Arvind Limited IC 070314

Just Dial Limited 7 March 2014
JM Financial Institutional Securities Limited

Brand powerhouse
Quality play on the textiles and branded retail segment: With improving
economic growth in the developed economies, increasing currency
competitiveness and favorable policy support, the textile industry in India is
poised to report healthy growth in the time to come. Arvind Ltd (Arvind), with
its leadership position in the textile industry, should benefit from the above
growth trends. Also, with rising income levels, favorable demographics, and
the organized retail channel gaining market share, we expect the branded
apparel segment to witness robust growth in the time to come. With a solid
pedigree, strong brand portfolio, extensive distribution network and
management focus on growth and expansion, Arvind is well poised to
participate in the growth opportunity in this segment.
Solid brands portfolio, extensive retail reach to drive strong growth:
Arvinds track record of scaling up licensed brands like Tommy Hilfiger and
Arrow in India should allow the company to attract newer licensed brands.
The companys solid distribution network of over 1,500 Multi-Brand Outlets
and c.894 retail stores will help it rapidly scale up new brands and register
2013-16E CAGR of 31% in the segments revenue.
Textiles segment to support growth: With rising competitiveness, favorable
exchange rate and Arvinds dominant global position (ranked amongst the
Top 3 fully integrated Denim manufacturers globally), we expect the Textile
segment to register c.16% CAGR over FY13-16E. The growth mix is likely to
shift in favor of the garments and wovens business as the mature denims
business grows at a relatively slower rate.
Improved financial performance leads to return up-tick: We project an
improvement of over 481bps in ROE to 16.4% by FY16. This will be driven by
FY13-16E revenue CAGR of 21% and 132bps EBITDA margin expansion over
the same time frame.
Initiate with BUY and Mar15 TP of `200: The stock is currently trading at
6.5x FY15E/5.6x FY16E on a EV/EBITDA basis. We expect revenues and
earnings to witness CAGR of 21% and 27% respectively over FY13-16E. We
initiate coverage with a BUY rating and Mar15 target price of `200 based on
6.5x our FY16 EBITDA estimate, implying an upside of c.27%. 1.

Arvind Limited I ARVND IN

7 March 2014

India | Mid-caps | Initiating Coverage

Price: `157
BUY
Target: `200 (Mar15)

Jaisinh Suchak
jaisinh.suchak@jmfl.com
Tel: (91 22) 66303066
Saurabh Lohariwala
saurabh.lohariwala@jmfl.com
Tel: (91 22) 66303099
Rajgopal Narasimhan
rajgopal.narasimhan@jmfl.com
Tel: (91 22) 66303543

Key Data
Market cap (bn) ` 40.6 / US$ 0.7
Shares in issue (mn) 258.0
Diluted share (mn) 258.0
3-mon avg daily val (mn) ` 476.0/US$ 7.8
52-week range ` 159.8/64.9
Sensex/Nifty 21,514/6,401
`/US$ 61.3

Daily Performance
-40%
-20%
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
120
140
160
180
Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Arvind
Arvind Relative to Sensex (RHS)
% 1M 3M 12M
Absolute 7.0 23.1 88.0
Relative 1.0 20.7 76.2
* To the BSE Sensex

Shareholding Pattern (%)
Dec-13 Dec-12
Promoters 43.8 43.5
FII 19.2 17.4
DII 18.2 18.3
Public / Others 18.8 20.8

Exhibit 1. Financial Summary (` mn)
Y/E March FY12A FY13A FY14E FY15E FY16E
Net sales 49,251 52,925 66,548 79,289 92,662
Sales growth (%) 20.6 7.5 25.7 19.1 16.9
EBITDA 6,022 6,874 9,090 11,057 13,258
EBITDA (%) 12.2 13.0 13.7 13.9 14.3
Adjusted net profit 2,447 2,484 3,437 4,249 5,092
EPS (`) 9.5 9.6 13.3 16.5 19.7
EPS growth (%) 37.7 1.5 38.4 23.6 19.8
ROIC (%) 12.4 13.6 13.4 13.0 12.9
ROE (%) 13.1 11.6 14.3 15.7 16.4
PE (x) 16.6 16.3 11.8 9.6 8.0
Price/Book value (x) 2.0 1.8 1.6 1.4 1.2
EV/EBITDA (x) 9.8 8.9 7.4 6.5 5.6
Source: Company data, JM Financial. Note: Valuations as of 06/03/2014

JM Financial Research is also available on:
Bloomberg - JMFR <GO>, Thomson Publisher & Reuters.

Please see important disclosure at the end of the report

Arvind Limited 7 March 2014

JM Financial Institutional Securities Limited 2

Investment Rationale
Quality play on the textiles and branded retail segment:
With improving economic growth in the developed economies, increasing
currency competitiveness and favorable policy support, the textile industry in
India is poised to report healthy growth in the time to come. Arvind, with its
leadership position in the textile industry, should benefit from the above
growth trends. Also, with rising income levels, favourable demographics, and
the organized retail channel gaining market share, we expect the branded
apparel segment to witness robust growth in the time to come. With a solid
pedigree, strong brand portfolio, extensive distribution network and
management focus on growth and expansion, Arvind is well poised to
participate in the growth opportunity in this segment.
Exhibit 2. Favourable drivers for growth (` bn)

0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2011 2012 2013E 2014E 2015E 2016E 2017E 2018E
Gross domestic product per capita, current prices (Rs.)
CAGR:12%

0-4years, 9%
5-9 years, 11%
10-14 years, 11%
15-59 years, 60%
60+ years, 9%

Source: IMF estimates, Census of India, JM Financial

Favourable demographics: The Indian demographic age is ripe for
consumption where style dominates utility. The median age of the Indian
consumer is 26 years with maximum population lying in the age bracket of 15-
59 years; it is expected that India will add another 140 mn people in the
consuming age group by 2020. This population has more aspirations, is more
aware, has higher spending power and is expected to consume across a
greater number of categories than the previous generation.
Higher disposable income: According to the Indian census report, the
number of households with an annual income of $7,000 or more is going to
treble from about 30 mn today to 100 mn by 2020. There will be c.400 mn
individuals in the middle to high income bracket by 2020.
Solid brands portfolio, extensive retail reach to drive strong growth:
Arvind has a solid track record of scaling up licensed brands (like Tommy
Hilfiger and Arrow) in India and this should allow the company to attract
newer recognized licensed brands in the time to come. The companys solid
and growing distribution network of over 1,500 Multi-Brand Outlets and c.894
retail stores should help it rapidly scale up new brands and register 2013-16E
CAGR of 31% in revenue, in the brands and retail segment.
Arvind is working towards becoming the top three companies in the Brands
and Apparel space in India, with the aim of c.`55bn revenues from brands
and retail by 2018, implying 2013-18 CAGR of c.30%.



