Tommy Hilfiger’s Partner Seeks Brand Ventures: Corporate India By Swansy Afonso - Sep 30, 2012

Arvind Ltd. (ARVND), which sells Tommy Hilfiger Corp.’s and Mossimo Inc.’s products in India, is in talks for more partnerships to revive sales growth that analysts forecast may slow.
Revenue may rise 14 percent to 56 billion rupees ($1.06 billion) in the year that started April 1, Chairman and Managing Director Sanjay Lalbhai said in an interview. That’s more than the median 7 percent growth estimated by five analysts compiled by Bloomberg. The company will spend as much as 5 billion rupees this year to develop its brands, textiles and real estate businesses, he said.
Arvind, which last week agreed to acquire the Indian franchisee of Debenhams Plc (DEB), Next Plc (NXT) and Nautica, is seeking more licenses to tap demand that’s also attracted billionaires Mukesh Ambani and Kumar Mangalam Birla into the industry. Technopak Advisors Pvt. forecasts the apparel market in Asia’s third-largest economy to more than double to $98 billion in the 10 years to 2021, exceeding the global pace of growth.
“We have a healthy pipeline of negotiations going on,” Lalbhai said in Mumbai. “Most of the dialogues are with single brand companies.”
Arvind, set up in 1931 following calls by India’s independence leaders to boycott British clothing, paid about 550 million rupees for the acquisitions last week, according to Nirmal Bang Institutional Equities. Arvind will invest 1.5 billion rupees in the three brands, the company said in a statement on Sept. 27.

Cash Flow

The acquisitions may “exert pressure” on Arvind’s cash flows as the brands are unprofitable, Jignesh Kamani, an analyst at Nirmal Bang, said in a report. The purchase may affect the company’s plan to purchase more licenses, he said. Arvind had total debt of 19.7 billion rupees as of March 31.
“We are trying to grow out of our own internal accruals, which is a bit of a limiting factor,” Lalbhai said. As earnings before interest and taxes increase “and our cash flows rise we will increase the expenditure in the coming years.”
Kamani cut his 12-month target on the company’s share price by 5 percent to 92 rupees following the purchases. Arvind has risen 20 percent this year compared with a 25 percent gain in the BSE500 index. The shares gained 1.6 percent to 79.9 rupees in Mumbai on Sept. 28.
The company is targeting 50 billion rupees of revenue from selling branded apparel in the next five years, according to the statement on Sept. 27. It reported 13 billion rupees from selling branded apparels in the year ended March 31.

Reliance Trends

Arvind group sales rose 21 percent to 49.25 billion rupees in the year ended March 31. Earnings margin before interest, taxes, depreciation, and amortization narrowed to 12.7 percent. That compares with an average margin of 13.6 percent for its rivals in Asia, according to data compiled by Bloomberg.
Competition is intensifying in the sector that Technopak forecasts will expand at a compounded annual growth rate of 9 percent, compared with 6 percent globally. Prime Minister Manmohan Singh this year allowed overseas companies to own 100 percent of single-brand retailers.
Ambani’s Reliance Trends, that focuses on apparel, luggage and accessories, had 90 stores as of March 31, according to parent Reliance Industries Ltd. (RIL)’s annual report. Reliance Trends sells Hardy and London Fog brands in India. The company also owns 51 percent of a venture with Marks & Spencer Group Plc.
The company’s recent “acquisitions strengthen Arvind’s position in facing pressure from the likes of Reliance Retail, the Birla group and others in the market,” said Nikhil Upadhyay, an analyst at Equirus Securities Pvt. “The consumption pattern is evolving positively for rivals to grow in the short to medium term.”

Cotton Prices

A drop in cotton prices will ease input costs for the supplier of denim to Gap Inc. (GPS) and Levi Strauss & Co., and help fund expansion, Lalbhai said. About 70 percent of Arvind’s revenue is from making textiles.
“Prices will go down further,” he said. “China is not buying cotton. So till December, cotton will remain bearish.”
Cotton futures have tumbled 22 percent this year and are down 67 percent since reaching a record $2.197 a pound on ICE Futures U.S. in New York in March 2011. .
Arvind is also planning to expand its Arrow and French fashion brand Elle in eastern Africa and the Middle East, Lalbhai said.
“Arvind’s brand business is still in investment phase,” Equirus’ Upadhyay said. “Better performance in the brand and retail business are key for re-rating” of the stock.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net