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This Small Cap Co. Reported Highest Ever Quarterly Revenue, Buy Stock For Target Price Of Rs 347

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Bonanza, a leading brokerage firm, in its recently published report on Arvind Fashions Limited (AFL), has given a buy rating to the stocks of the company for a target price of Rs 347 crore. Considering the targeted price by the brokerage, the stocks of the company have the potential to gain up to 33% gains in 12 months.

 

Arvind Fashion Limited is a small cap Branded Apparels company. The company reported the highest ever quarterly revenue amid demand pick-up and strategic execution of brand portfolios.

Stock Outlook

Stock Outlook

On BSE, the current market price of the stock after Friday's close is Rs 264.95 apiece. The stock is currently trading Rs 46.55 above the 52 week low of Rs 218.40 apiece, and Rs 336 below the 52 week high of Rs 365. The ROE is negative 35.64%. TTM EPS is also negative at 6.86. PB ratio is 3.41. The market capitalization is Rs 3,492 crore.

Returns on Investment

Returns on Investment

Arvind Fashion Limited was listed on the stock exchange in March 2019. Over the 1 week and 1 month, the stocks of the company gave negative returns of 3.8% and 10.65%, respectively. Whereas, in the past 3 months and 1 year, the stocks surged and gave a positive return of 13.23% and 4.99%, respectively. However, in the past 3 years, the shares gave a negative return of 47.46%.

Q1 FY23 Highlights
 

Q1 FY23 Highlights

Q1 FY23, was amongst the best quarters where AFL reported a revenue jump of 171% YoY to Rs 920 Cr in Q1 FY23 from Rs 340.4 Cr in Q1 FY22.

Continued improvement in Power Brand portfolio posting a growth of 185% YoY to ₹749 Cr from Rs 262 Cr in Q1 FY22.

Emerging brand portfolio touched newer heights with a growth momentum of 199% YoY at Rs 171 Cr from Rs 57 Cr in Q1 FY22.

Sharp execution on the retail channel boosted like-for-like growth to 25% and highest ever full price sell-thru's in the business across all brands.

Omni-enabled stores pushed online sales to ₹100 Cr in Q1 FY23 accounting to 25% of AFL's total revenue.

 Top Line spikes amid robust demand pick-up

Top Line spikes amid robust demand pick-up

AFL has delivered the best ever Q1 Results in the first steady state quarter after 2 years of continuous operation amid lockdowns, posting a Revenue of Rs 920 Cr Q1 FY23, a growth of 188% as compared to Q1 FY22 which stood at ₹319 Cr. The robust jump was possible on the back of sharp execution across the retail channel, record high consumer demand across channels and categories. With the unlocking now at 100%, Q1 FY23 was the best quarter surpassing pre-covid levels by ~40% and witnessing a like-for-like growth of ~25%. Other channels like online and MBO also contributed and grew by 1.9x and 2.5x respectively over pre-covid levels. The sharp rise in EBITDA to Rs 94 Cr in Q1FY23 was supported by the market revival of weddings, business travels, festivals, and celebrations of special occasions.

Power brands on the exponential growth trajectory

Power brands on the exponential growth trajectory

AFL's portfolio which consists of power brands like USPA, Tommy Hilfiger, Flying Machine, and Arrow has reported a growth in revenue of 186% YOY and stood at Rs 749 Cr for Q1 FY23. USPA and Tommy Hilfiger continued to showcase double-digit EBITDA Margins. The whole brand portfolio is expected to reach a double-digit EBITDA margin in the next 12-18 months. Power brands command higher margins due to their brand equity and positioning amongst the young generation. This robust performance is mainly due to the pent-up demand and back to offices trend which recorded the highest ever full-price sell thru across brands with significant improvement over the full operational season of Spring Summer'19. A significant amount of investment was also done in USPA and Tommy Hilfiger for brand marketing campaigns and adjacencies to drive premiumization

Retail and online channels zoomed to newer highs

Retail and online channels zoomed to newer highs

AFL's Retail channel vertical has now become a catalyst that contributes ~50% of AFL's revenue resulting in a Gross Margin improvement of 640 bps to 49.4% in Q1 FY23 from 43% in Q1 FY22. The robust performance is supported on the back of very high-quality focus and systematic execution of the retail stores and perfect announcing and calling off the season-end calendar. The online channel also displayed growth momentum by doubling the penetration vis-à-vis pre-covid levels and now contributing to ~25% of the overall AFL's revenue. The same momentum is expected to continue in the following quarters as the majority of stores are now Omni-enabled and online first mindset of consumers.

Brokerage Recommends Buy for a target price of Rs 347

Brokerage Recommends Buy for a target price of Rs 347

Faster growth in online, retail and MBO channels coupled with Omni-enabled store technology will boost future growth with higher like-for-like sales and higher full price sell-thru's supported on the back of pent up demand and the market revival of weddings, business travels and festive season going forward. "We retain BUY, valuing AFL at 23x EV/EBITDA FY24E to arrive at our Target Price of Rs 347 with a potential upside of 30%," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Bonanza Portfolio. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

Story first published: Friday, August 19, 2022, 16:19 [IST]
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