Key highlights from Arvind Fashions Ltd (ARVINDFASN) Q4 FY22 Earnings Concall
Management Update:
- Despite two COVID waves, AFL grew revenues 32% and posted a net profit of INR40 crores in 2H22, and reduced net debt by more than INR525 crores in the year. With the turnaround complete, expects business to gain momentum in the coming year. Expects retail and online channels to continue to drive growth and account for 60% to 65% of overall sales.
Q&A Highlights:
Nishit Rathi – CWC – Analyst
- Is it fair to assume that four power brands, basically US Polo, Tommy, Arrow, and Flying Machine, those will reach double-digit margins and CK has already double-digit margins.
Shailesh Chaturvedi – Managing Director & CEO
- AFL’s guidance is that it should hit total portfolio double-digit pre-IndAS EBITDA in 12 to 18 months.
Nishit Rathi – CWC – Analyst
- Have you seen a March-like improvements continue in the month of April and May?
Shailesh Chaturvedi – Managing Director & CEO
- Demand remains strong in the short run.
- April, May numbers are also very good.
- Has a little bit of sort of inventory shortage right now.
- Good situation to be in.
Pritesh Chheda – Lucky Investment – Analyst
- What is the pre-IndAS EBITDA margin of this INR1,900 crores?
Shailesh Chaturvedi – Managing Director & CEO
- Post-IndAS EBITDA is INR200 crore, which is 10.4%.
- Pre-IndAS tend to be a couple of percentage points lower.
Kulin Lalbhai – Non-Executive Director
- 400 basis points is the difference between pre-IndAS and post IndAS.
Pritesh Chheda – Lucky Investment – Analyst
- Is there a possibility of a debt-free balance sheet?
Shailesh Chaturvedi – Managing Director & CEO
- In FY ’23, sees possibility of further net debt reduction, but does not exactly know because market is still volatile.
- Commitment is to reduce the debt as fast as possible.
Pritesh Chheda – Lucky Investment – Analyst
- CapEx outlook?
Shailesh Chaturvedi – Managing Director & CEO
- Will renovate a lot of department stores.
- Does not have a major capacity expansion of factory or any new strong technology.
- Whatever is required in investment into technology upgrades and also retail will be done, which will add up to around INR90 crores.
Vaishnavi Mandhaniya – Anand Rathi – Analyst
- Working capital going forward?
Shailesh Chaturvedi – Managing Director & CEO
- Believes working capital will remain tight and in the zone that it is in today.
Mythili Balakrishnan – Alchemy Capital – Analyst
- The opening of 200 plus stores, will this largely be EVO?
Shailesh Chaturvedi – Managing Director & CEO
- Setup a central sales structure and now going into the smaller tier grade towns.
- Teams are now in the field who are scouting for stores, which will be individual brand, like an Arrow store or a Flying Machine store.
- These will be the mono brand Exclusive Brand Outlets across the country, largely through the franchisee route.
Mythili Balakrishnan – Alchemy Capital – Analyst
- Is AFL passing on unprecedented inflation in terms of ASP increases?
Shailesh Chaturvedi — Managing Director & CEO
- Able to pass on increased costs because the AFL brands are strong.
- Lower discounts are helping to maintain gross margin at around 45%.
- Strong prices in spring-summer indicates that consumers have taken this current price increase well.
- Will have to see what happens in the next few weeks.
Riken Gopani – Capri Global – Analyst
What’s the growth in adjacencies today and which brands have adjacencies which have become meaningful?
Shailesh Chaturvedi – Managing Director & CEO
- US Polo was the first brand that was focused on and in parallel on the other side, Tommy, has a very large portfolio of adjacencies, including watches, footwear, eyewear and other businesses.
- There is opportunity to add category like women’s wear in US Polo and is almost like 15% of the business, doing well, growing well, profitability, good stock turn.
- Classical adjacent categories are foot wear, inner wear, kids wear, woman’s wear, etc.
- Investing ahead of time in these categories and they are doing really good numbers right now.
Riken Gopani – Capri Global – Analyst
- How soon is Arrow expected to go back to its peak revenues?
Shailesh Chaturvedi – Managing Director & CEO
- Expects Arrow to reach its peak revenue in FY23.
Sagar Bhatia – Prabhudas Lilladher – Analyst
- Explain online processing of the brands going forward and what the management is looking at in the next two years just on the online front?
Shailesh Chaturvedi – Managing Director & CEO
- Has undisputed market leadership in online space in apparel industry.
- Clocked INR1,000 crores revenue
- Online has become somewhere close to 25% of the AFLs revenue mix profitably.
- Investing a lot behind building the team and the assets to take the online business forward at a very healthy pace because there is lot of traction.
Kulin Lalbhai – Non-Executive Director
- Online is moving away from a liquidation channel to being a channel of its own.
- It means designing products and designing a supply chain separate just for the online channel.
- Believes this is the future and that is what AFL are accelerating.
- Other big shift is that offline and online are converging.
- Connecting stores to more and more online demand is the second large theme which AFL is betting on.
- Will use this channel to really catapult into new categories in a disruptive way.