MOSL: ARVIND (Neutral) - Beat on all fronts - Brands to drive margin expansion
ARVIND: Beat on all fronts; Brands to drive margin expansion
(ARVND IN, Mkt Cap USD1.7b, CMP INR438, TP INR460, 5% Upside, Neutral)
- Revenue, EBIDTA and PAT exceed estimate: Revenue rose 21.3% YoY to INR29.9b (est. of INR28.2b) in 4QFY18. Brands & Retail business grew by 28% YoY to INR10.7b, while Textiles business grew by 9% YoY to INR16b. EBITDA rose 26.4% YoY to INR2.9b (est. of INR2.4b), driven by increased profitability in Brands. EBITDA margin expanded 40bp YoY to 9.8% (est. of 8.8%). Adj. PAT increased 10% YoY to INR1.1b (est. of INR0.8b) in the quarter. For full-year FY18, revenue grew 17% YoY to INR108b (est. of INR106b), EBIDTA margin shrunk 130bp to 8.9% (est. of 8.6%), EBIDTA stood at INR9.6b, and adj. PAT came in at INR3.3b (est. of INR2.9b).
- Brands & Retail to drive margin expansion; garments to be key revenue driver: Brands & Retail – a key focus segment wherein the company has 16 brands – grew 28% in 4QFY18. After expanding by 260bp to 58.3% in FY18, EBIDTA margin for this segment is expected to expand by a further ~100bp in FY19. The company plans to increase the marketing spend for Brands & Retail from 4% of sales to 4.5% in FY19 to drive growth in the segment. Textile margins, on the other hand, are likely to remain flat due to a mix change in favor of low-margin garments segment. We, however, note that the mix change bodes well for ARVND, with garment volumes expected to increase robustly by 35% in FY19. In the past, garments grew from 27mm in FY17 to 31mm in FY18, up 14% YoY.
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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