Kewal Kiran Clothing Limited - ICRA

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2005 2009 2010e 2015e 2020e ICRA Equity Research Service Kewal Kiran Clothing Limited Industry Scenario As per Images Yearbook 2011, the size of the domestic textile and apparel Industry is estimated at Rs. 246,000 crore with apparels constituting approximately 70% of the market at Rs. 170,900 crore. The apparel segment is expected to grow at a CAGR of 11% over the next five years to grow to Rs, 288,880 crore. Increasing population with rising disposable incomes, rapid urbanisation, change in spending attitude and increasing retail penetration into smaller cities are expected to be crucial growth drivers. Total Apparel Market (Rs Crore) 470,000 Total Apparel Market (Rs Crore) 11% 101,425 154,000 170,900 288,880 1% 5% 5% Population Growth Increase in Individual Consumption Growth in Unit Value Total CAGR Source: Images Yearbook, ICRA Equity Research Service Percentage of Organized and Unorganized Sectors in Retail Industry 87% 86% 83% 75% 13% 14% 17% 25% Source: Images Yearbook, ICRA Equity Research Service 60% 40% 2005 2009 2010e 2015e 2020e Organised Unorganized The organised apparel retail sector shall lead the way for the domestic apparel industry, likely to grow at ~28% CAGR between 2010 and 2015. Thus the organised garment retail penetration shall increase to ~25% (translating to a market of Rs. 72,200 crore) in 2015 from ~16% at present (~Rs. 27,350 crore). This presents ample room for all organised players to compete and grow while presenting significant advantage for established industry players such as KKCL to capture a greater share of the consumer’s wallet. KKCL’s target segment between 16-25 age is expected to witness higher than the average 11% growth expected for the readymade garment industry. This is expected to be fuelled by the growth of services sector especially the new generation IT and BPOs which is expected to generate higher employment among the youth leading to their greater consumption. Furthermore, Segment wise, women’s wear and girl’s wear is expected to lead the growth with CAGR of 12% and 11% respectively while menswear and boy’s wear are expected to grow at relatively lower CAGR of 9% and 10% respectively. The increased growth in women’s wear reflects increasing independence among women as a greater number enters the workforce and changing lifestyle which encourages higher spending among women. In line with higher expected growth for women’s wear, KKCL too has increased its focus on the segment and is marketing aggressively through events and advertising focussing on women. Also there is paucity of national brands targeted exclusively at women and KKCL intends to capture this largely untapped market. 14
ICRA Equity Research Service Kewal Kiran Clothing Limited Currently share of urban market is higher at 55% with greater organised retail penetration than the rural market. However, the rural market at 45% share remains extremely underserved with huge potential for organised retail to grow. KKCL is well positioned with respect to the rural market too having its value to mid-premium brand, Integriti and mid-premium offering, Lawman Pg3 in the portfolio. Boys 10% Girls 9% 2009 Mens 43% Boys 10% Girls 9% 2015e Mens 40% Boys 10% Girls 10% 2020e Mens 37% Women 38% Women 41% Women 43% Source: Company, ICRA Equity Research Service The Indian denim market (CY 2009) is estimated at Rs. 4,600 crore with menswear segment dominating at Rs. 3,900 crore, followed by women-wear at Rs. 415 crore and balance comprised by girls-wear and boys-wear categories. The menswear market is expected to exhibit a moderate 9% CAGR with the women-wear category to expand at 13% CAGR. Even though the readymade denim wear market has been on a growth trajectory, the per capita consumption still lags behind considerably that of large consuming economies. The Indian average is between 2-3 pairs of jeans visa-vis China at 4 and US with 9, indicating the growth potential of the domestic denim market. A fast growing middle class and changing income pyramid is further expected to fuel growth. In terms of demanding the latest fashion trends, the Indian consumer is less dynamic as compared to the more fashion forward western consumers. Currently, basic denims comprise 50-60% of the denim category, 25-30% is value-added while only 5-10% can be considered as a “fashion” product. The proportion is broadly expected to remain on similar lines in the medium term. The company has maintained distinct identity of each of its brands by focussing on the softer aspects such as unique features and creating a lifestyle product so that people are drawn towards the brand for these reasons and not on price. For example, it has always positioned “Killer” as an upmarket brand by associating/using foreign models for the advertisement campaigns. It has never advertised on pricing of its products, as it is difficult to retain customers once the price point moves. Thus it has been able to pass on cost increases better than the peer group, which in-turn has allowed it to generate above-average operating margins. 15
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Kewal Kiran Clothing Limited - ICRA

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