Up 210% from 52-week low, this smallcap multibagger stock can deliver 33% further return
Arvind shares rose 1.67 per cent to hit a high of Rs 379.05 on BSE. PhillipCapital's target price still suggests a potential 33.36 per cent upside over the prevailing price.
- Jul 3, 2024,
- Updated Jul 3, 2024 11:20 AM IST
Smallcap multibagger Arvind Ltd, whose shares are up nearly 210 per cent from 52-week low, has potential to deliver 36 per cent returns in the next 12 months, PhillipCapital said on Wednesday as it initiated coverage on the stock with a 'Buy' recommendation and a price target of Rs 514 apiece.
Following the development, the Arvind stock rose 1.67 per cent to hit a high of Rs 379.05 on BSE. PhillipCapital's target price still suggests a potential 33.36 per cent upside over this price. The stock hit a 52-week low of Rs 124.70 on July 27 last year.
Arvind is among India’s largest integrated traditional and technical textile players, with shift in strategy focus from asset heavy to asset light, high return and margin Advance Material Division (AMD) and high return garmenting businesses.
PhillipCapital expects a healthy growth for the company in the near future and believes a turnaround in end user industry should act as a tailwind for the company. It sees sales growing at 11 per cent, Ebitda 18 per cent and profit after tax at 30 per cent, compounded annually, over FY24-FY26.
"At CMP the stock is trading at 9.5 times FY26E EV/Ebitda. We initiate coverage on the company with a price target of Rs 514.0 with a potential upside of 36 per cent," the domestic brokerage said.
Arvind’s foray into technical textiles (AMD) enables it to access $100 billion global market. The versatility and demand for these products has enabled this segment to grow at 25 per cent between FY21 and FY24, with return on capital employed of 25-27 per cent. PC said the AMD segment is anticipated to grow at 20 per cent in FY24-FY26 with 25 per cent-plus ROCE profile.
"Within textiles, the company is poised for growth in its garment division. The division has delivered 9 per cent growth in FY21-24 due to capacity constraints, with new capacity is expected to clock 25% growth between FY24-FY26E due to increased volume & improved realisation led by better product mix. Given the vertical integration and longstanding supply contracts with global retailers, Arvind could be a preferred player in garmenting," it said.
PhillipCapital said fiscal prudence has also rewarded Arvind with better margins due to continuous debt repayment and minimal capex. The debt has come down by Rs 670 crore between FY21-24 and the current debt stood at Rs 1,450 crore against a peak debt of Rs 3,820 crore in FY16 and Rs 2,120 crore in FY21).
Its debt to equity improved from 0.7 times to 0.4 times. It has also not done meaningful capex in textiles, the domestic brokerage said.
"The textile business generates Rs 400 crore. It could generate Rs 500-700 crore in cash flow, which is sufficient for its incremental capex requirements of Rs 400-450 crore (mainly for AMD and Garmenting)," PC said.
Over FY21-FY24, Arvind grew at a CAGR of 15 per cent, due to demand turnaround and debt reduction. With improving focus on AMD and garmenting the Ebitda profile also improved from 10 per cent to 11 per cent during the same period, Phillip Capital said.
Smallcap multibagger Arvind Ltd, whose shares are up nearly 210 per cent from 52-week low, has potential to deliver 36 per cent returns in the next 12 months, PhillipCapital said on Wednesday as it initiated coverage on the stock with a 'Buy' recommendation and a price target of Rs 514 apiece.
Following the development, the Arvind stock rose 1.67 per cent to hit a high of Rs 379.05 on BSE. PhillipCapital's target price still suggests a potential 33.36 per cent upside over this price. The stock hit a 52-week low of Rs 124.70 on July 27 last year.
Arvind is among India’s largest integrated traditional and technical textile players, with shift in strategy focus from asset heavy to asset light, high return and margin Advance Material Division (AMD) and high return garmenting businesses.
PhillipCapital expects a healthy growth for the company in the near future and believes a turnaround in end user industry should act as a tailwind for the company. It sees sales growing at 11 per cent, Ebitda 18 per cent and profit after tax at 30 per cent, compounded annually, over FY24-FY26.
"At CMP the stock is trading at 9.5 times FY26E EV/Ebitda. We initiate coverage on the company with a price target of Rs 514.0 with a potential upside of 36 per cent," the domestic brokerage said.
Arvind’s foray into technical textiles (AMD) enables it to access $100 billion global market. The versatility and demand for these products has enabled this segment to grow at 25 per cent between FY21 and FY24, with return on capital employed of 25-27 per cent. PC said the AMD segment is anticipated to grow at 20 per cent in FY24-FY26 with 25 per cent-plus ROCE profile.
"Within textiles, the company is poised for growth in its garment division. The division has delivered 9 per cent growth in FY21-24 due to capacity constraints, with new capacity is expected to clock 25% growth between FY24-FY26E due to increased volume & improved realisation led by better product mix. Given the vertical integration and longstanding supply contracts with global retailers, Arvind could be a preferred player in garmenting," it said.
PhillipCapital said fiscal prudence has also rewarded Arvind with better margins due to continuous debt repayment and minimal capex. The debt has come down by Rs 670 crore between FY21-24 and the current debt stood at Rs 1,450 crore against a peak debt of Rs 3,820 crore in FY16 and Rs 2,120 crore in FY21).
Its debt to equity improved from 0.7 times to 0.4 times. It has also not done meaningful capex in textiles, the domestic brokerage said.
"The textile business generates Rs 400 crore. It could generate Rs 500-700 crore in cash flow, which is sufficient for its incremental capex requirements of Rs 400-450 crore (mainly for AMD and Garmenting)," PC said.
Over FY21-FY24, Arvind grew at a CAGR of 15 per cent, due to demand turnaround and debt reduction. With improving focus on AMD and garmenting the Ebitda profile also improved from 10 per cent to 11 per cent during the same period, Phillip Capital said.