Exhibit 3. Brands and Retail- way forward

Source: Company, JM Financial

Solid brands portfolio Strategy in place to expand
Arvind has carried out extensive analysis of the developed world brand and
apparel success strategies (refer Exhibit 4) and adopted a strategy suitable
for the Indian market.
Exhibit 4. Developed World Brand and Retail Strategy


In order to become a market leader, Arvinds strategy is to play the Multi
Brand, Multi Price Point, Multi Channel Space and Specialty Retail Space (refer
Exhibit 5).
Exhibit 5. All-encompassing strategy



By combining the multi-brand and specialty retail strategy, Arvind will
encompass a unique portfolio that will cover the complete income pyramid in
India. With Indian per capita income expected to reach around the apparel
inflection point of $2,000-$2,500 by 2020, the strategy is expected to ensure
solid revenue growth for the company. As testimony of the success of the
hybrid strategy, Middle-East offers compelling evidence (refer Exhibit 6).
Exhibit 6. Middle East- Brand Strategy example and Arvinds brand strategy


With sufficient evidence regarding the expansion strategy being pursued by
the company, Arvind is well placed to cater to its addressable market size of
c.170 mn households.
Exhibit 7. Catering to all segments FY13 (%)
Menswear, 82%
Womenswear,
7%
Kidswear, 6%
Non-apparel, 5%


Brand strategy execution remains key
The brands business is operated under the Arvind Lifestyle Brands Ltd (ALBL)
and includes a wide range of owned and licensed international brands. The
company plans to execute its group strategy by focusing on creating power
brands, which have potential for high growth. Power brands are classified as
any brand with more than `1bn in turnover, double digit margins, positive
free cash flow and growth of over 20%. Currently, Arrow, US Polo, Tommy
Hilfiger and Flying Machine are categorized as power brands and recorded
`9.2bn revenue in FY13 with a healthy 10.5% EBITDA margin. The Power
Brands segment has recorded 43% revenue CAGR during FY09-13.
Total stores for Power brands have quadrupled to 487 (excl. JV) in the last
three years. Its recent acquisition of operating licenses for more international
Power brands are classified as
any brand with more than `1bn
in turnover, double digit
margins, positive free cash flow
and growth of over 20%.



apparel brands Billabong, Nautica and Hanes - will help expand its offerings
in the premium segments. The company is also looking to enter the specialty
retail segment shortly.
Exhibit 8. Power Brands performance (` mn/%)
36%
61%
59%
21%
0%
10%
20%
30%
40%
50%
60%
70%
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2009 2010 2011 2012 2013
Power Brands revenue YoY Growth (%)

2%
7%
10%
9%
10%
0%
2%
4%
6%
8%
10%
12%
0
200
400
600
800
1000
1200
2009 2010 2011 2012 2013
EBITDA Margin (%)


Management expects the brands and retail segments margins to increase
from c.5% in FY13 to 12% by FY16 driven by:
Increase in number of high margin power brands to six by FY15 (Nautica
and Hanes being added).
Company plans to focus on investing in Nautica and Hanes in FY14 and
Ed Hardy and Next in FY15.
Improvement in power brands margins (Arrow and US Polo enjoy c.14%
margins).
Retail footprint strength ensures brand reach
Arvind has managed to expand the stores in its brand segment from 81 in
FY08 to 487 stores in FY13, implying 43% CAGR. The retail stores have
expanded at a CAGR of 18% to 197 stores at the end of FY13. The JV with
Tommy Hilfiger has also displayed solid growth registering store CAGR of
41% to 189 stores at the end of FY13.
Exhibit 9. EBOs contribution is largest to retail revenue (%)
EBO, 57%
MBO, 16%
Departmental
stores, 15%
Other Institutional
Sales, 12%


The retail business was previously run by Arvind Retail Ltd. which was
amalgamated with Arvind Lifestyle Brands Limited (ALBL) in FY13. The retail


business includes value retail chain, Megamart, which sells its own and other
licensed international brands. Megamart operates 197 stores which have
been reduced from 216 in FY12 as the company decided to shut down non-
profitable stores. The company has also repositioned the Megamart business
model as Fair price or Value retail from discount store earlier in 2012 to
adjust for the impact of unfavorable excise duty changes. Private labels
constitute c.40% of total sales, which the company wants to increase to 60%
to improve overall margins.
Exhibit 10. Extensive Brand Portfolio

With the latest addition of fashion retailers Debenhams and Next, the
company is expected to expand its positioning from value to bridge to
premium segments in the time to come.
Extensive distribution network to ensure successful Brand penetration
Arvind has a solid distribution network comprising 894 retail stores across
192 cities. It has presence through 1,500 MBOs.
Exhibit 11. Solid distribution network (` mn/%)
24
192
74
894
0
100
200
300
400
500
600
700
800
900
1000
2005 Jun-13
No. of towns No.of stores
Sales Channel
CAGR 30%

220
1,500
-
200
400
600
800
1,000
1,200
1,400
1,600
2011 13-Jun
Multi Brand Outlet
Sales Channel
CAGR 50%




The company is also aggressively expanding its new retail format The Arvind
Store which will be positioned as a premium fabric retail and custom clothing
set-up, consisting entirely of Arvind licensed brands. With already 100 stores
opened, it aims to grow its store count to 400 stores by FY17-18.
Exhibit 12. Store exhibits


Exhibit 13. Store exhibits


To add to Arvinds strength is the fact that the company is one of the few
players which can take anchor space, ground floor, first floor & upper floor
stores in all grades of malls. It is a virtuous cycle as Arvinds existence across
the spectrum Brands allows it to take extensive space at malls and become an
important customer for the mall developers. This allows it to leverage these
relationships to get more brands.
Exhibit 14. Arvind has strong leverage as anchor tenant at malls

Virtuous cycle - extensive brand
portfolio makes Arvind an
important customer for mall
developers, thereby allowing it
to leverage these relationships
to get more brands.



Textiles segment to aid margin and support growth:
With rising competitiveness, favorable exchange rate and Arvinds dominant
global position (ranked amongst the Top 3 fully integrated Denim
manufacturers globally), we expect the Textile segment to register 16%
growth in revenue over 2013-16E.
Arvind is the largest player in denim segment in India with around 13%
market share. It is also the leading supplier (c.50% market share) to domestic
and international denim brands in India. The company plans to expand its
denim capacity to 140mn metres by FY18 from 108mn metres currently, with
bulk of the expansion likely to come post FY15. The company is currently
operating at c.90% capacity utilization in denim. The Denim segment revenue
has witnessed 14% CAGR over FY08-13.
Exhibit 15. Integrated textile operations strength


Large capacity addition of around 250mn metres in low-end manufacturing
has taken place over the last 2-3 years. This has resulted in a situation of
intensified competition in the denim segment, with possible pressure on
realizations. The company has worked towards improving its product mix to
ensure better pricing, protect margins and avoid competition. Arvinds Denim
business is focused in high value added segment (`170 per meter), where
average realizations are much higher (commoditized business: `120 per
meter). The companys pricing is mostly driven by demand, with a relatively
low correlation with the price of cotton, which is the largest cost component
(constituting c.40% of total cost).
Exhibit 16. Textile segment details
Textile Segment Exports as % of business Customer Profile Customer concentration
Fabric
Denim 45%-50%
Local Distributors, Ready-made
Exporters, Internal Garmenting Units
GAP is biggest (17% of volume). 35%-40% would be top
5 customers. Customers include Levis, Lee, and
Wrangler etc
Woven 25%-30%
Local Distributors, Ready-made
Exporters, Internal Garmenting Units
Biggest customer is Madura garments. Customers
include Marks and Spencers, Next, Gap Inc., Levi's,
DuPont and INVISTA.
Knits 60%
Biggest customer is Shahi Exports. Other customers
include Marks & Spencer, Eddie Bauer, Zara, Josepha
Banks
Voiles 0% Sold primarily through distributors
Garments 100%
The goods are primarily sold to
vendors (most times Bangladesh
and Sri Lanka) of International brands
Customers include Gap Inc, Patagonia, Tommy Hilfiger,
Quicksilver, Brooks Brothers, Silver Jeans, Calvin Klein,
FCUK, Pull & Bear, Jack & Jones, Energie, Esprit,
S.Oliver, Mexx, Sisley, Benetton, Coin


