How to make money in stocks: Buy this newly listed textile maker now, will give 71% return, says expert

A new textile stock has entered the stock exchanges, after its initial public offering. This is Arvind Fashion, which made its market debut last week. Significantly, it has already given a back-to-back blockbuster performance. On Thursday, the share price of Arvind Fashion was trading at upper circuit and all-time high of Rs 755.10 per piece up by Rs 35.95 or 5% on Sensex at around 1351 hours. The stock made its debut on March 08, at a market price of Rs 590, which means within four days of trading, Arvind Fashion has risen by nearly 28% or over Rs 165. But did you know, this can be a great opportunity to add Arvind Fashion shares in your kitty, as rating agency CLSA has given a buy rating with a target price of Rs 1,294 ahead? 

There are two reasons according to CLSA, which makes Arvind Fashion a best bet on Dalal Street. These are: 

Power brands: a strong diverse portfolio

Arvind’s power brands portfolio includes a combination India’s leading casualwear brand (US Polo), the second largest denim wear brand (Flying Machine), a large formal wear brand (Arrow) and one popular foreign brand (Tommy Hilfiger). US Polo is the largest brand within this segment—the focus for this brand will be to expand its product portfolio and leverage its wide distribution reach. 

Cashflow from this segment will be critical to fund the growth of emerging brands & Unlimited.

Emerging brands and speciality retail: the focus is on improving profitability

Arvind’s Emerging brands consists of a portfolio of 6-7 brands spread across diverse categories. Management is currently focusing on improving its profitability and divesting non-core brands. Arvind’s speciality retail portfolio consists of GAP, its value-retailer, Unlimited,and leading personal care player Sephora. 

Unlimited is the most exciting piece within the speciality retail portfolio and recently, it managed to break even.

Incrementally, the focus will be on continued network growth and expanding its margins with improving store maturity and scale benefits playing out. Sephora has strong LTL growth and has been profitable since its second year.

Where is Arvind Fashion headed? 

CLSA says, “We forecast AFL’s revenue to grow 15% over FY18-21CL with its margin expanding 225bps to 7.7%. Management has highlighted it intends to improve its inventory turnover with a focus on using technology to reduce lead times and integrating online marketplaces with its stores and warehouses.”

Therefore, CLSA adds, “We expect AFL’s net debt/Ebitda to decline to 2.2x by Mar 21CL (vs 3.1x in Mar2018) and see its ROCE expanding by 7.9% over FY18-21CL to 13.5%. We value the business at 18x EV/Ebitda on Dec-20CL; BUY with a target price of Rs1,294/share.”

If we take CLSA’s target price, then Arvind Fashion is set to rise over Rs 538 in nearterm, which would result in overall gains of 71.36%. Hence, if you are looking to have an appetite for equities, Arvind Fashion can be your stock resort.