Textile major, Arvind Ltd, on Friday (October 26) announced that it has received National Company Law Tribunal (NCLT) approval for its scheme of demerger of its branded apparel and engineering businesses into separate entities.
Last year in October, Arvind Ltd made an announcement to demerge its branded retail and small engineering business. Post demerger, there will be three different companies, namely Arvind Ltd, Arvind Fashions and Anup Engineering Ltd.
Shareholders of Arvind Ltd will be entitled to one equity share of Arvind Fashions for every five shares held by them and to one equity share of Anup Engineering Ltd. for 27 shares held. At present, three companies are managed as separate profit centers with independent heads.
Post demerger, Arvind Ltd will continue with the textile business. The management guided revenue growth in the coming five years is 10-12 percent and a capex of Rs 500 crore per year for the next five years, totalling Rs 2,500 crore.
Ahmedabad-based Arvind Ltd expects ROCE (Return on capital employed) to improve with investments in the forward integration business than in the existing textile business. The other areas of focus are advanced materials and technical textiles, but each these areas will need a little more time to scale up.
Arvind Fashions is expected to be listed in October this year. Arvind will hold nearly 90 percent of Arvind Fashions' share capital.
Branded apparel business has reported five year revenue CAGR (compound annual growth rate) of 25 percent. Management expects 22-25 percent revenue growth for the branded business. All the brands are expected to turn profitable in FY19.Anup Engineering, which manufactures critical process equipment for several core industries, is a debt free company. It reported five year revenue CAGR of 25 percent and expects 10-12 percent revenue growth in FY19.
Financial Highlights Arvind Ltd Arvind Fashions Anup Engineering Revenues (FY18) Rs 6,800 crore Rs 4,266 crore Rs 224 crore % to revenue 60% 38% 2% EBITDA* Rs 750 crore Rs 229 crore Rs 58 crore PAT (Loss) Rs 267 crore (Rs 7 crore) Rs 43 crore Capital employed Rs 5,355 crore Rs 1,955 crore Rs 244 crore Debt Rs 2,678 crore Rs 745 crore EV (FY20 E) Rs 5,000 crore Rs 9,200 crore Rs 1,300 crore EBITDA (FY20E) Rs 710 crore Rs 600 crore Rs 150 crore EV/EBITDA FY20E 7-7.5x 19-22x 8-9x * (Including Other Income)
Peer Analysis Total EV FY20E Rs 15,500 crore Total EV FY20E Rs 3,300 crore Market cap by FY20E Rs 12,200 crore Current market Cap Rs 8,500 crore Upside 20-25%
Branded Peer analysis EV/EBITDA Arvind Fashion 19-22x ABFRL 25x Raymond 13.2x Kewal kiral 15.5x Shoppers stop 15.4x Trent 48.6x
Textile Peer EV/EBITDA Arvind 7-7.5X Vardhman Textiles 6X Welspun India 6.1X Indo Count 7X Trident 6.1X Himatsingka Seide 9X
In an exclusive interview to CNBC-TV18, Kulin Lalbhai, executive director, said, "Demerger or delisting will happen in next 3-4 weeks from now and the new listing will be in January 2019.”“We have plans to spend Rs 2,500 crore of capex for textile business in the next five years and it will grow at CAGR of 10-12 percent backed by advance material and water technical textile,” Lalbhai said adding that, “Branded apparel business is expected to grow by 20-24 percent."