kewal kiran clothing limited - ICRA

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ICRA Equity Research Service Kewal Kiran Clothing Limited Table 2: KKCL - Q3 FY12 Results Rs. Crore Q3, FY12 Q2, FY12 QoQ% Q3, FY11 YoY% 9M, FY12 9M, FY11 YoY% Net Sales 64.2 100.35 -36% 63.02 2% 233.45 180.62 29% Other Related Income 0.41 0.43 -5% 0.32 28% 1.26 0.91 38% Operating Income 64.61 100.78 -36% 63.34 2% 234.71 181.53 29% COGS 29.63 43.49 -32% 23.99 24% 100.57 68.48 47% Employee Costs 6.78 8.4 -19% 6.31 7% 22.63 19.76 15% Selling & Distribution 8.29 10.96 -24% 8.67 -4% 28.44 21.13 35% Other Costs 7.87 11.62 -32% 7.19 9% 27.42 19.59 40% EBITDA 12.04 26.31 -54% 17.18 -30% 55.65 52.57 6% Depreciation 1.65 1.5 10% 1.4 18% 4.56 4.1 11% Interest 0.63 0.82 -23% 0.59 7% 2.0 1.7 21% Other Income 3.06 2.99 2% 1.6 91% 9.1 5.7 59% Tax 4.07 8.62 -53% 5.53 -110% 18.47 17.43 6% PAT (After MI) 8.75 18.36 -52% 11.26 -22% 39.72 35.13 13% Number of Shares (crore) 1.23 1.23 1.23 1.23 1.23 EPS 7.1 14.9 -52% 9.1 -22% 32 29 13% CEPS 8.4 16.1 -48% 10.3 -18% 36 32 13% EBITDA Margin 18.63% 26.11% 27.12% 23.71% 28.96% PAT Margin 13.54% 18.22% 17.78% 16.92% 19.35% Source: Company, ICRA Equity Research Service During the quarter, the company opened 26 new stores (10 K-Lounge, 7 Killer EBOs, 7 Integrity EBOs and 2 Lawman Pg3 EBOs) through the franchisee route in accordance with its stated distribution strategy. Opening of the new stores helped compensate the loss of sales from an early Diwali and overall slowdown as each new store opening results in top line addition of Rs 12 to Rs 16 lakh depending upon the store format. The company closed down 10 stores during the quarter due to non-viability of these franchises. The company has around 23 new stores in pipeline to be opened during Q4, FY 12. KKCL’s sales to national chain stores witnessed a sharp 35% decline on a YoY basis, partly due to the challenging economic environment. However, the overall impact was negligible as the company has maintained low dependence on national chain stores due to the lower margins offered by this distribution channel. On the other side, Exports witnessed a robust 100% growth, albeit on a lower base, as the company increased its exports of “Integriti” and “Lawman Pg 3” brands. As per the management, exports appeared relatively lucrative due to government incentives such as duty drawback scheme and absence of excise duties. In terms of regional distribution, northern region witnessed strong 36% YoY revenue growth on the back of increased penetration, stronger marketing thrust and launch of winter-wear products range; while the South, West and East witnessed de-growth of 12%, 15% and 2% respectively. Thus the regional sales distribution now appears more balanced than earlier years. In terms of product distribution, the revenue contribution from the newly launched winter-wear products and lifestyle accessories range increased from ~8% in Q3 FY11 to ~21% in Q3 FY12. 2
ICRA Equity Research Service Kewal Kiran Clothing Limited COMPANY PROFILE Kewal Kiran Clothing Limited (KKCL) is one of the leading manufacturer and retailer of branded apparels and fashionwear in India. KKCL has over two decades of experience in the domestic readymade garments industry with some established brands like ‘Killer’, ‘Lawman Pg3’, ‘Integriti’, ‘Easies’ and ‘ADDICTIONS’. KKCL markets its products through a chain of 240 ‘K-LOUNGE’ showrooms and exclusive brand outlets (EBOs) across the country. Besides, KKCL’s products are widely marketed at over 3,500 multi-brand outlets (MBOs) and national chain stores like Shoppers’ Stop and Hypercity. KKCL is an established player in the denim Jeans category through its flagship Killer brand, besides having a presence in Trousers, Shirts, T-shirts & Jackets. It has also entered the lifestyle accessories segments like shoes, belts, watches, bracelets, wallets, caps, bags, sunglasses and deodorants through the ADDICTIONS brand. KKCL’s designing and manufacturing facilities are mainly located at Dadar and Goregoan (Mumbai), Daman and Vapi in Western India. Grading Positives: The key grading positives in our view are: 1) Strongly positioned to benefit from the domestic consumption play due to Pan-India presence, including its first-mover’s advantage in the Tier-II / Tier-III cities as well as relatively less penetrated eastern states 2) established brand equity of its flagship product – Killer Jeans 3) Asset light model reduces overhead costs while maintaining product & service standards 4) Continued focus on profitable growth and careful store expansion are expected to ensure healthy profitability indicators (like RoCE) for the company going forward 5) Strong designing expertise, vast experience of the promoters’ in the branded apparel business Grading Sensitivities: The key grading sensitivities in our view are: 1) Intense competition in the domestic branded apparels market with presence of large number of domestic as well as global brands 2) Vulnerability to cotton price fluctuations and regulatory changes (like excise duty levy) 3) Ability to scale up business while maintaining its financial profile 4) High dependence on multi-brand outlets (MBOs) and National Chain Stores, which together contribute ~70% of revenues, can limit bargaining power 5) Increasing contribution from value brands (like Integriti, Lawman Pg3) and low margin products (like shirts, T-shirts) could moderate margins; cash reserves held by the company yields lower returns. 6) Merchandise obsolescence risks due to rapidly evolving fashion trends and changing customer preferences Table 3: Company Factsheet Name of the Company Kewal Kiran Clothing Limited (KKCL) Year of Incorporation 1980 Nature of Businesses Branded apparels manufacturing and retailing Products Jeans, Trousers, Shirts, T-shirts, Jackets and Lifestyle accessories Brands ‘Killer’, ‘Lawman Pg3’, ‘Integriti’, ‘Easies’ and ‘ADDICTIONS’ Company Stores 130 K-Lounges, 54 Killer EBOs, 37 Integriti EBOs, 9 LawmanPg3-EBOs, 3 Addiction-EBO, 7 Factory Outlet Distribution Network Over 3,500 Multi-brand outlets (MBOs) and National Chain stores (like Shoppers stop and Hypercity) Exports Middle East, Sri Lanka, Nepal and other countries Vendors Fabric manufacturers like Arvind Mills, Raymond, KG Denim, etc Manufacturing Capacity 3.5 Million pieces per annum (could be stretched further depending on product mix) Manufacturing Locations Washing, cutting, stitching and garmenting facilities at Dadar and Goregaon (Mumbai), Daman and Vapi Key Joint Ventures 33% stake in White Knitwear Private Ltd in Surat SEZ Bankers Standard Chartered Bank Auditors M/s. Jain & Trivedi, M/s. N.A. Shah Associates IPO Details Rs. 80.6 crore raised in 2006, Issue of 31 lac shares at Rs. 260 per share, shares are listed on BSE and NSE Registered & Corporate Office Kewal Kiran Estate, Behind Tirupati Udyog, 460/7, I.B. Patel Road, Goregaon (East), Mumbai - 400 063 Windmill 0.6 MW Capacity at Survey No.1119/P, Village Kuchhadi, Taluka Porbunder, District Porbunder, Gujarat Source: Company, ICRA Online Research 3
Page 1: Fundamental Assessment Jan-11 Feb-1
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