X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Kitex Garments: A margin kicker - Views on News from Equitymaster
The India Letter
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Kitex Garments: A margin kicker
Jan 28, 2015

Kitex Garments Ltd (Kitex) has announced the third quarter results of financial year 2014-2015 (3QFY15). The company has reported around 22.8% YoY growth in sales while net profits have surged by 104.3% YoY during the quarter.

Performance summary
  • Sales increase by 22.8% YoY during 3QFY15. However, management stated that growth would have been higher had the US clients not asked to delay consignments in the month of December. Since December is a fiscal year end in the US, most clients asked to delay the delivery to show a better working capital picture thereby impacting the sales growth of Kitex for the quarter.
  • Operating profits increase 106.7% YoY during the quarter on the back of strong revenue growth.
  • Net profits increased 104.3% YoY due to strong performance at the operating level. Interest and depreciation expenses increased by 156.5% YoY and 110.5% YoY respectively. Other income too, witnessed a triple digit growth of 157.6% YoY. Interest expenses increased as packing credit interest subvention that the company used to get expired in October. Other income rose significantly because of higher forex gains while depreciation expenses increased as the company is in expansion mode.
  • The merger between Kitex Garments and Kitex Children’s wear is on the cards and the company has already appointed an auditor to work out the details.

Standalone performance snapshot
(Rs m) 3QFY14  3QFY15  Change 9MFY14  9MFY15  Change
Income from operations  994 1,221 22.8% 3,000 3,531 17.7%
Expenditure  792 802 1.3% 2,465 2,503 1.5%
Operating profit (EBDITA) 203 419 106.7%  535 1,028 92.2%
Operating profit margin (%) 20.4% 34.3%   17.8% 29.1%  
Other income  20  51 157.6%  170  128 -24.8%
Interest  26  66 156.5%  74  142 91.7%
Depreciation  25  53 110.5%  69  155 125.5%
Profit before tax 172 352 104.6% 562 859 52.7%
Tax 59 121 105.3% 199 290 45.4%
Profit after tax/(loss) 113 231 104.3% 363 569 56.8%
Net profit margin (%) 11.4% 18.9%   12.1% 16.1%  
No. of shares (m)         47.5  
Basic earnings per share (Rs)          12.0  
P/E ratio (x) *         32.6  
*On a trailing 12 month basis

What has driven performance in 3QFY15?
  • Topline increased by 22.8% YoY in 3QFY15. Management expects to clock Rs 5,000-5,250 m of revenues in FY15. For FY16, growth is expected to be in the range of 20-30%. The capacity utilization in the processing unit is 50-55% while that in the sewing unit is near 100%. Current capacity is 265,000 pieces per day which can be scaled to 275,000-285,000 pieces per day with technological efficiency.

  • Operating profits increased 106.7% YoY during the quarter due to healthy topline growth. The improvement in margins is because of technological efficiency and fall in cotton prices. However, the full benefit of falling prices is likely to be witnessed in the next quarter as it shall get more prominent with a lag effect.

  • The net profits increased 104.3% YoY on the back of strong operating performance. However, high interest (+156.5% YoY) and depreciation (+110.5% YoY) expenses curtailed profitability growth to an extent.
What to expect?
At the current price of Rs 525, the stock is trading at a multiple of 32.6x its trailing 12 month (TTM) earnings. With an aim to double its capacity over a period of 3 years Kitex is all set to become number one manufacturer of infant wear in the world. The launch of its own brand and licensing with private labels in the US will not only help boost volumes but also augur margin growth. Technological advancement (shall cut down time and improve production) will further aid margin expansion. Further, long standing relationships with big brands (Mothercare, Carter, Gerber etc), focus on quality, and a diversified client mix provides long term visibility to the business. All in all, Kitex Garments has all the ingredients to ride on the outsourcing Mega trend but the valuations at 32.6x TTM earnings are not that comforting.

Since the time of our recommendation the stock has increased by just 7%. Back then, we had recommended investors to put 25% of their money into the stock. Those who have still not bought can put 25% of the money they intend to put into the stock now. However, those who already have put in the requisite amount should not buy more at current levels.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website www.personalfn.com
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

KITEX GARMENTS SHARE PRICE


Dec 15, 2017 01:28 PM

TRACK KITEX GARMENTS

  • Track your investment in KITEX GARMENTS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON KITEX GARMENTS

KITEX GARMENTS - MOTILAL OSWAL COMPARISON

COMPARE KITEX GARMENTS WITH

MARKET STATS