Arvind limited - a triple play of RM tailwinds & brand growth

(Varadharajan Ragunathan) #21

Oh yes - missed it - it is apparently Rs. 50 Cr. now and has the potential to be Rs. 200 Cr. or so in the next 3 years - margins and asset turn over are terrific in underwear business as the product has few SKUs and does not change.

Plus, it can be sold through all other brand outlets as an add on and solidly improves margins.


@varadharajanr How about valuations? It has had a sharp run up. Has it run ahead of fundamentals already.

(seshukumar) #23

Dear Varadharajan,

Can you throw some light on what is the nature of agreement with different brands - no. Of years for which the license is given by brand, what is the license fee, does the license fee change as the sales goes up , is it an exclusive agreement ?

(sachit) #24

Hello everyone,
I was reading the annual report of the company and also read the annual report of the material subsidiary Arvind Lifestyle Brands Ltd. Something quite daunting that stood out was that Arvind Lifestyle (the branded garment subsidiary) has almost 600 crores worth of receivables (all from non-related parties so no inter-company transaction). This was on a turnover of 2100 crores. I would imagine that since their business is B2C in this company, receivables should be quite low.

Would really appreciate it if someone could help me understand this.
I am attaching the link to the subsidiary’s 2015 annual report here:

(Varadharajan Ragunathan) #25


It’s because they have launched a few brands recently - zara, children’s place and these warrant high inventory and receivables (from the franchisee). I gather this by leafing through the conference calls.

That said, I think it’s a big risk still and that will be a drag on any potential re-rating - all the good ones, like aditya birla nuvo, kewal kiran has a cash and carray model that results in high RoEs consistently.

(sachit) #26

@varadharajanr thanks for replying so promptly.

So if I understand this correctly, this is like consignment accounting where they give inventory to their consignors (sub-franchisees) and recognise them as receivables in lieu of goods sold (with a mark up of say 50%)? Please correct me if I am mistaken. Additionally if I am correct, could you shed some light on the generic arrangement that they have with their consignors (I understand they probably vary brand to brand) on whether the goods sold can be returned and if so under what terms and conditions - as this might impact returns over the long term in case of poor seasons.

Thanks again for the prompt reply

(ASPN) #27

Hi, I wish to revive the thread. @varadharajanr, you have initiated the thread with a very detailed, balanced and informative write up. Great efforts ! Are you still tracking the company? Pls do let me know.


  1. A quick comparison of some of the integrated branded apparel players shows that Arvind is a bit undervalued.
  2. While Kewal Kiran has very good return ratios, the brands are limited and subsequently, upside will also be limited
  3. ABFRL is also a brand powerhouse, but I am doubtful about the huge debt of 1700 odd cr.
  4. Imho, Arvind - with all its well known brands - is best placed to take advantage of any upswing in the economy - a true urban consumption story.


  1. Arvind makes entry into beauty and cosmetics segment in partnership with world’s leading beauty retailer 'Sephora’
  2. Arvind forms JV with Sachin Tendulkar to launch premium menswear with brandname 'True Blue’

(Varadharajan Ragunathan) #28

I track and hold arvind from 220 levels. Honestly, its been a mixed bag as execution has bee sluggish and they keep introducing new brands/new forays.Said all of this, one mental model I use is re-born again for the better type of entrepreneurs and sanjay bhai lalbhai fits in this mould

  • near death experience - check
  • debt issues earlier - check
  • learnt lessons from earlier fiasco - check
  • professional inductees on board - chekc (renuka ramnath of multiples)
  • strong second line org (check)
  • Strength in drawing out foreign brands to india as a preferred partner - check
  • vertically integrated - check
  • opneess to unlock value - check (arvind infra demerger)

What’s are issues

  • lack of focus - check
  • way too much legacy costs - check
  • large debt - check
  • high receivables on branded biz - check
  • drag of a biz on mega mart - check
  • lower ROE, lower asset turns than competitors - check (I compare it with Kewal kiran and for that matter even indian terrain which are are far more focussed on asset turns and inventory costs)

will arvind deliver on execution ? I wish I knew. However, I am fairly confident of the mgmt doing prudent things. I wish they coould narrow down their focus and execute fewer things better. The big impetus will come in FY 18 when they de- merge brands - when that happens ala aditya birla nuvo - I expect a 30-50% upside.

So it could be a cake (textile biz) + ice cream (brands) + cherrry ( demerger) but will the baker deliver this time after one false start. Let’s see

(Varadharajan Ragunathan) #29

q4 results were decent. With mega mart being rationalized, loss making brands being shut and no more big capex, I expect a 150 - 200 bps expansion in margins and a 20-25 % EPS growth.

the demerger will happen by FY 18 end that can be a sweetener - one worry is receivables on the brands side which is higher than competition

Let’s see how management executes on this from hereon.

(kaustubhkale) #30

Kulin Lalbhai sounded confident and serious going ahead to execute better and have clearer focus. He articulated the same well during the 4QFY16 call, however as always it depends on how it is executed over the next few years. Ambitious plans for brands and retail with focus on consolidation and ramping up existing ones. Check our note on Arvind 4QFY16.

