Buy This Small Cap Co. Stock Target Price Of Rs 347
On BSE the current price on the market for the stock, as of Friday’s close, is 264.95 each. The stock is trading at 46.55 over the 52-week low of 218.40 each and is less than the 52-week high of 336. Its ROE has been negative for the past three months, which is 35.64 percent. TTM EPS is negative as well at 6.86. The PB ratio is 3.41. The market capitalization of the company is Rs 3,492 crore.
Returns on Investment
Arvind Fashion Limited was listed on the stock exchange in March 2019. For the period of 1 month and a week, the stocks of the company had low returns. They were 3.8 percent and 10.65 percent respectively. However, over the last 3 months and one year, the shares soared and returned positive returns of 13.23 percent and 4.99 percent in each case. However, over the past three years, the shares returned a negative 47.46 percent.
Q1 FY23 Highlights
Q1 FY23 was one of the most profitable quarters, where AFL reported a jump in revenue of 171% YoY around Rs 920 crores in Q1 FY23 compared to Rs 340.4 Cr reported in Q1 FY22.
Improvement continues in the Power Brand portfolio posting an increase by 185% YoY up to Rs 749 Cr from Rs 262 crore in the first quarter of FY22. The brand portfolio that is emerging reached higher heights thanks to a growth rate that was 199% year-on-year, at Rs 171 Cr, up from Rs 56 Cr during Q1 FY22.
The sharpness of execution in the retail channel has boosted the like-for-like growth of 25%, which is the highest ever sales at full price in all categories. Omni-enabled stores drove online sales up to Rs100 million in the first quarter of FY23, accounting for 25 percent of AFL’s total revenues.
Top Line spikes amid robust demand for the product
AFL has produced the most impressive ever Q1 results in the first steady-state quarter after two years of uninterrupted operation despite lockdowns. AFL posted an income of Rs.920 Cr for Q1 FY23. That’s an increase of 188% when compared to Q1 FY22 which was at 319 Cr. The huge increase was attainable because of the slick execution across all channels of retail and record-high consumer demand across all channels and segments.
With the unlocking at 100 percent, The Q1 FY23 quarter was the highest-performing quarter, exceeding pre-covid levels by about 40 percent and registering a similar increase of around 25 percent. Other channels, like the internet and MBO, were also a part of the equation and increased to 1.9x and 2.5x in comparison to the pre-covid level. The dramatic increase in EBITDA to 94 crores in Q1FY23 was aided by the revival in market demand for weddings, business travel festivals, celebrations, and other types of important occasions.
Brands that power the market on an exponential growth path
AFL’s portfolio, which includes brands that power the market such as USPA, Tommy Hilfiger, Flying Machine, and Arrow has seen an increase in revenues of 186% YoY and was at 749 Cr in Q1 FY23. USPA along with Tommy Hilfiger continued to showcase double-digit EBITDA Margins. The entire portfolio of brands is predicted to have a double-digit EBITDA margin over about 12-18 months.
Brands with power command greater margins because of their brand equity and position with the young generation. The strong performance is due to the high demand and the back-to-office trend that saw the highest ever sell-through at full price across all brands, with significant improvements over the entire operational season in Spring-Summer’19. The majority of the investment was also made in USPA along with Tommy Hilfiger to promote brand marketing campaigns and adjacencies that helped drive the premiumization process.
Online and retail channels grew to new heights
The AFL Retail channel has become an important catalyst, contributing 50 percent of AFL’s revenue, leading to the Gross Margin increasing by 640 bps to 49.4 percent in Q1 FY23, up from 43 percent during Q1 FY22. The impressive performance comes from excellent focus and a systematic operation of the retail stores, as well as flawlessly announcing and removing the end of the season calendar. Online channels also demonstrated rapid growth, doubling their rate of penetration compared to pre-covid levels. It is currently contributing to around 25 percent of the total AFL’s revenue. This trend is expected to continue into the upcoming quarters, as most stores are connected to the internet and have a first-time mindset of customers.
Brokerage Recommends Buying for an estimated price of Rs 347.
Growth in retail, online, and MBO channels accompanied by Omni-enabled store technology is expected to boost the future of growth, with more like-for-like sales, and more expensive full-price sell-throughs based on the backdrop of demand that has been accumulating as well as the revival of markets for weddings, business trips, and the festive season forward. “We retain BUY, valuing AFL at 23x EV/EBITDA FY24E to arrive at our Target Price of Rs 347 with a potential upside of 30%,” the brokerage said.