Financial Analysis and Valuation of INDITEX

Master's Thesis from the year 2011 in the subject Business economics - Investment and Finance, , language: English, abstract: In this study, we are interested in determining the value of the Spanish apparel giant INDITEX Group, now the world¿s largest clothing retailer. Its flagship chain store is well-known Zara. The Group also owns brands such as Massimo Dutti, Pull and Bear, Oysho, Uterqüe, Stradivarius and Bershka. In spite of volatile raw material costs, unstable world economy, financial crisis, currency risk exposure and fierce competition in the market, the growth of INDITEX is unstoppable. The Spanish Group now runs more than 5000 stores in 78 countries with a remarkable expansion into higher-growth emerging markets. INDITEX¿s cheap-and-chic line has changed the face of the industry. Thanks to its ¿fast-fashion¿ strategy and highly flexible supply chain, new designs can be created as the season moves along and hence rapidly adjust its supply to meet the customer¿s demand. INDITEX¿s balance sheet analysis shows a net negative working capital that can be explained by its business model. Profitability analysis such as EBITDA margin and ROIC, based on the NOPLAT calculations through income statement, demonstrates that its closest competitor H&M is slightly above INDITEX. Finally, cash flow analysis confirms the financial health of INDITEX and demonstrates that it is not facing any liquidity or insolvency problem. According to the DCF valuation, the target price is estimated at EUR 81, 38% higher than the current share price. A comparison with the market multiples valuation indicates a soaring target price. This difference leads us to conduct a scenario analysis focused on the best and the worst cases.