) 8 % 12 % 12 % 11 %

Capital Employed/Equity 2.3 2.2 2.1 2.0

EV/Sales 1.3 1.2 1.1 1.0

FDEPS Growth (%) 6 % 17 % 17 % 18 %

Dividend Yield (%) 0.8 % 1.0 % 1.1 % 1.4 %

TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE TTM EV/EBITDA vs. 2 yr forward EBITDA growth

5x

10x

15x

20x

25x

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

-

50

100

150

200

250

300

350

400

450

500

550

Sep/11

Dec/11

Mar/

12

Jun/12

Sep/12

Dec/12

Mar/

13

Jun/13

Sep/13

Dec/13

Mar/

14

Jun/14

Sep/14

Dec/14

Mar/

15

Jun/15

Sep/15

Dec/15

Mar/

16

Jun/16

Sep/16

Dec/16

Mar/

17

Jun/17

Sep/17

EPS Growth

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-

100

200

300

400

500

600

700

800

Sep/

11

Dec

/11

Mar

/12

Jun/

12

Sep/

12

Dec

/12

Mar

/13

Jun/

13

Sep/

13

Dec

/13

Mar

/14

Jun/

14

Sep/

14

Dec

/14

Mar

/15

Jun/

15

Sep/

15

Dec

/15

Mar

/16

Jun/

16

Sep/

16

Dec

/16

Mar

/17

Jun/

17

Sep/

17

RoE

1x

2x

3x

5x

4x

-20%

-10%

0%

10%

20%

30%

40%

50%

10,000

40,000

70,000

100,000

130,000

160,000

190,000

Sep/

11

Dec

/11

Mar

/12

Jun/

12

Sep/

12

Dec

/12

Mar

/13

Jun/

13

Sep/

13

Dec

/13

Mar

/14

Jun/

14

Sep/

14

Dec

/14

Mar

/15

Jun/

15

Sep/

15

Dec

/15

Mar

/16

Jun/

16

Sep/

16

Dec

/16

Mar

/17

Jun/

17

Sep/

17

8x

4x

6x

10x

12x

EBITDA Growth



Historical Consolidated Financials P&L (Rs Mn) FY13A FY14A FY15A FY16A

Balance Sheet (Rs Mn) FY13A FY14A FY15A FY16A

Cash Flow (Rs Mn) FY13A FY14A FY15A FY16A

Revenue 52,925 68,621 78,514 84,504 Equity Capital 2,580 2,582 2,582 2,582 PBT 2,483 4,237 4,991 5,245

Op. Expenditure 45,896 59,068 68,386 73,853 Reserve 19,959 23,248 24,655 26,535 Depreciation 2,043 2,252 2,124 2,559

EBITDA 7,029 9,553 10,129 10,651 Networth 22,540 25,830 27,238 29,117 Others 2,693 3,195 2,920 -80

Depreciation 2,043 2,252 2,124 2,559 Long Term Debt 22,857 29,919 33,967 32,090 Taxes Paid 620 1,078 1,308 1,517

EBIT 4,986 7,301 8,005 8,092 Def Tax Liability 293 918 1,006 1,362 Change in WC -1,700 -4,486 -3,142 2,407

Interest Expense 3,308 3,758 3,946 3,811 Minority Interest 108 242 348 529 Operating C/F 4,900 4,121 5,584 8,614

Other Income 806 694 932 964 Account Payables 10,978 12,495 13,494 15,748 Capex -2,690 -2,999 -5,386 -5,548

PBT 2,483 4,237 4,991 5,245 Other Curr Liabi 5,558 4,228 3,704 6,873 Change in Invest -703 -2,365 -1,131 -119

Tax 3 541 1,072 1,517 Total Liabilities & Equity 62,334 73,632 79,757 85,719 Others 137 -376 643 0

PAT bef. MI & Assoc. 2,481 3,696 3,920 3,728 Net Fixed Assets 26,945 28,927 32,082 36,064 Investing C/F -3,256 -5,740 -5,874 -5,667

Minority Interest -3 -13 -35 21 Capital WIP 2,076 1,347 1,000 0 Change in Debt 3,253 5,311 4,050 -1,876

Profit from Assoc. 0 0 0 0 Others 583 1,334 656 782 Change in Equity 0 10 11 -1,748

