Antique Stock Broking has initiated coverage on Arvind Fashions Ltd with a 'Buy' recommendation and a target price of Rs 565, suggesting 23 per cent potential upside on the counter from the prevailing level.
On Thursday, the scrip was trading at Rs 434.90 on BSE, up 0.92 per cent. The stock is up 53 per cent in the last six months.
Arvind Fashions' business strategy, Antique Stock Broking said, revolves around five key brands that have possibility of category expansion and the potential to deliver across its distribution reach.
"Notably, over the past 18-24 months, the management has taken various corrective actions across its product portfolio to drive long-term growth. In our view, Arvind Fashions has a very strong portfolio of brands in fast-growing casual wear category that has a high recall value.
The focus will be on scaling up existing brands profitably and not adding new ones over the next 2-3 years," it said.
The brokerage believes that Arvind Fashions is well-placed to scale up brands like Arrow, Tommy Hilfiger, Calvin Klein and Flying Machine backed by an experienced management team -- as showcased in the case of U.S. Polo Association (USPA).
"Going ahead, it will focus on aggressively expanding its network through franchisees. We expect revenue/Ebitda/PAT to grow at 9 per cent/ 20 per cent/52 per cent CAGR over FY23-26E with improvement in return ratios and cash flows. Working capital is expected to further improve with better inventory turns," Antique said.
The brokerage expects Arvind Fashions to turn net debt-free in the next two-three years.
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