Arvind Fashions Limited delivered a resilient and strategically important Q3FY26 performance, reinforcing confidence in its medium-term growth narrative despite a volatile consumer environment. The ICICI Direct Retail Equity Research team has reiterated a BUY call with a 12-month target price of Rs.595, implying 32% upside from current levels. Strong momentum in direct-to-consumer (D2C) channels, improving product mix, disciplined discounting, and steady margin expansion underpin the thesis. While near-term investments continue to cap margin expansion, structural shifts toward higher-quality revenues position Arvind Fashions for sustained earnings acceleration over the next two to three years.

Q3FY26 Results Highlight a Quality-Led Growth Cycle

Arvind Fashions reported consolidated revenue growth of 14.5% year-on-year, reaching Rs.1,376.6 crore in Q3FY26, driven by broad-based demand recovery across retail, wholesale, and online channels. Retail sales rose nearly 10% YoY, while the online D2C segment surged 50% YoY, reflecting continued consumer migration toward brand-owned platforms.

Gross margins expanded by 49 basis points to 55.4%, supported by lower discounting intensity and better sourcing efficiencies. While EBITDA margin improvement remained measured at 14.2%, management consciously reinvested incremental gross margin gains into marketing, brand visibility, and consumer engagement initiatives—an approach aligned with long-term brand equity creation rather than short-term margin maximization.

Adjusted PAT after minority interest climbed 61% YoY to Rs.44.7 crore, underscoring strong operating leverage despite transient cost pressures.

D2C Engine Continues to Redefine the Earnings Mix

The structural pivot toward D2C remains the cornerstone of Arvind Fashions’ investment thesis. During 9MFY26, D2C channels contributed 65% of total revenues, up from 63% in the previous year, with management targeting a 75% mix over the medium term.

Online B2C revenues grew 42% YoY in 9MFY26, while physical retail delivered consistent like-to-like growth, supported by improved merchandise freshness and better inventory discipline. The company plans to add 1–1.5 lakh square feet of retail space annually, ensuring calibrated expansion rather than aggressive footprint inflation.

This channel mix shift enhances margin visibility by reducing dependence on wholesale discounting cycles and improving inventory turns, thereby strengthening return metrics across cycles.

Brand-Wise Momentum Shows Strategic Clarity

Brand execution during the quarter reflected differentiated strategies aligned to consumer cohorts:

US Polo Assn. remained the flagship growth engine, delivering mid-twenties revenue growth, supported by double-digit retail LTL growth and a robust 25% expansion in adjacent categories such as footwear and innerwear.

Flying Machine showed early signs of revival, posting 17% LTL growth, aided by sharper Gen-Z positioning and strong online traction. Management expects the brand to approach operational breakeven by FY27, following a strategic recalibration toward digital-first engagement.

Arrow faced temporary supply disruptions but has returned to profitability, with management guiding toward mid-single-digit EBITDA margins in FY27 as sourcing normalizes.

PVH brands—Tommy Hilfiger and Calvin Klein—were briefly impacted by geopolitical disruptions and GST changes but have shown visible recovery since mid-November.

Margins Set to Cross Structural Thresholds

While EBITDA margin expansion remained incremental in Q3FY26, the underlying margin trajectory is constructive. For 9MFY26, gross margins expanded by 116 basis points to 54.5%, reflecting improved sourcing and disciplined pricing.

Management targets EBITDA margins exceeding 15% over the next two years, driven by higher D2C contribution, scale benefits in adjacencies, and operating leverage from stable LTL growth. Arrow’s margin recovery and Flying Machine’s breakeven trajectory are expected to further support consolidated margin expansion beyond FY27.

Revenue Visibility Remains Strong at 12–15%

ICICI Direct expects 12–15% revenue growth to sustain over the near-to-medium term, underpinned by consistent retail execution, strong online momentum, and stable demand trends entering Q4FY26.

The company has reported three consecutive quarters of approximately 8% LTL growth, reinforcing confidence in brand salience and consumer engagement. Adjacent categories—now contributing 25% of total revenues—continue to scale faster than core apparel, adding durability to topline momentum.

Valuation Leaves Room for Re-Rating

Following a 23% correction from recent highs, Arvind Fashions is trading at 8x FY27E EV/EBITDA and 6.6x FY28E EV/EBITDA, levels that understate the company’s improving earnings quality and balance-sheet trajectory.

ICICI Direct assigns a target price of Rs.595, valuing the company at 9x FY28E EV/EBITDA, reflecting confidence in margin normalization, D2C scalability, and brand-led growth visibility.

Key Financial Snapshot

Investment View and Stock Levels

Current Market Price (CMP): Rs.455
Target Price: Rs.595
Upside Potential: 32%
Recommendation: BUY
Investment Horizon: 12 months

Arvind Fashions stands at an inflection point where disciplined execution, premium brand leverage, and D2C scalability converge. While near-term volatility in discretionary spending remains a risk, the company’s improving revenue mix and margin structure provide a compelling risk-reward proposition for long-term investors.