ARVIND LTD

Straddling a host of segments: From textiles to e-com & realty

Arvind Limited is an integrated textile company which operates in three segments — textiles, advanced materials, and ‘others’. The textiles segment includes fabrics, garments and fabric retail. The advanced materials segment consists of human protection fabrics and garments, industrial products, advanced composites and automotive fabrics. The ‘others’ segment includes e-commerce, agriculture produce, EPABX and one-tomany radios, development of residential units, and others. The company also manufactures a range of cotton shirting, denim, knits, khakis, jeans and shirts.

Arvind is a conglomerate and its businesses include fabric and apparel, brands and retail, real estate, engineering, Internet, environmental solutions, advanced materials, telecom and garmenting.

The company has several subsidiaries, including Arvind Infrastructure Ltd, Arvind PD Composites Private Limited, Arvind OG Nonwovens Private Limited, Arvind Internet Limited, and Arvind Goodhill Suit Manufacturing Private Limited.

Despite headwinds, the company has recorded steady growth on the financial front. During the last 12 years, its sales turnover has moved up from Rs 5,293 crore in fiscal 2013 to Rs 7,738 crore in fiscal 2024, with operating profit inching up from Rs 687 crore to Rs 879 crore and the profit at net level going up from Rs 248 crore to Rs 353 crore. The company’s financial position is very strong, with reserves at the end of March 2024 standing at Rs 3,249 crore — over 12 times its equity capital of Rs 262 crore. Its interest burden has been steadily reduced from Rs 4.7 crore in fiscal 2015 to Rs 193 crore in fiscal 2024. Prospects for the company going ahead are quite promising. Consider:

TEXTILES BOOST

• Its Garments segment volumes grew despite labour strikes. The management expects the exit volume marginally below 40 million for FY25. It plans to increase the existing capacity by 40- 50% over the next 2-3 years, targeting a 60 million capacity by FY27.
• In Denim, the company plans to add capacity to capture more internal denim production and move up the denim value chain. This will enable it to improve its realizations. For the AMD business, the primary challenge was significant price erosion due to a sharp decline in several key raw material prices. The order book remains robust and the management expects ~20% growth in the segment.
• The company took on a small amount of debt in Q1 due to worker unrest. However, this is a one-off and the company plans to pay it off soon. The exit long-term debt for FY25 is expected to be in the range of Rs 400 crore. The average tax rate is expected to normalize to around 25% moving forward.

GROWTH FORECAST

• The company anticipates a 10-12% topline growth in FY25. Both textiles and AMD are expected to see strong demand in H2FY25, especially textiles, which is projected to reach an all-time high demand. EBITDA margins are expected to expand by approximately 200 basis points over the next few years. RoCE improved by 150 basis points to 13.9% in Q2 FY25, with the company aiming to increase this to around 20% in the coming years. In FY25, we expect the company to register an EPS of Rs 11.2, which is likely to rise to Rs 16.9 in FY26. The scrip trades at Rs 375. P/E on the FY26 EPS works out to 22.2.

PERFORMANCE INDICATORS (Rs. in crore)

SOUTH INDIAN BANK

Back in the black in fiscal 2024: Scrip trades at attractive valuation

South Indian Bank is a leading Keralabased private sector bank with a nationwide presence. It has 955 branches, 2 ultra small branches, 3 satellite branches, 1,158 ATMs and 127 CRMs across India, and a representative office in Dubai, the UAE. The bank is a pioneer in technology-based banking, offering an array of digital products and services. It has one of the youngest workforces in the banking sector in the country. Its Vision 2025 focuses on the 6 Cs — capital, CASA, cost-to-income, competency building, customer focus, and compliance.

However, the bank’s financial performance during the last one decade or so has been disappointing. Though its revenues during the last 12 years have almost doubled from fiscal 2013 to Rs 8,613 crore in fiscal 2024, and it earned a profit of Rs 361 crore in fiscal 2013, it slipped into the red and incurred a loss of Rs 1,080 crore in fiscal 2021. However, the bank turned the corner with a profit of Rs 104 crore in fiscal 2024. Its prospects going ahead are quite encouraging. Consider:

• Having turned the corner two years ago, the bank continues to fare well on the profit front. For Q2 FY25, it declared a net profit of Rs 324.69 crore, registering a growth of Rs. 18.15 per cent over the same quarter a year ago. Operating profit for the quarter moved up by 19.51 per cent from Rs 460.44 crore to Rs 550.25 crore. The bank’s asset quality has also improved with gross NPAs during Q2FY25 coming down by 5 bps – from 4.96% to 4.40% and net NPA dropping by 39 bps – from 1.70 % to 0.31%.

MOJO UPGRADE

• Witnessing its positive performance for 11 consecutive quarters, Market Mojo, a leading stock analysis platform, has upgraded South Indian Bank from a ‘Sell’ to a ‘Hold’ rating. The decision is based on the bank’s healthy long-term growth with a net profit growth rate of 17 per cent annually, operating cashflow at a high of Rs 7,075.21 crore, and its credit/deposit ratio at 77.93 per cent.
• With an RoA of 1, SI Bank is currently trading at a very attractive valuation with a price-tobook value of 0.7. The stock is also trading at a discount compared to its average historical valuations.
• Technically, the stock is currently in a mildly bearish range, with both its MACD and KST technical factors showing a bearish trend. This is a good hold for investors who are looking for long-term growth potential. With its consistent positive results and attractive valuation. It is a promising midcap private bank in the Indian market.

LOAN FOCUS

• The management is focused on building a low-ticket loan book with a steady balance sheet clean-up, which will help improve asset quality substantially and contribute to continued reduction in net stressed assets, comfortable capital and improved profitability.
• Its focus on the retail and MSME segments will boost margins. ICICI Direct Research expects advance growth of 13% in FYs 2024 and 26, with a gradual uptick in the proportion of MSME and retail loans. In FY25, we expect the company to register an EPS of Rs 4.8, which is likely to rise to Rs 545 in FY26. The scrip trades at Rs 24.8473. P/E on the FY26 EPS works out to 4.6.

PERFORMANCE INDICATORS (Rs. in crore)