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Kitex Garments: Does Our First Megatrend Pick Still Have Steam? - Views on News from Equitymaster
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  • Jul 19, 2017 - Kitex Garments: Does Our First Megatrend Pick Still Have Steam?

Kitex Garments: Does Our First Megatrend Pick Still Have Steam?
Jul 19, 2017

Kitex Garments was the very first stock we recommended when we started telling you about Megatrends in September 2014.

The business in a virtually unknown township in Ernakulam district of Kerala (Kizhakkambalam) is unique. Not just because of its niche focus on the global infantwear market, but also because of its strength in a segment that otherwise has high entry barriers.

Kitex still commands about 70% share of all infant-wear clothing exports from India. Adhering to stringent safety measures, maintaining high quality standards, higher degree of complexity in design (due to small sizes), smaller batch size orders and sustaining quality labour force are some key reasons why Kitex has resisted competition and sector headwinds over the years.

With its capacity utilization at about 100%, Kitex has laid down a capex plan to double its capacity from current 0.6 m pieces per day to 1.1 m pieces per day in next 3-4 years with a capex of Rs 2.4 billion. This capacity expansion will be without expanding the employee base and thus derive strong operating leverage.

For the next phase of growth, the company is targeting three mediums: Its own brand Little Star, licensed agreement with Lamaze and private label business. The company is already in talks with about ten large customers and expected additional revenues of Rs 1.3 bn from the segments in the next two years. The forward and backward integration (own brand plus licensing of private labels) should allow Kitex a wider presence in the US infant wear market value chain. In addition, it should help the company resist pressure on realization and margins.

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