Arvind is the largest woven fabric manufacturer in India. The companys
success in the segment is driven by its ability to produce wide range of
finishes and delivering the same in relatively short lead time. Woven
segments installed capacity is expected to reach c.150mn metres in FY18E
from c.90mn metres in FY13.
Exhibit 17. Textile segment break-up Financial Performance (` mn/%)
Sales FY09 FY10 FY11 FY12 FY13
Denim 7,865 10,513 13,586 16,019 15,428
Wovens 5,713 8,190 9,867 10,991 14,305
Knits 487 556 1,095 1,486 1,497
Garments 4,625 5,261 4,576 4,602 5,045
Voiles 1,622 1,788 2,108 2,281 2,691
Total 20,312 26,307 31,232 35,381 38,966
Less: Intersegment 738 1,985 951 1,154 1,832
Net Textiles sales 19,575 24,322 30,281 34,226 37,134

Sales Growth (%) FY09 FY10 FY11 FY12 FY13
Denim -3% 34% 29% 18% -4%
Wovens -7% 43% 20% 11% 30%
Knits -2% 14% 97% 36% 1%
Garments 28% 14% -13% 1% 10%
Voiles 8% 10% 18% 8% 18%
Total 2% 30% 19% 13% 10%
Less: Intersegment 4% 8% 3% 3% 5%
Net Textiles sales -3% 24% 24% 13% 8%

As % of total

Denim 40% 43% 45% 47% 42%
Wovens 29% 34% 33% 32% 39%
Knits 2% 2% 4% 4% 4%
Garments 24% 22% 15% 13% 14%
Voiles 8% 7% 7% 7% 7%
Total 104% 108% 103% 103% 105%
Less: Intersegment (as % of sales) 4% 8% 3% 3% 5%
Net Textiles sales 100% 100% 100% 100% 100%

Garments will be the fastest growing category
The Garment business is slated to become a key growth driver of the textile
segment. Revenue growth has been tepid at only 2% CAGR over FY09-13, but
EBITDA margin has almost increased by three times to c.11% during the same
period. We expect the company to demonstrate strong growth in the mid-
term and slightly improve its margin. It is also more than doubling its
capacity from 8 mn pieces per annum to 18 mn pieces by setting up a
greenfield denim garments plant, which is likely to become operational by
FY15. Apart from the companys owned capacity, it also outsources garment
manufacturing.
The garment industry is highly labour-intensive albeit it requires less time to
set up a facility. Quick turnarounds, high service levels, and strong customer
relationships built through fabric operations are expected to support Arvinds
further penetration into garmenting.
Improved financial performance leads to return up-tick:
We project an improvement of over 481bps in ROE to 16.4% by FY16. We
expect the company to report:
- Revenue CAGR of 21% over FY13-16E on account of healthy double-digit
growth in all the major product categories in textiles, and brands & retails.
However, the brands & retails and textile businesses should lead the growth
with expected CAGR of 31% and 16% respectively during this period.
- We estimate an improvement of 132bps in EBITDA margin to 14.3% over
FY13-16 on the back of a) higher realization in textile segments owing to


better product mix in denims, and b) margin improvement in Megamart and
addition of brands to Power Brands, offset by higher pre-operating expense
related compression in the brands business.
- We expect tax rate to increase for Arvind in FY13-16E as the MAT credit that
the company was availing declines. However, we expect the company to
witness lower interest cost despite rising debt as new borrowings for capex
will be entitled for 5% interest subvention under the Technology
Upgradation Fund Scheme (TUFS) launched by the central government. We
expect repayment of the high-cost old debt and additional debt at lower
cost to restrict further increase in financing cost.
Exhibit 18. Key financial parameters (%)
12%
14%
16%
16%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
FY13 FY14E FY15E FY16E
ROE (%)

0.93x
1.08x
1.10x
1.05x
0.80x
0.85x
0.90x
0.95x
1.00x
1.05x
1.10x
1.15x
Net Debt /Equity


Exhibit 19. Key financial parameters (%)
13.0%
13.7%
13.9%
14.3%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
EBITDA EBITDA margin %

0%
13%
19%
25%
0%
5%
10%
15%
20%
25%
30%
Tax Rate (%)


Real estate:
The management has started to monetize c.400 acres of land in and around
Ahmedabad. The company is following a two-pronged strategy to monetize
its land bank. It has entered into a JV for c.150 acres of land development and
plans to monetize the balance by either outright sale or development. In June
2010, the company had announced a 50:50 JV with B Safal group to develop
1mn sqft in East Ahmedabad. In May 2011, the company entered into a 50-50
JV with Tata Housing to develop 134 acres of land (9mn sqft) for a township
in the outskirts of western Ahmedabad. The company expects cash flows of
c.`1bn every year over next five to six years through these land related
activities.



Financial Analysis
Exhibit 20. Historical trend in net sales, EBITDA and net profit (` mn)
Particulars FY08 FY09 FY10 FY11 FY12 FY13 CAGR
Net sales 26,740 27,367 32,073 40,846 49,251 52,925 15%
YoY % growth 23% 2% 17% 27% 21% 7%
EBITDA 3,481 3,015 3,561 5,297 6,022 6,874 15%
YoY % growth -5% -13% 18% 49% 14% 14%
EBITDA margin % 13% 11% 11% 13% 12% 13%
Adj. Net Profit 161 (1,012) 500 1,649 2,447 2,484 73%
YoY % growth -41% -729% -149% 230% 48% 2%
Net Profit margin % 1% -4% 2% 4% 5% 5%
Source: Company reports, JM Financial

The companys revenues witnessed CAGR of 15% between FY08 and FY13, while
adjusted net profit grew at a higher rate of 73%.
Exhibit 21. Historical revenue trend (` mn/%)
23%
2%
17%
27%
21%
7%
0%
5%
10%
15%
20%
25%
30%
-
10,000
20,000
30,000
40,000
50,000
60,000
FY08 FY09 FY10 FY11 FY12 FY13
Net sales YoY % growth


Arvind derives majority of its revenue from the textiles segment, which formed
c.70.2% of revenues in FY13. The other major segment is Brands and Retail
(c.26.5% of FY13 revenues).
Exhibit 22. Revenue composition (%)

Textiles 75.5% 71.5% 74.6% 74.1% 69.5% 70.2%
Brands and Retail 22.2% 24.8% 21.9% 23.1% 26.9% 26.5%
Others 3.6% 4.5% 4.1% 4.7% 4.6% 4.5%
Less: Intersegment 1.3% 0.9% 0.5% 1.8% 0.9% 1.2%
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Revenue growth has been led by the textile segment which has witnessed a
CAGR of 13% over FY08-13.
Exhibit 23. Segment revenue growth (%)

