Stocks To Buy: Motilal Oswal's 'bull case' projects 114% upside for this fashion retailer

Shares of Arvind Fashions Ltd. are set to rise as much as 114% from current levels, brokerage firm Motilal Oswal projected in its bull case scenario while initiating coverage on the stock on Tuesday, December 16.

Motilal Oswal began coverage on Arvind Fashions with a 'Buy' recommendation and assigned a price target of ₹725 per share. This indicates a potential upside of around 47% from the stock's closing level on Monday.

The brokerage described Arvind Fashions, part of the Lalbhai Group, as a leading branded apparel company with a strong portfolio of marquee brands including US Polo Assn., Arrow, Tommy Hilfiger, Calvin Klein, and Flying Machine.

According to Motilal Oswal, Arvind Fashions is currently at an inflection point, transitioning from a phase of consolidation to a period of profitable scale up.

The company is sharpening its focus on five core power brands, which are expected to anchor the next leg of growth. This growth phase will be driven by scaling up core brands, expanding into adjacent categories in a profitable manner, and benefiting from operating leverage.

Collectively, these initiatives are expected to deliver a revenue compound annual growth rate of 13% between financial year 2026 and financial year 2028. Over the same period, margins are estimated to expand by 190 basis points.

Further, Motilal said that Arvind Fashions is entering this growth phase with a strong balance sheet and disciplined working capital management. Capital expenditure is expected to remain limited and focused primarily on high visibility flagship stores. Most of the retail expansion is likely to be undertaken through a franchise owned, franchise operated model, which the brokerage believes will enhance capital efficiency and improve return ratios.

The brokerage also pointed out that, in the post Covid period, Arvind Fashions executed a meaningful turnaround by exiting non core businesses such as Unlimited and Sephora. This strategic shift allowed the company to refocus on profitability and capital efficiency.

Despite exiting businesses that accounted for 32% of its FY19 revenue, Arvind Fashions managed to surpass its pre Covid revenue levels by FY25. This recovery was largely driven by the strong performance of its power brands.

Motilal Oswal added that a sharper portfolio, a consignment led operating model, and an asset light structure have improved margins and returns. As a result, return on invested capital improved from 5% in FY19 to 12% in FY25.

The company has also evolved into a broader lifestyle platform, with adjacent categories now contributing around 15% of overall revenue.

The shift to a consignment led model has improved pricing control and margins, while the asset light structure has enabled faster scale up and stronger cash generation. Motilal Oswal estimates free cash flow to the firm of ₹660 crore over FY26 to FY28, alongside an expansion in return on equity and return on invested capital to 25% and 28%, respectively, by FY28.

With improving earnings visibility, steady margin expansion, and rising return ratios, Motilal Oswal believes Arvind Fashions is well positioned as a high quality compounding story within India's branded fashion space.

The company's balanced brand portfolio, scalable business model, and strengthening financial metrics offer a compelling risk reward profile, the brokerage added.

Shares of Arvind Fashions Ltd. ended 0.24% higher on Monday at ₹494. The stock has declined 6% so far in 2025.