MOSL: ARVIND (Downgrading to Neutral)-Raw material and currency headwinds ahead
​Arvind: Raw material and currency headwinds ahead; downgrading to Neutral
(ARVND IN, Mkt Cap USD1.6b, CMP INR408, TP INR382, 6% Downside, Downgrade to Neutral)
- In-line revenue; EBITDA and PAT below estimates: Arvind's (ARVND) revenue grew 10.4% YoY to INR24.6b (est. of INR24.9b), led by strong growth in Brands & Retail (B&R) to INR8.3b (+22% YoY, driven by LTL growth of 5.4% in Power brands and 30.2% in Unlimited) and in Textiles to INR14.6b (+8% YoY). EBITDA declined to INR2.3b (est. of INR3b) from INR2.6b in the year-ago period. EBITDA margin shrunk to 9.4% (est. of 12%) from 11.5% in 4QFY16, mainly due to a) an increase in cotton prices and b) investments in Arvind Internet. Adj. PAT rose to INR1,048m (est. of INR1,287m) from INR972m in the corresponding period last year. For full year FY17, revenue grew by 15.3% to INR92.3b with EBITDA margins declining by 170bp to 10.2%. Adj. PAT grew by 3.6% to INR3.3b.
- Higher cotton price and investment in Arvind Internet impact EBITDA: EBITDA margin shrunk 210bp due to a 400bp contraction in gross margin, partly offset by lower other expenses. EBITDA margin in Textile contracted 260bp to 12.7%, mainly due to higher cotton prices (+17%, with average prices of denim lower by 3% and woven by 2%). According to management, it is holding two months of cotton inventory and would be slow on buying cotton. EBITDA margin in B&R improved 350bp to 7.1%, mainly on LTL growth of 5% and an improvement in emerging brand and specialty retail. ARVND is also on course to start domestic production to counter the CVD impact. Moreover, write-offs of investments in Arvind Internet of INR207m had an impact on margins, which are expected to taper off from 1QFY18.
Arvind Mills is primarily engaged in manufacturing and marketing of textiles, mainly denim, khakis, shirting, knits, shirts, jeans, trousers and knitting garments, in India.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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