MOSL: ARVIND (Neutral)-Demerger of brands and retail business to create long-term
​Arvind: Demerger of brands and retail business to create long-term
(ARVNDIN, Mkt Cap USD1.8b, CMP INR414, TP INR425, 3% Upside, Neutral)
- GST transition, coupled with high cotton prices, impacts margins: ARVIND’s revenue grew 12% YoY to INR26.3b (est. of INR26.1b) in 2QFY18. Brands and Retail grew 34% YoY to INR10.3b, while Textiles grew 1% YoY to INR14.4b. EBITDA declined 9% YoY to INR2,123m (est. of INR2,506m), with the margin contracting 190bp to 8.1% (est. of 9.6%) on account of higher raw material costs (+300bp to 48.7% of net sales). Adjusted PAT stood at INR632m (est. of INR835m) v/s INR813m in 2QFY17.
- Branded Apparel and Engineering businesses to demerge: The board has approved the demerger of (i) Branded Apparel from the parent company to Arvind Fashions and (ii) Engineering undertaking to Anup Engineering. Shareholders will be entitled for one equity share of Arvind Fashions for every five shares held of ARVIND, and for one equity share of Anup Engineering for 27 shares held of ARVIND. It is important to note that this is a mirror image being created, as the number of shares for Arvind Fashions stands at 52m v/s listed ARVIND at 258.4m shares. Hence, the ratio stands at one new share of Arvind Fashion for five shares of ARVIND. We believe the demerger is positive for minority shareholders over the medium-to-long term.
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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