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Volume improves, higher margin sustains

Revenue in line with our estimates Arvind (ARVND IN) Q4 revenue was largely in line with our estimates. Higher textile margin, robust denim & garment volume, and 20.9% growth in the advanced material business (AMD) were key positives. Revenue increased 10.3% YoY, hit by price deflation while volume grew in denim, garment and AMD businesses. Textiles revenue was up 5.1% YoY. Denim and garment volume rose 17.3% YoY and 34.3% YoY, respectively, due to good demand momentum. We expect a revenue CAGR of 16.1% during FY24-26E, with demand likely to improve in garment and AMD businesses.

Margin improves on price deflation and efficiency accrual

EBITDA margin expanded 156bp YoY to 11.7% in Q4, led by improvement in the textiles and AMD segments. Gross margin expanded 271bp YoY. Textiles margin improved to 11.5% due to improved efficiency and operating leverage. AMD margin was at 15.8%, benefitting from lower input prices. We expect EBITDA margin to expand to 12.3% in FY26E, with improved garment efficiency, increasing share of the AMD business and operating leverage.

Valuation: reiterate Buy with a higher TP of INR 436

Sustained margin expansion in the textiles business, sustained 20%-plus growth in the AMD business with improving margin and controlled debt reinstated ARVND’s focus on performance improvement. Its assetlight strategy (investing in high asset turnover business and exiting noncore businesses & assets) should prop up balance sheet and ROCE. We revise down our FY25E earnings by 5.3% and keep them unchanged for FY26E. We expect cumulative free cashflow of INR 7.2bn during FY25-26E. We expect an EBITDA CAGR of 22.9% and a PAT CAGR of 40.6% during FY24-26E. We reiterate Buy with higher SOTP-based TP of INR 436 from INR 424 based on 8.0x (unchanged) FY26E EV/EBITDA for the textiles segment and 15.0x (unchanged) FY26E EV/EBITDA for AMD as well as lower losses in the Others business. Our revised target price implies 17.3x FY26E P/E

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