We maintain ?buy? on Arvind with a target price of R215. Arvind Brands and Retail ? a 100% subsidiary of Arvind ? has entered into an agreement to purchase 49% stake in Calvin Klein India from JV partners (Murjani Group and Matrix Partners) for a consideration of R90 crore.
While Arvind will own 49%, the balance 51% will continue to be owned by Calvin Klein?s global parent Phillips Van Heusen Corp (PVH). The deal values CK India at an enterprise value of R180 crore, at 8-10x FY15 EV/Ebitda multiple.
While we upgrade our Ebitda assumptions marginally, we believe that the acquisition of CK provides a huge scalability potential with improvement in brands and retail margins going forward. Given decade-high return ratios and increased contribution from brands and retail segment, we value Arvind at 6x FY16e EV/Ebitda.
Calvin Klein brand is one of the top three most coveted brands globally. CK India revenues stand at ~R125 crore and have grown at a 30% CAGR over the last 3 years with an ebitda margin of ~8%-9%.
CK runs 41 stores in India with an average store size of 1,000 sqft each, all of which are franchise-based, apart from having 34 shops in shops. Post CK acquisition, Arvind will command a 90% market share in one of the fastest growing Bridge To Luxury segments (with a strong portfolio of Tommy Hilfiger, Gant, Nautica and CK). With brands like Calvin Klein, Tommy Hilfiger, US Polo, Ed Hardy and Flying Machine, Arvind has a complete portfolio of denim brands with price points from R750 to R10,000.
Motilal Oswal