FY09 FY10 FY11 FY12 FY13 CAGR(FY08-13)
Textiles -3% 24% 24% 13% 8% 13%
Brands and Retail 14% 5% 32% 41% 6% 19%
Others 29% 8% 43% 18% 7% 20%
Net sales 2% 17% 27% 21% 7% 15%


Raw material is the key cost element for Arvind, forming c.45% of total cost of
the company.
Exhibit 24. Cost break-up analysis for FY13 (%)
COGS, 45%
Employee Cost, 11%
Power
and fuel,
8%
Stores Consumed, 6%
Advertisement,
2%
Other Expenses , 18%
Interest (net), 6%
Depreciation, 4%


Arvind has managed to increase its EBITDA and net profit between FY08-13 at a
CAGR of 15% and 73% respectively. This has been led by solid topline growth and
consistent margin performance. Net profit has grown at a significantly higher
rate primarily due to the MAT tax credit available with the company, which has
led to a lower tax rate for the company.

Exhibit 25. Historical EBITDA and net profit trend (%/mn)
13%
11%
11%
13%
12%
13%
10%
11%
11%
12%
12%
13%
13%
14%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
EBITDA EBITDA Margin (%)

1%
-4%
2%
4%
5%
5%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
3,000
PAT PAT Margin




Financial Outlook
We estimate Arvinds earnings to witness CAGR of 27% over FY13-16E. We believe
this will be driven by strong top-line growth (21% CAGR over FY13-16E) and
c.132bps EBITDA margin expansion over the same period.
Exhibit 26. Financial projections, FY13-16E (`mn, except per share)
Particulars FY13 FY14E FY15E FY16E CAGR
Net sales 52,925 66,548 79,289 92,662 21%
YoY % growth 7% 26% 19% 17%
EBITDA 6,874 9,090 11,057 13,258 24%
YoY % growth 18% 49% 14% 14%
EBITDA margin % 13% 14% 14% 14%
PAT 2,484 3,437 4,249 5,092 27%
YoY % growth 2% 38% 24% 20%
PAT margin % 5% 5% 5% 5%
EPS 9.6 13.3 16.5 19.7 27%
YoY % growth -43% 38% 24% 20%

Revenues to witness 21% CAGR in FY13-16E on the back of Brands &
Retail growth: We estimate revenues of the company to witness CAGR of 21%
in FY13-16E driven by Brands & Retail CAGR of c.31%. We expect the Textiles
segment to witness c.16% CAGR during the same period. Albeit at a small
base, the real estate segment is expected to see c.30% CAGR in FY13-16E.
Exhibit 27. Segment level sales performance (%/` mn)
6%
40%
28%
26%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Brands and Retail YoY growth %

8%
21%
16%
13%
0%
5%
10%
15%
20%
25%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Textiles YoY growth %


As the company continues to witness solid growth in the Brands and retail
segment, we expect its contribution to increase from 27% of total sales in FY13
to 34% by FY16E.
Exhibit 28. Segment level sales break up (%)

Textiles 70% 68% 66% 63%
Brands and Retail 27% 30% 32% 34%
Real Estate 0% 1% 1% 1%
Others 5% 3% 3% 2%
Less: Intersegment 1% 1% 1% 1%
Net Sales 100.0% 100.2% 100.0% 100.0%



EBITDA and earnings to witness 24%/27% CAGR in FY13-16E on the back
of strong topline growth and margin expansion: We expect EBITDA growth
to outpace revenue growth over FY13-16E, driven by EBITDA margin
expansion of c.132bps. We forecast Arvinds earnings to witness a CAGR of
27% over FY13-16E.
Exhibit 29. EBITDA and net profit margin (%/` mn)
13.0%
13.7%
13.9%
14.3%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
EBITDA EBITDA margin %

4.7%
5.2%
5.4%
5.5%
4.2%
4.4%
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
-
1,000
2,000
3,000
4,000
5,000
6,000
PAT PAT margin %




Valuation and Recommendation
Exhibit 30. One year forward P/E and EV/EBITDA
0
50
100
150
200
250
M
a
r
-
0
7
A
u
g
-
0
7
J
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0
8
J
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-
0
8
N
o
v
-
0
8
A
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F
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J
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3
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3
N
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-
1
3
(
`
/
s
h
a
r
e
)
91
4x
5.5x
7.0x
8.5x
10.0x
11.5x
1 year forward P/E band

0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
M
a
r
-
0
7
A
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g
-
0
7
J
a
n
-
0
8
J
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-
0
8
N
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N
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9
3.0x
1
7.0x
6.0x
5.0x
4.0x
8.0x
E
V

(
`

M
n
)
1 year forward EV/EBITDA band

Source: Bloomberg, JM Financial

Arvind shares are currently trading at 6.5x FY15E/5.6xFY16E on a EV/EBITDA
basis.
We initiate with BUY and a Mar15 TP of `200: Our target price implies a
potential upside of c.27%. We believe our target multiple is justified based on:
Established leadership position in the textile segment and strong presence in
the brands and retail space through a solid portfolio of reputed international
brands (U.S. Polo, Tommy Hilfiger, Arrow etc.)
Strong visibility of revenue and earnings growth (FY13-16E CAGR of c.21%
and c.27% respectively).
The target multiple is in-line with the historical 5-year average EV/EBITDA
multiple of 6.5x.
EBITDA margin expansion of c.132bps over FY13-16E and improving ROE
profile of 481bps to 16.4% by FY16E.
High quality management team focused on growth and execution.


Peer comparison
Exhibit 31. Peer Comparison

Mkt Cap Sales growth (%) EBITDA Margin (%) EPS Growth (%) ROE (%) P/E (x) EV/EBITDA (x)
Company name ` bn FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY14 FY15 FY14 FY15
Arvind Ltd* 40.6 7 26 19 13 14 14 2 38 24 12 14 16 9 8 6 6
Future Retail India Ltd 20.3 (28) 8 3 8 8 9 98 7,408 63 0 1 2 47 23 9 8
Shoppers Stop Ltd 31.2 14 25 19 3 3 4 NA NA 257 (2) 1 7 77 36 18 13
Vardhman Textiles 21.4 7 22 14 20 22 0 152 70 (2) 22 18 18 4 3 4 3
Average NA 20 14 11 12 7 NA NA 86 8 9 11 34 18 9 8
Source: Bloomberg, * JM Financial estimates
In the exhibit above, we have considered the financial performance and valuation of direct textile and retail peers for comparison with Arvind. We expect the
company to continue to perform well, given its strong revenue and earnings growth and improving return profile.


