Arvind Ltd. Revenue To Go Up 12-15% In 2016-17, Driven By B2C Segment

Company Performance

Arvind Ltd. Revenue To Go Up 12-15% In 2016-17, Driven By B2C Segment

a) Arvind Ltd records 18% growth in consolidated revenue for Q1 2016-17

b) In 2016-17, consolidated revenue of the company is expected to grow by around 12%-15%

c) In 2016-17, Arvind's Brand & Retail Business revenue growth will be around 20-22%

d) In 2016-17, Textile Business growth expected to be 8-9%

e) The company is expanding operations in Ethiopia

f) Company aims to cover 300 Indian cities with over 3 million square feet retail space in next 4-5 years

g) E-commerce initiative - NNNow.com is an attempt to move away from discount driven e-commerce market to brand-led shopping experience

Arvind Ltd, has recorded an 18% growth in consolidated revenue to Rs 2104 crore, for the quarter ended June 30, 2016, as against Rs 1787 crore in the corresponding quarter of the previous year. Consolidated EBIDTA is up by 16% to Rs 241 crore, against Rs 208 crore in the same quarter of the previous year. Profit after tax before exceptional items grew by 27% to Rs 74 crore as compared to Rs 58 crore in the corresponding quarter of last year. For the financial year 2016-17, the revenue of the company at the consolidated level is expected to grow by around 12%-15%, driven by around 20%-22% growth in Brands & Retail Business and growth of 8%-9% in Textile Business.

The company is expecting that the weighted margins going forward will be slightly lower due to change in revenue mix in favour of Brands & Retail. Nevertheless, EBIDTA margin for Brands & Retail Business is also expected to improve by around 75 bps.

Commenting on the results as well as the outlook of the company, Jayesh Shah, Director & Chief Financial Officer, said, "Our textile business, which recorded 14% revenue growth, continues to deliver a strong performance as we continue to pursue a calibrated growth strategy. The brands business continues to demonstrate strong growth with 26% growth in Q1. Our established power brands consolidated their market positions. We are also excited about India's first true Omni Channel experience - NNNow.com which we launched during Q1. NNNow.com redefines shopping for Indian consumers by linking online and offline retail shopping experience."

Taking advantage of lower costs in Ethiopia

In 2015, Arvind started its operation in Ethiopia with factory sheds in Bole Lemi Industrial Zone. At present Arvind manufactures high quality apparels - jeans, trousers, shirts and essentials for the export market to world famous clients. The company is also preparing to start large scale operations in the Hawassa Industrial Park with many factory sheds, and is in the process of setting up machines there. In future Arvind also has plans to enter into farming and textile production. "This is a strategic investment to take advantage of lower labour cost, duty savings and lower shipment time to US markets," according to the company's annual report.

Garments, B2C will drive growth

Garments, which is part of Arvind's verticalisation strategy, continues to be on growth momentum. During 2015-16, the company's garment's revenue registered a 24% growth. The revenues from garments are likely to be higher this year with expected stabilisation of operations at the new plant in Ethiopia. The joint venture company set up to manufacture suits - Arvind Goodhill Suit Manufacturing Private Limited, has grown from Rs 15 crore in 2015 to Rs 49 crore in 2016. Arvind is now in the process of expanding its knit fabric capacity, after having expanded its woven fabric capacity in recent times. Arvind Ltd is expected to grow around 15%-16% at consolidated level in the next 4-5 years. The growth will be driven by its B2C business model. It is expected that B2C business will constitute about 35% of revenue and about 30% of EBIDTA at the consolidated level.

Arvind's retail expansions

Arvind is expected to achieve CAGR of over 25% in its retail segment, in the next 4-5 years. To achieve this goal, the company is making category extension of its existing brands and rapid expansion of its distribution footprint. In next 4-5 years the company is planning to cover almost 300 cities with over 3 million square feet retail space.

While the overall retail market is expected to grow at 12% per annum, modern trade is likely to expand twice as fast at 20% per annum and traditional trade at 10%. Retail spending in the top seven Indian cities amounted to US$ 53.7 billion, with organised retail penetration at 19% as of 2014. Online retail is expected to be at par with the physical stores in the next five years.

Arvind continues to record strong growth in its various retail segments. "Our power brands like Arrow, US Polo Association, Tommy Hilfiger and Flying Machine continue to demonstrate rapid growth and are dominating their respective space. While, our growth brands like Nautika, Calvin Klein and Gant are poised to lead in the next growth phase. After the recent restructuring of Megamart operations, our value retail format, signs of higher operational efficiency are clearly visible. The company's specialty retail segment is growing stronger with brands like GAP, TCP, Sephora and Aeropostale," claim company officials.

NNNow.com

India is expected to become the world's fastest growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. Morgan Stanley Research has revised its estimate of India's e-commerce market for 2020 from US$ 102 billion to US$ 119 billon. Keeping in view the changing trend in consumer buying behavior and to positively gain from the rapid growth of e-commerce as a sales channel, Arvind recently launched India's first `True Omni Channel Experience - NNNow.com'.

This new initiative is Arvind's attempt to move away from the discount driven e-commerce market to a brand-led shopping experience. "We believe that NNNow.com will redefine shopping for Indian consumers by linking online and offline retail shopping experience. In the near future, the success of this initiative will unlock a huge market for our brands.

It will not only provide a higher volume growth, but will also improve our overall operating margins in retail business in the near term." The company is further looking to develop multiple 'Differentiated Online Formats' in the e-Commerce space.