We met Jayesh Shah, CFO & Director, Arvind, to gain insights into the company’s plans for its textile division. Key takeaways: (i) Arvind has chalked an Rs 15 bn capex plan (FY14-17 incurred Rs 10 bn) for textiles as incremental cash flows from the segment will be utilised internally; and (ii) growth in the division will be driven by expansion in garments & advanced material (share envisaged at 40% in 3-4 years from current 30%). Sharpened focus on the carved out textile unit could, in our view, propel it amongst the fastest growing textile companies in India. Also, if the brands business’ current margin expansion sustains, it will not have to resort to external financing. Maintain Buy.
Textiles: Garments, advanced material the ‘wheels for future’ — Post the announced demerger, Arvind has drawn up an Rs 15 bn investment plan for the textile division to be implemented over next 3-4 years. While Arvind has significant presence in fabrics, over the years it has moved up the value chain in garments. To drive further growth, it has significantly enhanced garments capacity and now plans to add further 12 million pieces, with incremental capacity coming up in Ethiopia.
Arvind Fashion: Given the growth plans for brand & retail (B&R) business (22-24% CAGR over FY17–22e), financing future cash flow requirements will be key, as the business posted negative cash flow in past 3 years. Outlook and valuations: We value the stock on SoTP basis (textiles: 7.5x FY19E EV/Ebitda, B&R: 20x FY19E EV/Ebitda) giving us target price of Rs 493. Maintain Buy