Ashish Dhawan Portfolio: Speciality Retail Stock Pick By Nuvama For Next Week

The strong brand portfolio includes U.S. Polo Assn. (USPA), Arrow, Tommy Hilfiger (TH), Calvin Klein (CK), and Flying Machine (FM) from Arvind Fashions (ARVINDFA). It is involved in the design, sourcing, marketing, and sales of an extensive range of branded ready-made apparel, footwear, innerwear, and other accessories for men, women, and children through e-commerce platforms, LFS, MBOs, and EBOs. The brokerage firm Nuvama has issued a buy call on Arvind Fashions, a small-cap company in the speciality retail sector with a market worth of Rs 6,399.50 Cr. The target price of Rs 660 indicates a potential upside of 37% from the current market price of Rs 481.40.

Investment Rationale

"Over the years, ARVINDFA has exited multiple loss-making brands. Brand consolidation resulted in a healthy debt reduction and margin expansion. The focus is on running and expanding its core brands. We expect USPA to reach ~INR2,000cr in revenue in FY24. Its PVH portfolio (TH and CK) posted sales of INR1,000cr in FY23 and should grow at a healthy rate going forward. With a double-digit pre-Ind AS EBITDA margin, these three brands are generating healthy operating cash flows. It aims to scale up its Arrow and FM brands given the huge potential for growth and margin improvement. We expect 12% consolidated revenue CAGR over FY23-26 led by store expansion, premiumisation, and expansion into adjacent categories," said Nuvama Wealth and Investment Limited (NWIL) in a note.

"With the focus shifting to its core brands, margin expanded by ~500bp over last five years, aided by portfolio rationalisation and greater operating efficiencies. The management is eyeing a 100-150bp expansion over the next couple of years, led by an improvement in gross margin and positive operating leverage. Working capital cycle significantly improved to 43 days in FY23 from 72 days in FY20. Inventory turns rose to 4x from the lows of 2x. It aims to improve it to ~4.5-5x. A superior retail channel mix and better collections led to a fall in debtor days to 46 days in FY23 from 74 days earlier. As a result of margin expansion and an improved working capital cycle, it posted a double-digit RoCE in FY23. ARVINDFA aims to achieve more than 20% RoCE in the medium-term driven by further improving margin and the working capital cycle. We expect an EBITDA/PAT CAGR of 22%/91% over FY23-26 driven by margin expansion and lower debt levels," the brokerage note said.

Arvind Fashions Share Price Target

Commenting on the valuation of Arvind Fashions, Nuvama said in a report that "ARVINDFA choose to focus on to portfolio rationalisation and operational efficiencies rather than growth. This led to a better margin and return ratios. We expect its USPA, Arrow, CK, and TH to benefit from the ongoing premiumisation drive in India. The management is focusing on portfolio extension and a foray into adjacent categories which are growing at a healthy rate. These extensions are expected to provide a strong lever for growth and margin expansion. Given the growth opportunities, execution capabilities, quality management, category extensions, and improved operational performance, we initiate coverage with a 'BUY' rating and TP of INR660."

Arvind Fashions Shareholding Pattern

During Q2FY24, the company reported promoters' shareholding of 36.80%, FIIs stake of 16.60%, DIIs stake of 8.00% and public stake of 38.59%. As per the shareholding pattern of Arvind Fashions for the July to September 2023 quarter, ace investor Ashish Dhawan held 65,64,065 shares or a 4.94% stake in the company.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.