Kewal Kiran Clothing :: Karvy research

Strong Financials and Brand Portfolio
Kewal Kiran Clothing (KKCL) has a diversified brand portfolio across the
value pyramid. It’s brands like Killer, Integriti, LawmanPg3 and Easios caters
from premium apparel to mass brands where preference is shifting towards
branded apparel. Killer, the Company’s flagship brand is aimed at the
premium segment and has witnessed good growth due its positioning as an
attractive brand for the youth, while other three are strategically targeted at
semi‐premium to value‐for‐money branded segment ensuring minimal
cannibalisation across brands.

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Wider Distribution & Brand Offering: KKCL currently has 258 stores across
India, including 238 franchisees and 20 company‐owned stores. KKCL is
looking to aggressively expand its stores, largely on franchises in order to
meet its top line growth, targeting to achieve Rs. 10 bn by 2016. Apart from
retailing ‘Addictions’ in its multi‐brand outlets and in its own retail stores i.e.
K‐Lounge, KKCL is setting up exclusive stores for ‘Addiction’. The Company
has followed an aggressive marketing policy for all its brands.
Domestic Consumption to Drive Top & Bottom Line: Company’s top line
and net income is expected to grow at a CAGR of 13.4% and 11.5%,
respectively over FY12‐FY14E. KKCL’s effort to target Tier‐II & Tier‐III cities
– where income levels have been rising and so does the penetration levels of
branded wear – is likely to increase as youth from those cities are shifting
gradually towards branded apparels.
Strong Financials, High Dividend Payments: The Company has strong
Balance Sheet position with cash & current investments of Rs. 1.3 bn and low
DE ratio of 0.1x. Moreover, Kewal Kiran is consistently paying higher
dividends reaching 40% payout during FY12. We expect higher dividend
payouts going forward.
Outlook & Valuations: Kewal Kiran operates as branding and
marketing company in retail apparels category. Most of its products are in
the value‐driven segment, which are expected to post good growth in coming
years. At the CMP of Rs. 700, the stock is trading at a 15.7x and 13.3x of
FY13E and FY14E EPS, respectively. We value KKCL at 14x FY14E EPS, and
add Rs. 91 per share of cash and liquid investments of FY13E. We initiate
coverage on the Company with “BUY” recommendation and a target price of
Rs. 828 per share, which represents an upside potential of 18%.