Kewal Kiran Clothing Limited - ICRA

ICRA Equity Research Service
Kewal Kiran Clothing Limited
VALUATION GRADING
In assessing a company's valuation, various parameters are looked at including the company's earnings and growth
prospects; its ability to generate free cash flows and its capacity to generate returns from the capital invested. The
valuation is also benchmarked against an appropriate peer set or index. The opinion on a company's relative valuation
is expressed using the following five-point scale as follows:
Exhibit 6: ICRA Equity Research Service—Valuation Grades
Valuation Grade
Grade Implication
A
Significantly Undervalued
B
Moderately Undervalued
C
Fairly Valued
D
Moderately Overvalued
E
Significantly Overvalued
While assessing a company's relative valuation,
the historical price volatility exhibited by the
stock, besides its liquidity, is also taken into
account. The extent of overvaluation or
undervaluation is adjusted for the relative
volatility displayed by the stock.
Source: ICRA Online Research
KKCL’s current valuation multiple (~12.9x times FY13 earnings) is at a premium to broader market indices like Nifty
Index, CNX 500 index or CNX Midcap index. However, KKCL continues to be one of the most reasonably valued
domestic consumption plays with strong established brand, wide distribution reach and strong balance sheet. Overall,
we expect the company to report a healthy 27% CAGR revenue growth and 19% CAGR EPS growth over the FY11a-
FY14e period, aided by rapid expansions in Tier – II and Tier – III cities. Hence, we assign a valuation grade of “C” to
KKCL on a grading scale of ‘A’ to ‘E’, which indicates that the company is “Fairly Valued” on a relative basis.
Exhibit 7: KKCL’S Relative Valuations:
ICRA Estimates
KEWAL KIRAN
CLOTHING
NIFTY
INDEX
CNX 500
INDEX
CNX MIDCAP
INDEX
FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E
Price/Earnings 15.85 12.93 13.19 11.29 12.38 10.31 10.63 8.79
EV/EBITDA 9.45 7.53 9.25 8.11 9.13 7.69 9.39 7.44
Price /Sales 2.73 2.16 1.45 1.33 1.15 1.04 0.67 0.61
Price /Book Value 3.79 3.26 2.03 1.78 1.78 1.56 1.21 1.09
Price/Cash Flow 14.06 11.46 9.46 8.15 8.93 7.42 8.17 6.34
ICRA Estimates
KEWAL KIRAN
CLOTHING
PANTALOON
RETAIL
SHOPPERS
STOP
TRENT
ARVIND
PROVOGUE
(INDIA)
FY12 FY13 FY12 FY13 FY12 FY13 FY12 FY13 FY12 FY13 FY12 FY13
Price/Earnings 15.85 12.93 13.72 10.25 36.49 23.53 n.m. 35.29 6.75 5.27 6.37 5.20
EV/EBITDA 9.45 7.53 9.66 8.26 17.01 12.14 146.01 14.70 6.14 5.54 9.42 8.14
Price /Sales 2.73 2.16 0.21 0.18 0.73 0.59 0.89 0.63 0.38 0.34 0.37 0.34
Price /Book Value 3.79 3.26 0.84 0.78 3.82 3.40 1.99 2.24 0.75 0.66 0.43 0.40
Price/Cash Flow 14.06 11.46 6.30 5.13 19.92 14.35 57.93 19.81 3.45 2.90 5.34 4.59
Source: Bloomberg, ICRA Equity Research Service * Bloomberg Consensus Estimates as on 30 th December, 2011
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