DIWALI PICKS 2016 By IDBI Capital

Key Triggers: Established in 1931, Arvind Limited (Arvind) is a textile manufacturer and the flagship company of the Arvind Group. It manufactures cotton shirting, denim, knits and bottom-weights fabrics. The company is one of the largest producers of denim in the world, with an annual capacity of 108 mn metres.

As of FY16, Arvind had 953 stores under Arvind Lifestyle Brands. Also, Arvind has 30 brands out of which 4 are power brands.

Denims have evolved from a volume business to a value-added offering. Consequently, the company has consciously cut in capacities (reduction of 36 mn metres over FY05-09) and focused on higher realization (8% CAGR over FY07-16). The longstanding relationship with brands and learning curve from over two and half decades of operations has helped it move up the value chain.

Arvind has launched global brands successfully and also scaled up a few of them to such a level that it has now four power brands, Arrow, FlyingMachine, US Polo and Tommy Hilfiger which have been well-received by the markets.

According to FICCI, the textile industry is expected to grow at 10.6% CAGR to $223 bn over 2015-2021. Arvind, with its big size and scale, remains well-poised to benefit from this growth.

Valuation: The stock is currently trading at a FY18 PE multiple of 16x (based on Bloomberg consensus estimate). We have a positive view on the stock.