Maintain buy on Arvind with a target price of R360, implying 10x FY16e EV/ebitda. We expect revenue and PAT to post 15.2% and 13.7% CAGR, respectively, over FY14-17e along with significant improvement in business mix in favor of brands and retail. We cut ebitda estimates by 12% and 15% and EPS estimates by 12% and 19% for FY15e and FY16e respectively to reflect lower growth and margin for textile business.

Arvind’s revenue grew by 14.3% to R1970 crore, while ebitda grew by 4% to R242 crore, with ebitda margins at 12.3%.

Arvind reported a strong growth in the brands and retail business, with revenue posting 28.6% growth, standing at R650 crore, against R5 00 crore in Q2FY14. Growth was driven by 123 store additions y-o-y, (20 new store openings during the quarter) thus taking the total to 761 stores along with 16% growth in space to 0.77 million sqft; sales through third party online websites grew 4x y-o-y, and now contribute 5% to brands sales.

Like-to-like (LTL) growth during the quarter was subdued at 4.3%. In MegaMart (MM), continuing with the restructuring exercise, on a y-o-y basis, management closed down 40 stores (12 during the quarter), taking the store count down to 146. However, new large format store openings ensured that overall retail space under MM on a y-o-y basis grew 13% to 0.81 million sqft.

By Motilal Oswal