Arvind Mills Limited

 Current Price: 100 ; Target Price: 143


In a strong turnaround from its BIFR days, Arvind
Mills has re-emerged in the reckoning of one of the
strongest denim players in the world today. Besides
ramping up capacity in its denim business, it has
also sought to get itself vertically integrated to
capitalise on the export opportunities in the post
quota regime. While volatility in the denim business
will undoubtedly continue, low cost production (lower
cost of power and cotton) and hedge from the
garment and branding businesses will stand the
company in good stead going forward.
Once the benefits of quota dismantling start filtering
in, we believe that integrated players like Arvind Mills
shall stand to yield the maximum benefit, as smaller
players will have very limited scope in the global
markets. We would therefore advise investors to

BUY the stock. The benefits of consolidated
operational synergies will yield the desirable returns
for investors in the longer term. At the current price
of Rs 101, the stock is trading at 7.4 times our
estimated FY08 consolidated earnings. We estimate
a 2-year target price of Rs 143 for the stock (CAGR
of 16.2%). However, the risk profile of the stock is
very high, which investors should bear in mind.