Kitex Garments Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Textile

Company

Kitex Garments Ltd

Reco Price
Rs. 118
Price Target (12 Months)
Rs. 240
Upside
103.39%

Date

30 April 2014
Sensex
22417.8
CNX Nifty
6696.4

Exchange

Code

NSE
KITEX
BSE
521248

With doubling its capacity in the next two years Kitex garments will become the world largerst player in the Infant wear apparel industry.

Market Leader:
Kitex has an in-house manufacturing facility at Kizhakkambalam, Kochi, with an installed capacity of producing 550000 units of garments per day. The company derives majority of its revenue from export sales as it is a 100% EOU (Export Oriented Unit), with exports to international markets contributing more than 90% to sales revenue in FY14. Jai Jai Mills is the only second player in India with capacity of 500000 pieces of garments per day, there are very few organized players in the world of Infant wear Apparel. Hence Kitex Garments is clear domestic market leader where it does not face any serious competition from domestic players.

Preferred Player:
The big branded garment players in the USA and Europe depend upon India, China and the neighbouring countries as a manufacturing hub, due to availability of the raw materials and skilled labour at lower prices in these countries, to get the required output at the lowest possible cost. Despite stiff competition from other countries, international buyers show preference to company’s product for its quality and timely delivery and hence Kitex Garments is confident of achieving better working results in the coming years. Also Kitex garment is the only company in the world which uses Acutex 1 quality of yarn (raw material) and due to this it is the most favorable supplier for infant clothes in world. They are the only company with 100% certified safe process for the Infant clothes. Kitex garments use Organic processed fabric for infants during the dying process. Stiching threads and embroidery threads are bought from CODES which is the world no 1 player in thread market. This makes Kitex Garments as preferred player in International market.

Big Customers:
Kitex garments has key focus in US markets , Gerber ,no 1 wholesaler in USA buys products from kitex garments, Turtle another major player in retail market of USA buys from the company and then sells to Wallmart and also sells under its own brand. Mother Care, Tesco are also one of the major buyers of kitex products. Toys r us another major retailer buys from the company and then sells through their own.

Strong Manufacturing Facilities:
Kitex Garments has a flexible manufacturing system which enables it to change the production volume and design of garments by allowing variation in process sequence and assembling of parts. This allows the company to be responsive to the ever-changing consumer demand in the fashion market. Also Company has spend 72 crores last financial year as a capex where they have spend on buying new machines , upgradation of current facilities etc. In the next two years company is planning to spend 125 crores in capex which will help the company to expand its capacity from 550000 units per day to 1100000 units per day.

Strong Buyer Criteria:
Company has strong criteria for taking purchase order where they should have a minimum $15 Millions on FOB (Free on board) basis. In USA Company has a very strong presence where buyers directly approach the company and comes to see sample and gets approved. Elsewhere other companies do send the samples and gets approval after 1 months where they have no assurance of getting confirm order. Hence Kitex Garments has seller power compare to industry where it is buyer industry.

Own Brand:
Company is planning to launch its own brand in USA in next 3 to 4 months time. Company has filled all the necessary documents for the new name. The company is expected to do a sales of 3-5 $ millions of sales in the coming year.

Higher Aspirations:
Company is moving to the next level by modernization, installing high tech and time saving machinery and supportive systems, improving quality of work by employee training, and by Research and Development in major areas pertaining to the industry. Company aspires to become FIRST in the World in INFANTWEAR APPAREL segment by 2015 Calendar year.

Stock Data

CMP (Rs)
122
Face value (Rs)
1
52 Week Range (Rs)
132.70 - 50.35
Market cap (Rs Crores)
560.9538462
Price To Book Value (x)
3.22
P/E Ratio (x)
10.10
EV/EBIDTA (x)
9.84

One Year indexed Stock Performance

Kitex Garments LtdSensex
Kitex Garments Ltd
Performance (%)
1m
3m
1year
Absolute
37.08
100.00
92.73
Sensex
0.34
6.58
14.93

Shareholders

(in %)
13-Sep
Promoter
54.24
FII
0
DII
0
Others
45.76
Total
100

+91 22 6639 3000
research@stockaxis.com

 

Industry

The Indian Textile Industry counts among the leading textile industries in the world. India’s textile industry contributes about 14 per cent to industrial production; 4 per cent to the country’s gross domestic product (GDP); 17 per cent to its export earnings; and is a source of direct employment for over 35 million people, which makes it the second largest provider of employment after agriculture. Abundant raw materials, healthy foreign direct investments (FDI) and a government willing to invest ensures a bright future for India’s textile sector.