Key Concerns
Volatility in input costs
Raw material is the key cost element for Arvind, forming c.44% of net sales of the
company. As the textile segment still comprises 70% of companys net sales,
yarn is a key raw material for the company. Yarn prices are volatile and any sharp
rise in yarn prices could lead to interim margin pressure on the company.
Exhibit 32. COGS as % of net sales and cotton prices (%)
39%
46%
47%
49%
44%
0%
10%
20%
30%
40%
50%
60%
FY09 FY10 FY11 FY12 FY13
COGS as % of Net Sales

80
100
120
140
160
180
200
1
/
1
/
2
0
0
8
5
/
1
/
2
0
0
8
9
/
1
/
2
0
0
8
1
/
1
/
2
0
0
9
5
/
1
/
2
0
0
9
9
/
1
/
2
0
0
9
1
/
1
/
2
0
1
0
5
/
1
/
2
0
1
0
9
/
1
/
2
0
1
0
1
/
1
/
2
0
1
1
5
/
1
/
2
0
1
1
9
/
1
/
2
0
1
1
1
/
1
/
2
0
1
2
5
/
1
/
2
0
1
2
9
/
1
/
2
0
1
2
1
/
1
/
2
0
1
3
5
/
1
/
2
0
1
3
9
/
1
/
2
0
1
3
1
/
1
/
2
0
1
4
India Cotton price index

Source: Bloomberg, Company, JM Financial

Arvinds move towards higher value-added fabrics, especially in denim, should
enhance the companys ability to pass on a cost hike (albeit with some lag) to the
customers.
Competition risk
Competition from domestic and foreign players in the textile, apparel and retail
segment can adversely impact the market share and profitability of the company.
Competition in Textile segment: The textile industry has witnessed huge
capacity addition of c.250 mn metres in the last 2-3 years. The capacity addition
has been primarily focused in the low-value add manufacturing segment. To
mitigate the above risk, Arvind is focusing on producing value-added higher
margin products.
Competition in Apparel and Retail segment: A growing number of international
brands across formats are planning to foray into India (either through license or
JVs), to leverage the countrys apparel growth potential. As a result, many
competitors are keen to expand retail operations and scale up their brand
portfolio. Several retail players like Shoppers Stop, Pantaloon retail are
expanding their store footprint aggressively.
Arvind, with its vertically integrated operations, solid distribution network and
internationally recognized brand portfolio is well poised to participate in the
attractive growth opportunity in this segment.
Labour risk
Arvind has a huge employee base of c.20,324 workmen and over 5,296
management staff owing to the labour-intensive nature of the retail and apparel
industry. Any unrest in the large workforce could adversely impact the smooth
functioning of the business operations of the company.


In FY13, the companys operations were impacted by an unforeseen event of
strike by its workmen at two of its manufacturing plants in the month of June
2012. The strike led to loss of production of 6.1mn meters of fabric which
resulted in revenue loss of `950mn and EBIDTA loss of `350mn. The dispute with
the workers was eventually resolved amicably with the company agreeing to hike
the wages by c.16%.
Over the years, Arvind has consistently invested in attracting and retaining an
efficient and solid workforce. The employee benefits expenses constituted c.10%
of sales for the last five years and all-in-all the company enjoys a harmonious
relationship with its workforce.
Exhibit 33. Employee expense trend (%/` mn)
10.7%
11.0%
10.5%
9.5%
8.9%
10.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
Employee Cost % of Total Revenue


Termination or change in terms of license agreement
Arvind operates in the branded apparel space through a diverse portfolio of
owned and licensed international brands. The company has pursued and will
continue to follow the strategy of creating several large and high-growth Power
brands (e.g. Arrow, US Polo, Tommy Hilfiger and Flying Machine). With many
other strong growth brands in the portfolio (including those acquired recently)
like Gant, Nautica, Elle, Billabong, Ed Hardy, Hanes and Wonderbra, the
companys approach would be to gradually make these brands the next set of
Power brands. Any termination or change in terms of license agreement can
adversely impact the companys growth plans. We see two risks for the company:
Due to unforeseen reasons, any termination or change in terms of agreement
between Arvind and licensed brands could have an adverse impact on the
business model of the company.
The company currently pays certain % of sales as royalty to the licensed
brands. Any increase in royalty payments can adversely impact the companys
profitability.
We believe the above risks are mitigated to a large extent by Arvind owing to its
strong relationship with these brands and the solid performance the company
has delivered over the years.



Currency Risk
The company earns c.30% of its revenues from exports (2013 share of exports
c.28%), any sharp appreciation of `/$ could affect its export revenues.
Exhibit 34. Export share of sales and `/$ trend (%)
63%
66%
69% 69%
72%
37%
34%
31% 31%
28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
FY09 FY10 FY11 FY12 FY13
India Outside India

35.0
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.0
M
a
r
-
0
8
J
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-
0
8
S
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p
-
0
8
D
e
c
-
0
8
M
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0
9
J
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-
0
9
S
e
p
-
0
9
D
e
c
-
0
9
M
a
r
-
1
0
J
u
n
-
1
0
S
e
p
-
1
0
D
e
c
-
1
0
M
a
r
-
1
1
J
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n
-
1
1
S
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p
-
1
1
D
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c
-
1
1
M
a
r
-
1
2
J
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n
-
1
2
S
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p
-
1
2
D
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c
-
1
2
M
a
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-
1
3
J
u
n
-
1
3
S
e
p
-
1
3
D
e
c
-
1
3
INR/USD

Source: Bloomberg, Company, JM Financial

The companys sales mix has been trending in favor of domestic business over
the last 5 years. The above trend should assist the company in mitigating its
hedging and currency risk. Moreover, the management has shifted to a strategy
of hedging as soon as an order is received versus hedging on anticipation or
order basis. This step should ensure much better currency risk management for
the company.
Macro risk
The brands and apparel space being discretionary in nature can be impacted
adversely by a slowdown in the economy, resulting in weak consumer sentiment
and discretionary expenditure. Currently, Brands and retail segment constitute
over 27% of the companys revenues and any slowdown in consumer segment
can adversely impact the business and profitability of the company.
India is expected to become worlds 5
th
largest consumer economy by 2025.
Indias brands and retail industry is one of the fastest growing industries in the
country thanks to a burgeoning middle class and increasing purchasing power.
The overall retail market is expected to grow at 10-12% in the time to come, with
an expected market size of $1,440bn by 2021. More importantly, the share of
organized retail in total retail has grown over the last 4-5 years from c.5% in
2007 to over 7% in 2013, and is expected to reach c.20% by 2021. This would
translate into a CAGR of over 25% over the coming decade.
Arvind is well poised to participate in the growth opportunity in this segment
owing to its brand building strength, real estate and project management
expertise, integrated operations and solid warehousing and logistics knowhow.
Hence, the company is relatively less vulnerable to any slowdown in economic
activities.
Regulatory risk
The textile industry is susceptible to policy decisions by the government with
regard to incentives, sops and taxes. For example, the entire textile industry was
hit in 2009 by the Madras High Court ordering the closure of some 700
bleachers and dyers in Tirupur (Tamil Nadu) for polluting a water source. Any
such regulatory change concerning the industry can adversely impact the
operations of the company.