(Varadharajan Ragunathan) #31

thanks - what’s ur view on the 40 % jump in receivables on the consol bal sheet. that’ my biggest worry - given multiple brands, I hope they are not going overboard on

I would want them to grow at 20 % on a reduced BS ideally to improve cash flows and hence ROEs

(kaustubhkale) #32

Arvind traditionally has had such kind of working capital issues in their brands business, as compared to more leaner ones like ABFRL and others, as you have also rightly pointed out above.
In this particular case of 4QFY16, I hear due to the impending excise on branded apparel from FY17, the sales have been booked, inventory transferred and consideration yet to be received. Hence the receivables are higher I believe.

Disc: Not invested. Opinions are personal.

(khashyap) #33

Can someone throw more light on their entry into e-commerce? The report says the management plans USD 10mn on the portal. Any views on that?
The likes of Myntra and Jabong are still finding it difficult to turn profitable even after moving away from cut-throat discount wars.

(kaustubhkale) #34

Yes. But that will be more from an OMNI channel perspective. And management has guided it will not be a regular ecommerce thing, more to do with OMNI-commerce as they call it. This shall facilitate saving lost sales and add about ~10% to their revenues of B&R as they call it. But early days to comment, execution is the key. I don’t think they will get into aggressive discounting.

(niranjant) #35


Today’s purchase by Multiples has proved the basis of this analysis.

Arvind Lifestyle alone is worth the current total market value of the Arvind!. Now, when a holding company is valued at full with a subsidiaries valuation, We get a bunch of free $$ as margin of safety!.

Disclosure: Long term!

(atulgupta80) #36

Why Renuka Ramnath was not confirming that price of $112 million paid for 10% stake. See Interview

Where as Arvind has clearly mentioned it in press release and investor presentation. See

@varadharajan expert comment please.

(Anandh) #37

The company is hiring for 'Senior/Chief Manager-Innovation(3-5yrs).
Posting the JD in italics below.Relevant to investors, I believe that Arvind Mills looking for this role itself indicates their wish to innovate smartly
1. Identifying frontier of innovation in relevant/selected domains
2. Mapping academia/ research labs/ start-ups etc. pushing the boundaries in spaces of interest
3. Maintaining ongoing contact/ staying abreast on above
4. Understanding application and commercial potential along Arvind’s strategic agenda
5. Identifying new compelling opportunities based on emerging technologies/ innovation
6. Identifying threats to existing business from potential disruption
_7. Managing innovation pipeline - deciding on additional _
_investments to be made on pursuit /development of candidate ideas/ _
_8. Guiding specific /select projects that are at the leading edge of tech/innovation _

Background/ Skills - nothing hard and fast, but an engineering background will be sort of necessary. Advanced materials science would be a plus, though any discipline would do. MBA not necessary at all. The candidate can come from top-tier consulting (at least 3-5 years with BCG/McK) or top tier corporates with reputation for innovation (esp relevant parts of GE/3M/Du Pont - in which case there should be clearly an established track record of driving some meaningful projects).

(nikhilbora) #38

Any updates on Arvind ltd. I am holding this stock since 300 level. Please help me with any info. Kindly share outlook

(Chandra) #39

Arvind to demerge, list branded apparel, engineering businesses

(Priyank Chheda) #40

So now bcz the Demerger has been announced lot of special situations play would come for scouting the opportunities 7-8months once Demeger is though…

I will share some of my findings -

  1. Textile Biz - (70% of revenues today, will come down to 60% in years)
    Garment (20% of textile) is expected to go up bcz this is low margin biz.
    Denims (32%) and woven (40%) of biz.
    This segment is prune to RM fluctuations and growing at 6-7%.
    Management has guided capex of 1500 Cr (it had to otherwise funds would come out disown this slow growing biz) and guided for coming back to 10% growth (but all shall come by 2022)
    This segment does Sales of 5700 Cr and EBIT of ~900 Cr removing the cost debt 1900Cr and Tax, PAT comes to 450Cr.
    I ascribe 10x PE multiple (All textile biz should trade not more than this)
    Total Value of Textile = 4500 Cr

  2. Brand And Fashion (owns the famous brands - all aware of this) and all wish to bet on it…
    This segment is growing at +25%. Management has guided for growth of 20% Topline and EBITDA run rate at 30-35%.
    Lets jump to numbers fast
    This segment-
    EBITDA of 222 Cr expected by FY18
    Giving aspirational 20x EV/EBITDA multiple
    (Aditya Birla Fashion trades at 30x EV/E given slight higher growth)
    Total EV = ~4500Cr (case I)
    And at 30x EV/EBITDA (Bull market multiple) = ~6500Cr (case II)
    Less Debt of ~ 600Cr = 5900 Cr equity value

Other considerations -
It has 3 brands which are loss making and looking to exit one next year
Multiple fund has 10% valuing this segment @ 8000Cr

Finally - SOTP
Total textile (4500Cr) + Brands (5900Cr) = 10400 Cr

Leaves very little room for upside AR current Mcap of ~ 11800Cr.

Other opinions invited…