Recurring PAT 2,484 3,709 3,954 3,707 Inventory 14,129 16,281 18,450 18,319 Others -3,640 -3,849 -4,546 515

Extraordinaires 0 115 543 80 Account Receivables 7,547 10,093 11,658 14,173 Financing C/F -387 1,472 -485 -3,109

Reported PAT 2,484 3,595 3,411 3,627 Other Current Assets 9,089 13,974 15,062 15,695 Net change in cash 1,257 -148 -775 -161

EPS (Rs) 9.6 13.9 13.2 14.0 Cash 1,966 1,676 847 687

RoE (%) 12 % 15 % 15 % 13 %

DPS (Rs) 1.7 2.4 2.6 2.4

Total Assets 62,334 73,632 79,757 85,719

RoIC (%) 13 % 14 % 12 % 10 %

CEPS (Rs) 17.5 23.1 23.5 24.3 Non-cash Working Capital 14,228 23,626 27,972 25,565 Core RoIC (%) 12 % 13 % 11 % 9 %

FCFPS (Rs) 19.2 6.4 10.9 21.9 Cash Conv Cycle 98.1 125.7 130.0 110.4 Div Payout (%) 0 % 0 % 0 % 0 %

BVPS (Rs) 87.4 100.0 105.5 112.8 WC Turnover 3.7 2.9 2.8 3.3

P/E 31.3 21.7 22.8 0.0

EBITDAM (%) 13 % 14 % 13 % 13 % FA Turnover 1.8 2.3 2.4 2.3 P/B 3.5 3.0 2.9 0.0

PATM (%) 5 % 5 % 5 % 4 % Net D/E 0.9 1.1 1.2 1.1 P/FCFF 15.7 46.9 27.7 13.8

Tax Rate (%) 0 % 13 % 21 % 29 % Revenue/Capital Employed 1.4 1.6 1.5 1.4 EV/EBITDA 14.1 11.3 11.2 10.4

Sales growth (%) 7 % 30 % 14 % 8 %

Capital Employed/Equity 2.1 2.0 2.1 2.3

EV/Sales 1.9 1.6 1.4 1.3

FDEPS growth (%) 2 % 45 % -5 % 6 %

Dividend Yield (%) 0.5 % 0.8 % 0.8 % 0.8 %



Equirus Securities

Pankaj Sharma Executive Director [email protected] 91-79-61909540/41

Research Analysts Sector/Industry Email

Equity Sales E-mail

Anirvan Sarkar Banking & Financial Services [email protected] 91-79-61909526 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 VibhorRastogi [email protected] 91-22-43320635

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Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 SwetaSheth [email protected] 91-22-43320634

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Associates

E-mail

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[email protected] 91-79-61909523 SandipAmrutiya [email protected] 91-79-61909503

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Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • SHORT: ATR <= negative 5% over investment horizon • TRADE: Stocks that do not meet the criteria for either LONG or SHORT Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Target Price and Investment Horizon Target Price is a point value for stocks with Absolute rating of LONG or SHORT and a range value for stocks rated TRADE. Investment Horizon is set at a minimum 3 months to maximum 15 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office:

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Tel. No: +91 – (0)22 – 4332 0600

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Corporate Office:

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Analyst Certification

I, Maulik Patel, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also

certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclaimers

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154). There are no disciplinary actions that have been taken by

any regulatory authority. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker. ESPL/its affiliates provide investment banking services including but

not limited to Private Equity, Mergers & Acquisitions, Structured Finance and Institutional Equities.

ESPL/its affiliates might have, managed or co-managed public offering of securities of the subject company or have received a mandate from the subject company or might have received compensation from the

subject company for investment banking or brokerage services in the past twelve months. ESPL & its affiliates, their directors and employees may from time to time have positions or options in the company and

buy or sell the securities of the company (ies) mentioned herein. ESPL or its Analyst did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection

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not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market making activity for the subject company. Research Analyst might have

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Disclosures

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Analyst/ESPL/Associate/Relatives’ financial interest No

Analyst/ESPL/Associate/Relatives’ actual/beneficial ownership of 1% or more No

Analyst/ESPL/Associate/Relatives’ material conflict of interest No

Whether ECPL managed any public offering in past 12 months No

* Associate means individual who assist Analyst

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