Industry Overview
Global Textile & Apparel Industry Overview
The textile and apparel trade was estimated to be $662bn in 2011 and is
expected to witness 5% CAGR in the next 10 years. The EU, US, China, Japan and
India are the biggest markets for apparel, but apparel production is primarily
concentrated in China, India, Bangladesh, Vietnam and Turkey. Asian countries
like China, India, Pakistan, Bangladesh, Thailand, and Indonesia are among the
leading countries in terms of installed machinery capacity. China alone has a
share of around 45% of worlds total installed capacity for spinning and weaving
machinery. Overall trade is expected to grow at 5% until 2021. Textile trade is
expected to grow at a slower rate due to increasing consolidation of textile
manufacturing base near apparel manufacturing.
Exhibit 35. Global Textile and Apparel trade projections (%)

2011 2016 2021 CAGR (2011-2021)
Apparel 389 530 711 6%
Fabric 74 78 81 1%
Yarn 42 49 55 3%
Fiber 31 38 46 4%
Others 126 145 167 3%
Total 662 840 1060 5%
Source: Industry reports, JM Financial

Indian Textile & Apparel Industry Overview
The Indian textile industry is one of the leading textile industries in the world,
steadily improving in its capabilities and competitiveness vis--vis the other global
economies. It chiefly consists of ginning, spinning, weaving and processing
industries and plays a major role in the countrys economy. It contributes nearly
14% to the total industrial production of the country, nearly 4% to the countrys
GDP and accounts for about 17% of its total foreign exchange earnings through
textile exports. Employment in the Indian textile and apparel sector stands at 45
mn and with an additional employment of 60 mn in allied sectors, the total
employment stands at c.105 mn.
The Indian textile and apparel market size was estimated to be `2,730bn ($58bn)
in 2011 and is projected to witness 9% CAGR to `6,640bn ($141bn) by 2021. The
domestic home textile market is seeing CAGR of 8% and is projected to reach
`408bn ($9bn) in 2021. The technical textiles market of India is estimated to be
`646.5bn ($14bn) and reach `1607.5bn ($34 bn) by 2021, at a CAGR of 10%.
Exhibit 36. Textile Industry Size and growth (%/$ bn)
58
93
141
31
50
82
0
50
100
150
200
250
2011 2016 2021
Domestic Exports
$89 Bn
$143 Bn
$223 Bn
9.5% CAGR

40
63
98
4
6
9
14
24
34
0
20
40
60
80
100
120
140
160
2011 2016 2021
Apparel Home Textile Technical Textiles

Source: Technopak Analysis, JM Financial


Currently, menswear is the biggest segment of the apparel market and
contributes 43% to the Indian market. However, this contribution is expected to
drop to 40% by 2021 due to faster growth of womens wear and kids wear.
Exhibit 37. Textile Industry Categorization (%/$ bn)
43%
41% 40%
38%
38%
38%
10%
11%
11%
9% 10% 11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2016 2021
Mens Womens Boys Girls

2011 2016 2021 CAGR (2011-21)
Mens 80,950 1,20,350 1,82,800 8%
Womens 72,040 1,11,450 1,75,300 9%
Boys 19,420 31,770 52,230 10%
Girls 17,890 30,430 51,920 11%

Source: Technopak Analysis, JM Financial

Exports constitute c.35% of the Indian textiles industry and this mix is expected
to largely remain the same given the balance of strong domestic consumption
growth and increasing global competitiveness.
The industry saw low exports growth in 2012-13, due to weaker international
demand partly compensated by a weak Indian Rupee. However, over the next 3-5
years, Indias share of global textile exports is poised to increase from current 4%
to around 7%, driven by the improving competitiveness vis--vis other major
exporters like China and Turkey.
Exhibit 38. Product-wise and Country-wise exports break-up (%/`)
Apparel, 39%
Yarn, 16%
Fabric, 14%
Fiber, 14%
Made-ups, 8%
Others, 9%

USA, 57%
UAE, 18%
UK, 8%
Germany, 7%
France, 6%
Others, 4%


The US and the EU nations account for almost two-thirds of Indias textile exports.
The other major destinations are Bangladesh, Turkey, Japan, South Korea,
Canada, Saudi Arabia and UAE. In order to keep the textile industry competitive
and world class, there is a periodic need for installing new machinery, adopting
latest technology and improving availability of accessories. Overall, going
forward, the exports market is expected to continue growing at 10% CAGR for the
next few years.
In the mid-long term, the Indian textile industry is expected to grow strongly with
growth being balanced from both domestic consumption as well as exports
demand. In the near-term, domestic demand would depend on the macro-


economic factors that are expected to gradually revive in FY13-14. On exports
front, there are both positive and negative factors. Positive factors include the
weak currency and decreasing cost competitiveness of China that are likely to
give positive impetus to the Indian exports. At the same time, factors like
slowdown and uncertainty in the global markets, volatile foreign exchange rates
and increase in cotton and yarn prices are likely to negatively affect growth and
profitability for the textile exports.
Exhibit 39. Cotton production and INR/CNY movement
22.6
25.9
22.3
24
33
35.2
34
0
5
10
15
20
25
30
35
40
2007 2008 2009 2010 2011 2012 2013
Cotton Production (Mn Bales)

4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
J
a
n
-
9
9
J
u
l
-
9
9
J
a
n
-
0
0
J
u
l
-
0
0
J
a
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-
0
1
J
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-
0
1
J
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-
0
2
J
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l
-
0
2
J
a
n
-
0
3
J
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l
-
0
3
J
a
n
-
0
4
J
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l
-
0
4
J
a
n
-
0
5
J
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-
0
5
J
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-
0
6
J
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-
0
6
J
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0
7
J
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-
0
7
J
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-
0
8
J
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-
0
8
J
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-
0
9
J
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-
0
9
J
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-
1
0
J
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-
1
0
J
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-
1
1
J
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-
1
1
J
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-
1
2
J
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-
1
2
J
a
n
-
1
3
J
u
l
-
1
3
CNY/INR

Source: Bloomberg, Company reports, JM Financial

Key growth drivers for the textile export sector:
Strong cotton production as well as availability of wool, silk, jute; shift
from agrarian to industrial workforce; demographic advantage of young
workforce as compared to ageing workforce in China.
Ability to adopt/develop technology and add infrastructure, also
supported by the large & growing domestic market driving up
efficiencies & innovation capability.
Capacity constraints for China: with strong domestic demand growth.
Currency advantage: Strong depreciation of INR/USD compared to strong
relative appreciation of RMB/USD over the last decade.
Improving regulatory environment and clarity on fiscal measures.
Better compliance norms than some other SE Asian exporting markets.
Better talent and entrepreneurial ability.
Retail industry: sizeable and rapidly growing
The story of growth of organized retail in India is expected to continue to gain
momentum, with the additional boost of Ecommerce retailing (commonly known
as E-tailing). The total size of Indias retail market is pegged at $490bn in 2012,
of which organized retail has a low share of c.7% at $34bn, while e-Tailing is
currently a nascent model at c.0.1% or $0.6bn. The overall retail market is
expected to grow at 10-12% in the time to come, with an expected market size of
$1,440bn by 2021. The more important trend though, is that while the share of
organized retail in total retail has grown over the last 4-5 years from c.5% in 2007
to reach over 7% by 2013, it is expected that the combined growth of brick-and
mortar retailing and e-tailing is expected to take this share to c.20% by 2021.
That would translate into a CAGR of over 25% over the coming decade.