The industry is expected to touch US$ 220 billion by 2020, according to estimates by Alok Industries Ltd. Also, India has the capacity to improve its textile and apparel share in the world trade from the current 4.5 per cent to 8 per cent and reach US$ 80 billion by 2020.

Garment exports from India grew by 19 per in the period July 2012–July 2013 to touch US$ 1.27 billion, on the back of increasing demand in developed economies such as the US, according to data released by the Apparel Export Promotion Council (AEPC).

India has the advantage of abundant resources of raw materials. It is one of the largest producers of cotton yarn in the world and there are good resources of fibers such as polyester, silk, viscose, etc. The country is also home to a wide range of cotton fibre and has a rapidly developing synthetic fibre industry.

Profile

Kitex Garments started its production in 1996 after setting up a manufacturing facility at landscape of Kochi. It was primarily conceived with a domestic focus, intending to make the most of the strong brand power the group enjoyed in the state of Kerala.

Kitex Garments had a key focus on the US markets, where the customers generally demand for bulk deliveries, much in contrast to the relatively smaller orders by the Europeon buyers. This time round, KGL experienced a little less than expected growth for a few years as most buyer representatives sourced their entire requirement from the textile hub of Tirupur (5 hrs drive from Kochi, with no flight connections).

Kitex Garments has However, with starting of an international airport at Kochi and having been satisfied with the production at its top-class facilities, Kitex Garments has no looking back. Further with no quotas on textiles, it is now enabled to scale up its operations and is poised to evolve as a notable player in the Indian textile space.

Profit & Loss Statement:- (Standalone)
(Rs Crores)
Particulars
FY 2011
FY 2012
FY 2013
FY 2014
FY 2015E
FY 2016E
Income:-
  • Sales
  • Total Expenditure
  • EBIDTA
  • EBITDA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • Profit Before Depreciation & Tax
  • Depreciation
  • Profit Before Tax
  • PBT Margin (%)
  • Tax
  • Tax Rate (%)
  • PAT
  • Adjusted (EPS)
  • 256.11
  • 208.33
  • 47.78
  • 18.65
  • 5.23
  • 53.01
  • 14.89
  • 38.12
  • 6.89
  • 31.23
  • 12.19
  • 10.61
  • 33.98
  • 20.62
  • 4.34
  • 312.00
  • 252.62
  • 59.38
  • 19.03
  • 6.35
  • 65.73
  • 18.76
  • 46.97
  • 6.87
  • 40.10
  • 12.85
  • 12.99
  • 32.40
  • 27.11
  • 5.71
  • 316.99
  • 255.20
  • 61.79
  • 19.49
  • 4.03
  • 65.82
  • 13.14
  • 52.68
  • 8.62
  • 44.06
  • 13.90
  • 14.66
  • 33.27
  • 29.40
  • 6.18
  • 442.74
  • 345.36
  • 97.38
  • 21.99
  • 13.34
  • 110.72
  • 12.32
  • 98.40
  • 9.68
  • 88.72
  • 20.04
  • 30.82
  • 34.74
  • 57.90
  • 12.08
  • 620.00
  • 485.00
  • 135.00
  • 21.77
  • 12.50
  • 147.50
  • 11.50
  • 136.00
  • 12.72
  • 123.28
  • 19.88
  • 42.50
  • 34.47
  • 80.78
  • 16.85
  • 842.00
  • 650.35
  • 191.65
  • 22.76
  • 11.50
  • 203.15
  • 12.50
  • 190.65
  • 15.78
  • 174.87
  • 20.77
  • 60.50
  • 34.60
  • 114.37
  • 23.86
Source: Stockaxis Research, Company Data

Valuation

The company is taking all efforts to improve the quality and productivity to get more orders at competitive rates. Due to the own processing plant the company is able to quote better rates and maintain high quality & productivity in the finished goods manufactured. Also company is expanding its capacity from 550000 units/day to 1100000 units/day by increasing its raw material capacity from 23 tonnes/day to 40 tonnes/day. Barring unforeseen circumstances the company is confident of achieving better results in the next two years with double digit growth.

We assign a valuation of 10.05x on FY 2016E EPS which indicates a target price of Rs 240 which is fair valuation for this stock considering the industry it’s operating in.

 

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