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Arvind Ltd from fashion to engineering and infra: Is there an investment story around it?

Published : December 30, 2017

Arvind Ltd - From faishon to engineering and infra - is there an investment story around it

The business empire of Arvind Ltd

Arvind Ltd operates under textile sector and is an Ahmedabad-based fabrics maker. It operates textiles; brands and retail; real estate, and others including engineering division business. The business model is briefly discussed below –

  • The Textiles segment includes fabric, yarn, and It manufactures cotton shirting, denim, knits and bottom weights (Khakis) fabrics, jeans, and shirts.
  • Under brand and retail, it operates Arvind Lifestyle Brands Limited. It markets branded apparel and licenses international brands in India. Its international brand’s portfolio includes Arrow, US Polo Association, Izod, Elle and Cherokee, Flying Machine, Newport and Excalibur, GAP, Ed Hardy, Tommy Hilfiger, Calvin Klein, Gant, Nautica, Hanes, and WonderBra.
  • It owns value chain UNLIMITED and is the franchise partner of beauty retailer SEPHORA. It also operates MEGAMART apparel value retail stores.
  • The Real Estate segment includes real estate development. It also has a presence in telecom business directly and through joint venture companies.
  • The engineering division makes products for refineries, pharmaceutical companies, gas and power plants and aluminum producers. It plans to expand its operation after demerger into manufacturing of heat exchangers, pressure vessels and reactors for oil and gas, petrochemicals, pharma, and fertilizer companies.
  • The Others segment includes electronics, technical textile, construction, e-commerce and project activity.Arvind Ltd -Arvind Lifestyle Brands

Will demerger of Arvind Ltd unlock shareholders value?

Arvind Limited will demerge its branded apparel and engineering businesses. The branded apparel business will be called Arvind Fashions Ltd. and the engineering business would be transferred to Anveshan Heavy Engineering Ltd and will be renamed as Anup Engineering Ltd thereafter. Both companies will be listed on the BSE and NSE through a National Company Law Tribunal-driven process in six-nine months. The demerger would free up resources for the company and enable it to focus on the textile business. Financial independence will help unlock the full potential of these businesses.

The promoters, who now own 43 % in Arvind Ltd, will get 36 % stake in Arvind Fashion and 38 % in Anup Engineering. Shareholders of Arvind Limited will be entitled to one equity share of Arvind Fashions for every five shares held by them and to one equity share of Anup Engineering Ltd. for 27 shares held. For every 135 shares held, investors will get five shares of Anveshan and 27 of Arvind Fashions.

Stay updated on Arvind Ltd share price and other relevant information about the company. Watch the exclusive company profile page at the Market Intelligence section.

Shareholding Pattern of Arvind Ltd

Arvind Ltd is a Rs.10 face value company run by 4668 employees. A total 1.87 lac shareholders hold approximately 25.85 Cr of the issued capital of the company as on 30 September 2017.  There is a slight change in the holding pattern of the company. A very low percentage of shares held in the hands of promoters, the general public, and others category hand has moved into the hands of institutions in last six months. You can also find a detailed list of Arvind Ltd Latest shareholding here. (Excel).

Change in shareholding of Arvind ltd - December 2017

Foreign institutions are raising their stake in Arvind Ltd

The latest status of foreign institutional holders suggests that overall they are increasing their stake in the company. As per Table 1 below as of December 2017, a total 62 foreign institutions hold 31.86% in the company. Though 5 such institutions had closed their position in last 3 months, 3 completely new institutions initiate their buying in the company. As of now, a total 18 institutions increased their positions while 15 had reduced their position in the company.

Arvind Ltd - Foreign Institutional Holders as on December 2017

 

Heavy Investment by Mutual Funds in Arvind Ltd

A total 18 mutual funds had invested a whopping Rs.1042.84 Cr in Arvind’s share through 49 different schemes.  Four mutual fund schemes have invested over INR 100 Cr each in the company followed by five schemes in between INR 10 Cr and INR 100 Cr while resting below INR 10 Cr each in the company’s stock. 

Kotak mutual funds have invested INR 241.07 Cr in Arvind Ltd with its 4 schemes and stand at the top among all. It is followed by Franklin India with 2 schemes invested INR 219.28 Cr, Sundaram with 8 schemes invested INR 201.33 Cr, Reliance with 7 schemes invest INR 166.58 Cr while UTI with 9 different schemes invested INR 67.04 Cr in Arvind’s share.

