Arvind share price hits 52-week high as Phillip Capital initiates coverage with a ‘Buy’ call; sees 35% upside

Arvind share price spiked over 4% to hit a fresh 52-week high of ₹398.80 apiece on the BSE after brokerage firm Phillip Capital initiated coverage on the stocks.

Phillip Capital assigned a ‘Buy’ rating on Arvind shares with a target price of ₹514.0 per share, implying a potential upside of nearly 35% from Wednesday’s closing price.

Arvind Ltd is one of India’s largest integrated traditional and technical textile players. The company has made a strategic shift from asset heavy textiles to relatively asset light and high ROE / ROCE segments like Advance Material Division (AMD) and garmenting businesses.

The company’s foray into technical textiles (AMD) enables it access to a $100 billion global market. Analysts at Phillip Capital forecast healthy growth for the company in the near future and believe that the turnaround in the end user industry will act as a tailwind for the business.

“Within textiles, the company is poised for growth in its garment division. The division has delivered ~9% growth between 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,” Phillip Capital said in a report.

With moat in the composites business and access to the newer, bigger markets, analysts anticipate the AMD division to grow at 20%+ CAGR between FY24-26E. And with the addition of new capacity, the garmenting business is expected to grow at 20%+ on the back of improving sales volumes and realisations.

“With the company focusing on higher value products, we expect realisations across segments and subsequent volumes due to end to end industry tailwinds to increase. We expect the Revenue, EBITDA and PAT to grow at a CAGR of 11%, 18% and 30% CAGR growth respectively over FY24-FY26E,” the brokerage house said.

With green shoots appearing in the global garmenting demand and the company’s shift into technical textiles, Arvind stock is Phillip Capital’s preferred pick.

“We value the legacy textiles and AMD segment business on a standalone basis as the company has moved its AMD division into a subsidiary for better transparency, which will also help it fetch higher valuations. We expect the traditional textiles to command a higher multiple than one given historically due to higher share of garmenting and reduction in debt. The AMD will command a higher valuation to mirror its peers, however we are cognizant to not give it outsized valuations commanded by the likes of similar companies which operate in niche segments,” said the brokerage firm.

With these prospects, Phillip Capital believes Arvind shares are available at a discount to its peers.

Arvind share price has rallied over 10% in one month, while the stock is up more than 47% year-to-date (YTD). Arvind shares have given multibagger returns of over 178% in one year.

At 11:35 am Arvind shares were trading 1.38% higher at ₹386.90 apiece on the BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.