Apparel industry: largest category of organized retailing
Apparel as a category constitutes the largest share of organized retailing at
c.30%, driven by factors like higher brand preference in apparel compared to
categories like Food & Grocery where fresh availability is a more primary
consumer need. Apparel is also a category that is more promptly being adopted
by the internet buyer, compared to other large retail categories. Hence both
trends put together, apparel is expected to be a large part of the India organized
retail opportunity in 2021, both in the brick & mortar format as well as in e-
tailing.
In the shorter term, organized apparel retail witnessed some impact of softened
consumer sentiments during the last year, reflecting in slower like-to-like (LTL)
sales growth in the apparel stores and the overall industry growth of 4-5% in value
terms over FY12-13. However, the gradual revival expected in the economy in the
next few years, along with some major policy reforms in this sector, will facilitate
improved profitability of the existing brands as well as promote entry of new
brands that will further expand the market. Three specific drivers of short term
recovery in apparel demand include:
(a) Restoration of zero excise duty on readymade garments and made ups
announced in the Union Budget 2013-14
(b) Faster clearance of investment proposal of foreign branded retail, and
(c) Expected revival in the overall economy that will open up the unspent demand
for apparels.
Exhibit 40. Retail industry growth prospects (%/` bn)
93.0%
80.0%
6.9%
14.7%
0.1% 5.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2021
Traditional Retail: Brick & Mortar Corporatized Retail: Brick & Mortar Corporatized Retail: E-tailing
$490bn
$1,440bn

Source: Company report, JM Financial

Arvind is well poised to participate in the attractive growth opportunity in the
Textile and Apparel industry through its comprehensive presence (refer Exhibit
below).



Exhibit 41. Industry classification/size and Arvind presence (%/` bn)

Source: Company presentation, JM Financial



Company background
Arvind is the largest cotton textiles manufacturer in India, with annual installed
textile capacity of >230 mn meters, and a leading player in branded garments
and value retail in the domestic market. The company is the third largest Denim
manufacturer in the world and largest in India for Woven.
Its major business consists of textiles (Denim, Woven, Garments, Voiles etc), and
manufacturing and selling licensed and owned branded garments through EBOs,
MBOs and its value retail chain i.e. Megamart. The other businesses include:
Technical Textiles, Engineering, Telecom Services (Syntel) and Real Estate. Its
plants are located at Ahmedabad, Gandhinagar, Pune and Bangalore. Arvind aims
to become a `130bn enterprise by 2018 through organic and inorganic
expansion.
Exhibit 42. Comprehensive product range

Source: Company presentation, JM Financial

Over the years, Arvind has setup a solid pan-India distribution network with
presence of 894 retail stores and 1,500 MBOs across India. The company enjoys
overseas retail presence in UAE and South Africa with 7 stores.



Exhibit 43. Key milestones
Year Event
1931 The inception of Arvind Limited at the hands of three brothers - Kasturbhai, Narottambhai
and Chimanbhai Lalbhai
1934
Arvind establishes itself amongst the foremost textile units in the country.
1980 Arvind records highest levels of profitability. The new strategy Reno vision, points at
changing the business focus from local to global, towards a high-quality premium niche
market.
1988 Arvind enters the export market for Denims with a dual focus - Denim for leisure and Denim
for fashion wear.
1991
Arvind emerges as the third largest manufacturer of denim in the world.
1997
Indias largest state-of-the-art facility for shirting, gabardine and knits is set up at Santej.
2005 Arvind creates a unique one-stop shop service on a global scale, offering garment packages
to reputed national and international customers.
2007 Arvind expands its presence in the brands and retail segment by establishing MegaMart
One of Indias largest value retail chains.
2010 Arvind launches The Arvind Store, a concept putting the companys best fabrics, brands and
bespoke styling and tailoring solutions under one roof. Arvind launches its first major Real
Estate projects. Arvind becomes one of Indias largest producers of fire protection fabrics.
2011
MEGAMART repositioned from discount to value retail model.
2012 Arvind acquires business operations of Debenhams, Next and Nautica.
The company signs distribution agreement with surfwear brand Billabong.
2013 Arvind launches premium fabric brand Tresca with the aim of marking it a `250cr brand by
2017-18.
Arvind enter into licensing agreement for Ed Hardy brand.
Arvind acquires license for Hanes and Wonderbra brands.

Ownership structure: Arvind is promoted by the Lalbhai family, who owns c.44%
stake in the company.

Exhibit 44. Shareholding pattern Arvind Ltd (%)

Source: Stock exchange data, JM Financial

FIIs / DIIs
37.4% 43.8% 18.8%

Promoters

Public Float

Arvind


Management
The companys operations are managed by a high quality, professional team
under the strategic guidance of Mr. Sanjay Lalbhai.

Mr. Sanjay S. Lalbhai, 58 years, is the Chairman and Managing Director of
the Company. He is a Science Graduate with a Master's degree in Business
Management and has been associated with the Company for more than 33
years. He also holds directorships in Arvind Lifestyle Brands Limited, Arvind
Retail Limited, Arvind Brands & Retail Limited, Amol Decalite Limited, Torrent
Pharmaceuticals Limited, Arvind Worldwide Inc., USA, Arvind Worldwide (M)
Inc., Arvind Overseas (M) Ltd., Arvind Spinning Ltd., Mauritius and Arvind
Textile Mills Limited, Bangladesh.

Mr. Jayesh K. Shah, 52 years, is the Wholetime Director with the designation
of Director and Chief Financial Officer of the Company. He is a Commerce
Graduate and a Chartered Accountant and has been with the company since
1
st
July, 1993. He has a distinguished academic career and extensive
administrative, financial, regulatory and managerial expertise. He also holds
directorships in many other companies.

Mr. Kulin Lalbhai, 27 years, is an MBA from Harvard Business School (USA),
along with a Bachelors degree in Science (Electrical Engineering) from
Stanford University, USA. He has held several leadership positions during his
academic role including serving as Co-President of Family Business Club at
Harvard, Associate Director for Stanford Asia Technology Initiative and also
served as Conference Co-Chair for the Harvard-India Conference. He is
passionate about Retail Industry and B2C businesses and has researched
extensively on Disruptive Business Models and Online space.

Mr. Puneet lalbhai, 30 years, is an MBA from INSEAD (France) specializing in
strategy and general management, along with post graduate degree in
masters of environmental science from Yale University, and bachelors degree
in science (conservation biology) from University of California, US.

Mr. J. Suresh is the Managing Director & CEO of the Arvind Groups Brands &
Retail Companies Arvind Lifestyle Brands Ltd. Suresh joined the Arvind
Group in September 2005 and since then has strengthened the Lifestyle
Brands portfolio of Arvind through organic growth and acquisitions and also
aggressively grown Megamart as a leading value retail chain in apparels.
Arvind Brands & Retail has now become a significant contributor to the Arvind
Groups results. The Brands & Retail business is poised to be a `50bn
business by 2018.
Prior to joining Arvind, he has held several senior positions during his 18 year
old stint in Hindustan Unilever Ltd and has served as a member of the
management committee of the foods and beverages business. Appointed by
JP Morgan Chase as CEO when they invested in MTR Foods, he was
instrumental in growing a regional brand to a national brand with global
presence. He is an MBA from IIM Bangalore and an Engineering Graduate from
Madras University.

