Arvind to strengthen its place in bridge to luxury segment soon

Arvind Brands and Retail, a subsidiary of Arvind a major manufacturer of textile after competently adding together its business of brands has managed to achieve 49 per cent of the Indian business of global fashion brand Calvin Klein, for over Rs 80 crore, the topline brand is added as part of its bridge to luxury’ line-up of brands.

With the bridge to luxury segment growing at the pace of 15 to 18 percent, the company is looking at not only generating business of Rs.500 crore through Calvin Klein brand in the next five years, but to upsurge its place in the bridge to luxury category, where the company has 90 per cent share in the market with its joint ventures or licensee brands such as Tommy Hilfiger, Nautica, GANT and others.

According to the company there is a huge potential of them as there is very little competition in the bridge to luxury segment. They would definitely turn up to be a dominant player in this market.

Arvind plans to open up 15 stores in the top 25 cities each year, taking the total to 70 in the next two years. It would also boost Calvin Klein brand by advertising.

The company generates a business of Rs.3,300 crore from its existing brands while, the rest is expected from new brands such as Ed Hardy, Hanes, Calvin Klein. According to the company, Calvin Klein is strong in the innerwear, complementing Arvind’s line-up.

Arvind is also looking at substantial growth with the launch of US Polo innerwear. Innerwear accounts for Rs 70 crore of Arvind, but could increase to clocking Rs 500 crore over the next five years.

However, according to Jignesh Kamani, analyst with Nirmal Bang Equities, Arvind’s deal with Calvin Klein is as expensive, as the stake acquisition in PGWT (the licensee of Calvin Klein in India), Arvind will pay about Rs 80 crore and also continue to pay royalty to the brand owner. At an enterprise valuation of Rs 180 crore, Arvind Brands bought 49 per cent stake at the high valuation of 16 times/1.4 times EBITDA/sales respectively.

Arvind has also been facing challenges with some of the international brands it has acquired. With these acquisitions continuing to incur losses, its expansion plan has been delayed.

However, according to Suresh, mangaing director of Arvind Lifestyle Brands, with the recent acquisitions, the EBITDA margins are at 8 per cent in FY-2014. This would increase to 12 per cent once the new brands start contributing to the business. Things are about to change vis-a-vis its international brands. Also, company is working out ways to sort out the challenges it is facing with some of the international brands.