Mutual Funds Investment in Arvind Mills as on December 2017
Public shareholding more than 1 percent of the company

There are almost 3.18 Cr shares in the public category and out of it 2.17 Cr is being held by seven different categories of long-term investors. This leaves out only 3.75% of shares in the hand of the general public.  Table 3 explains the detailed list of shareholders which is in public category holding more than 1%.

Public and holding more than 1% of the Total No.of Shares in Arvind Ltd as on December 2017

Negligible shares pledged by promoter and promoter group 

There are 29 shareholders under promoter and promoter group holding 42.94% in the company as on date. And merely 0.05% of it is being pledged by two promoters or promoter group. This is negligible and shows the management hold in the company. The detailed list of promoter and promoter groups holdings with pledge shares can be downloaded here (Excel).

The foregoing analysis of shareholding pattern highlights the quality of shareholders who have vested interest in the Arvind Ltd shares. Almost over 87% of shares in the market are being held in such hands which are in general falls under long-term investors category.  Very few shares are being held by investors of short-term nature.

Arvind Ltd growth – the financial aspect

Arvind Ltd sales and profit, both operating and net, rose considerably in last 5 years. Their retained earning has just doubled during the same period. One of the factors that make Arvind Ltd a long-term investment stock with a great degree of confidence is its reserves and surpluses. Arvind Ltd reserves and surplus rose by 63.2% in the last five years. The problem with the Arvind Ltd is its debt. Though long-term has reduced by 24.7% to INR 756.63 Cr short-term debt rose by 61.2% to INR 2064.96 Cr during the same five years.

However, the recent announcement of demerger will help reduce the debt of the company drastically by almost INR 1500 Cr, as the management plan to repay this mount from its internal accrual which is almost double this amount. Once the debt is phased out, it will show the very positive effect on Net profit margin. The current 5-year average net profit margin for Arvind Ltd is 4.25%. You can look for other important financial performance of Arvind Ltd here. (Excel)

Fundamental Growth of Arvind Ltd in 5 Years December 2017

What Arvind’s management doing to reduce debt?

Arvind’s management is using the strategy to reduce the group’s debt and invest more in fastest-growing lifestyle division business. This division contributes more than a third of its revenue. Two years ago, it demerged Arvind Smart Spaces as an independent company. It has also offloaded 10 % stake in Arvind Fashion in November 2016 to a clutch of private equity investors (Renuka Ramnath’s Multiples PE) for INR 740 crore, valuing the company at INR 8,000 crore. And most of it was used to reduce company debt. Next year India’s largest denim maker plans to demerge the whole business into two groups. This demerger will not only unlock value for its shareholders but also will lessen its debt burden.

Despite restructuring, Arvind Ltd is continuing creating wealth for its shareholders

The management has shown its efficiency in last five years of its working. They have managed to generate an average 12.42% of return on equity (ROE) for its shareholders. This is above the average industry return of the 9.57% of industry and almost 74% of that of the sector as a whole. Similar to this the return on investment (ROI) of the company is also above industry average and 65% from that of the sector as a whole. This shows the efficiency of management of Arvind Ltd and its commitment to wealth creation for its shareholders in future too.

Arvind Ltd Shareholders Wealth Creation - A Compression December 2017

Research analysts are bullish on Arvind Ltd shares

According to data compiled by Reuters, a total 17 research analysts had covered Arvind Ltd and almost all of them are bullish on Arvind Ltd share price. Also, a similar pattern was observed three months earlier. As of now, 11 of them has recommended outperforming the broader market, 3 analysts said to buy and 2 suggested to hold the share to their clients. Only one analyst is of the view that Arvind will underperform the border market in coming future. This is suggesting for underlying positive sentiment in the Arvind Ltd share price.

Reuters Analysts Recommendation for Arvind Ltd - December 2017

Future plan of Arvind Ltd

Post demerger the company plans to focus completely on the entire chain of the garment business. This would enable them to supply to the world’s top brands. The company is also planning to look at next-generation products and advanced materials. Arvid future plan includes a venture into segments such as human protection, industrial process, infrastructure, and transportation. Further, the company will invest INR1,500 crore in the next three to four years to transform the textile business. This will come entirely from internal accruals. The company target to raise CAGR to 10-12% and making an INR 9,000 to 10,000 crore business by 2022.

Arvind Fashion has projected to triple its revenue from INR 2,898 crore to INR 9,000 crore over the next five years. Currently, Arvind Fashion has 1400 retail outlets. And it is adding 150 stores a year with an average investment of INR 150-200 crore. Post-demerger Anup Engineering’s share capital will increase also to INR 10.21 crore. As of now, currently, it is INR 1.02 crore.


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