Mr. Aamir Akhtar is the CEO of Denim Business. He is a Masters in Business
Administration with work experience of 28 years. A Sales and Marketing
professional, he started his career with the Oil Industry. He worked for 4
years in Indian Oil Corporation (a Fortune 500 Company and also India's
largest Public Sector Oil Company). This was followed by a 4 year stint in
FMCG industry. He worked for Geep Industries, a manufacturer of torches and


batteries that was later acquired by Gillette. Since last 20 years he has been
working in the Textile Industry.

Aamir previously worked as Chief Manager Exports - Reliance Industries (also
a Fortune 500 Company), Ahmedabad, India. In that assignment he was
responsible for Sales and Marketing of Worsted, Blended and Polyester
Fabrics and Yarns to Europe.

Mr. Susheel Kaul is the CEO of Wovens & Knitwear. He has been working with
Arvind Ltd, and its group companies since 1993. He joined Arvind group as a
Management Trainee after completing Post Graduation in Textiles from The
Indian Institute of Technology, Delhi.

He has carried out diverse responsibilities across different businesses of the
company. His assignments included Quality Assurance and Product
Development, Operations and Business Process Reengineering. In 2002, he
took over independent charge of Khakhis Business division. In 2007, he took
over as the CEO of Shirting & Khakhis, called Wovens Businesses. He is
credited with the successful turnaround of Wovens and Knits Businesses with
exponential growth.

Mr. Ashish Kumar is the CEO of Garments Business. He is an accomplished
management (MBA) professional with 20+years domain expertise in
textiles/apparel leadership roles. Currently, he is heading the Garments
business of Arvind as CEO. He has worked in various capacities with
companies like DCM Shriram Industries, Kaybee Group and Piramal Group.



Financial Tables
Profit & Loss Statement (` mn)
Net sales (Net of excise) 49,251 52,925 66,548 79,289 92,662
Growth (%) 20.6 7.5 25.7 19.1 16.9
Other operational income 0 0 0 0 0
Raw material (or COGS) 23,947 23,369 29,880 35,521 41,513
Personnel cost 4,514 5,656 6,901 8,074 9,285
Other expenses (or SG&A) 14,768 17,025 20,678 24,636 28,606
EBITDA 6,022 6,874 9,090 11,057 13,258
EBITDA (%) 12.2 13.0 13.7 13.9 14.3
Growth (%) 13.7 14.1 32.2 21.6 19.9
Other non-op. income 1,185 806 685 719 755
Depreciation and amort. 1,614 2,043 2,278 2,629 2,912
EBIT 5,594 5,637 7,497 9,147 11,101
Add: Net interest income -3,091 -3,153 -3,422 -3,901 -4,312
Pre tax profit 2,503 2,483 4,075 5,246 6,789
Taxes 594 3 489 997 1,697
Add: Extraordinary items 0 0 -164 0 0
Less: Minority interest 0 0 0 0 0
Reported net profit 1,908 2,481 3,422 4,249 5,092
Adjusted net profit 2,447 2,484 3,437 4,249 5,092
Margin (%) 5.0 4.7 5.2 5.4 5.5
Diluted share cap. (mn) 258 258 258 258 258
Diluted EPS (`) 9.5 9.6 13.3 16.5 19.7
Growth (%) 37.7 1.5 38.4 23.6 19.8
Total Dividend + Tax 300 498 600 720 870


Balance Sheet (` mn)
Share capital 2,580 2,580 2,580 2,580 2,580
Other capital 0 0 0 0 0
Reserves and surplus 17,696 19,959 22,797 26,326 30,548
Networth 20,276 22,540 25,377 28,906 33,128
Total loans 19,608 22,960 29,104 33,165 36,801
Minority interest 91 108 243 243 243
Sources of funds 39,976 45,608 54,724 62,314 70,173
Intangible assets 1,410 1,341 2,111 3,925 5,319
Fixed assets 37,961 40,998 45,498 48,748 51,248
Less: Depn. and amort. 13,325 15,395 17,442 19,636 21,942
Net block 26,046 26,945 30,167 33,038 34,626
Capital WIP 1,803 2,076 2,388 2,746 3,158
Investments 417 678 441 507 583
Def tax assets/- liability -189 -58 -69 -83 -100
Current assets 25,785 32,635 40,235 47,427 56,267
Inventories 11,261 14,129 17,766 21,288 24,879
Sundry debtors 6,422 7,547 9,846 11,730 13,709
Cash & bank balances 709 1,856 1,699 1,299 1,948
Other current assets 2,623 3,050 3,660 4,391 5,270
Loans & advances 4,771 6,054 7,265 8,718 10,461
Current liabilities & prov. 13,887 16,668 18,437 21,321 24,361
Current liabilities 12,376 15,645 17,210 19,848 22,594
Provisions and others 1,511 1,023 1,227 1,473 1,767
Net current assets 11,898 15,967 21,798 26,106 31,906
Others (net) 0 0 0 0 0
Application of funds 39,976 45,608 54,724 62,314 70,173


Cash flow statement (` mn)
Reported net profit 1,908 2,481 3,422 4,249 5,092
Depreciation and amort. -1,807 2,070 2,047 2,194 2,306
-Inc/dec in working cap. 8,648 -1,948 -4,698 -3,069 -3,114
Others -69 17 135 0 0
Cash from operations (a) 8,680 2,619 906 3,374 4,284
-Inc/dec in investments 23 -261 237 -66 -76
Capex 808 -3,241 -5,581 -5,422 -4,306
Others -8,273 -974 -1,289 -1,640 -2,036
Cash flow from inv. (b) -7,442 -4,476 -6,633 -7,128 -6,418
Inc/-dec in capital 1,719 281 15 0 0
Dividend+Tax thereon -300 -498 -600 -720 -870
Inc/-dec in loans -2,503 3,352 6,144 4,060 3,637
Others -34 -131 12 14 17
Financial cash flow ( c ) -1,117 3,004 5,571 3,354 2,784
Inc/-dec in cash (a+b+c) 120 1,147 -156 -400 649
Opening cash balance 588 709 1,856 1,699 1,299
Closing cash balance 709 1,856 1,699 1,299 1,948


Key Ratios
BV/Share (`) 78.6 87.3 98.3 112.0 128.4
ROIC (%) 12.4 13.6 13.4 13.0 12.9
ROE (%) 13.1 11.6 14.3 15.7 16.4
Net Debt/equity ratio (x) 0.9 0.9 1.1 1.1 1.0
Valuation ratios (x)
PER 16.6 16.3 11.8 9.6 8.0
PBV 2.0 1.8 1.6 1.4 1.2
EV/EBITDA 9.8 8.9 7.4 6.5 5.6
EV/Sales 1.2 1.2 1.0 0.9 0.8
Turnover ratios (no.)
Debtor days 48 52 54 54 54
Inventory days 83 97 97 98 98
Creditor days 136 171 149 150 150



JM Financial Institutional Securities Limited
Member, BSE Limited and National Stock Exchange of India Limited
SEBI Registration Nos.: BSE - INB011296630 & INF011296630, NSE - INB231296634 & INF231296634
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com

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All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and
No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

Analyst(s) holding in the Stock(s): (Nil)

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