Anand Rathi Share and Stock Brokers (ARSSBL) has revised 12-month target price of Arvind Fashions from INR 689 to 681 per share. While the brokerage has retained its “Buy” rating, the slight reduction signals cautious optimism, given the broader macro environment and evolving cost dynamics for the company.
This development gains further prominence considering that renowned investor Ashish Dhawan holds 13,63,745 shares (1% stake in the company). This holding is valued at approximately INR 63.6 crore.
Recalibrated Expectations
The cut in target price, although modest, stems primarily from higher-than-anticipated depreciation and finance costs, which are expected to weigh on the company’s earnings over the next two fiscal years. ARSSBL has revised FY26E and FY27E earnings per share (EPS) downward by 9.6% and 6.4%, respectively.
Key financial revisions include:
- FY27e EBITDA remains at INR 887.3 crore
- PAT revised down to INR 271.8 crore from INR 290.3 crore
- EPS cut to INR 20.5 from 21.9
- Target valuation multiple maintained at 11x EV/EBITDA
Despite these downgrades, Anand Rathi continues to believe that Arvind Fashions is on a steady growth path, supported by improving operating metrics, a diversified brand portfolio, and a disciplined approach to capital allocation.
Financial Performance
Arvind Fashions delivered a resilient FY25, reporting:
- Revenue growth of 8.5% YoY to INR 4,620 crore
- EBITDA growth of 17.9% YoY to INR 6,020 crore billion
- EBITDA margin expansion by 104bps to 13%
- A reported net loss of INR 35.60 crore, primarily due to a one-time deferred tax charge of INR 120 crore
However, when adjusted for this tax impact and discontinued operations, adjusted PAT grew 70.5% YoY to INR 85.50 crore— a significant recovery and a positive indicator of operational efficiency and pricing discipline.
The company’s working capital management also showed improvement, with net working capital days reduced to 50 (from 53 in FY24). This was largely due to an increase in payables and better inventory turnover, helped by the company’s ongoing Vector supply chain project.
Brand Portfolio Performance: Power Brands Lead the Way
Arvind Fashions continues to benefit from its strong line-up of global and domestic brands:
- US Polo Assn. crossed INR 2,000 crore in NSV
- Tommy Hilfiger and Calvin Klein reported consistent double-digit growth
- Arrow and Flying Machine have shown signs of recovery, now operating at low single-digit EBITDA margins (pre-Ind AS), with medium-term targets of mid-single-digit profitability
In addition, adjacent categories — such as innerwear, women’s wear, and footwear — now contribute more than 20% of revenues, up from 15% a year ago. These segments reported 15–100% growth in FY25 and are expected to remain strong drivers of both topline and margin expansion.
The footwear division, which crossed INR 300 crore in revenues, is expected to double in size over the next three years, reflecting the management’s intent to deepen its non-apparel footprint.
Retail Expansion & Omnichannel Strategy
Arvind Fashions has been actively rationalizing and modernizing its retail footprint. In FY25:
- The company added 46 net new exclusive brand outlets (EBOs), bringing the total store count to 977
- Retail space grew by 0.12 million sq. ft., including 46,000 sq. ft. in Q4 alone
- Emphasis is now on larger, more productive formats, such as Stride, Megamart, and Club A
Channel mix evolution has also been pivotal. Retail sales contributed 43% of revenue in FY25, up from 42% in FY24, while the online segment — now contributing 28% — grew 15%+, driven by direct-to-consumer channels and data-led product planning.
Wholesale, however, underperformed slightly, contributing only 29% of sales, down from 31%. But management expects a rebound in FY26, as inventory freshness and partner incentives improve.
Ashish Dhawan’s Bet on Growth
Ashish Dhawan’s presence is a seal of trust on long-term growth of the company. Dhawan is known for his early bets before potential momentum in the companies. His 1% holding increases investors’ confidence in the company, and its growth outlook, and capital discipline.
Valuation & Outlook: Upside Potential Remains
At the current price of INR 457, Arvind Fashions trades at:
- 22.3x FY27e P/E
- 7.7x FY27e EV/EBITDA
- Price-to-Book ratio of 3.9x
With a target price of INR 681, Anand Rathi estimates a 49% upside potential over the next 12 months. This is underpinned by:
- Stable revenue CAGR of 13% and EBITDA CAGR of 21% over FY25–27
- Retail-led gross margin improvements
- Tight cost control and better working capital cycles
Risks to Watch
While the outlook remains constructive, certain risks warrant caution:
- Rising competition from international brands could squeeze margins
- Subdued discretionary spending may affect topline growth
- High depreciation and interest outflows, if sustained, could impact net profitability more than anticipated
Conclusion
The revision in target price should be seen not as a red flag but as a prudent recalibration, reflective of near-term cost dynamics rather than any fundamental weakness. With a strong balance sheet, brand equity, and ongoing retail transformation, Arvind Fashions appears well-positioned to navigate current headwinds.
Investors would do well to watch Q1 FY26 performance closely, which will likely set the tone for the company’s full-year execution. Meanwhile, the continued backing of long-term players like Ashish Dhawan offers a strong undercurrent of support to the investment thesis.
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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please do thorough research and take expert advice before investing