Kewal Kiran Clothing:: Margins at Comfort, Maintain “BUY” :: Karvy

Margins at Comfort, Maintain “BUY”
Kewal Kiran Clothing’s (KKCL) sales, EBITDA and net income declined by
9%, 3% and 4% YoY respectively on delayed festive season
The Company’s top‐line declined 9% YoY to Rs. 916.9 mn during Q2FY13,
while sequential growth was 61.3%. This slippage is due to delayed festive
season YoY, which adversely impacted volume by 11.7%. We expect strong
festive season in H2FY13 to cover up the revenue slippage. EBITDA margin
for the quarter expanded by 164 bps YoY at 27.7% however EBITDA declined
by 3.3% YoY to Rs. 254.4 mn during Q2FY13, due to revenue de‐growth. The
Company’s realization per garment went up by 6.3% to Rs. 791 for Q2FY13.
Net income of the Company declined 3.9% YoY to Rs. 176.5 mn while
sequential growth was much higher at 143%. Net Income Margin improved
by 103 bps YoY to 19.2%.

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Product wise Revenue Analysis:
During Q2FY13, Jeans and T‐Shirt grew 4% & 36% YoY to Rs. 601.5 mn and
Rs. 4.0 mn respectively while Trousers and Shirts declined 37% & 25% to Rs.
89.7 mn and Rs. 14.1mn. Looking at individual brands, revenue from Killer
grew 3% YoY to Rs. 472.9 mn while Integriti, Lawman & Easies de‐grew by
6%, 24% & 30% to Rs. 237.2 mn, Rs. 153.3 mn & Rs. 15.1 mn respectively.
Killer maintains its flagship status with enhanced brand share of 52% from
46% while Integriti, the second largest brand has marginally increased its
revenue contribution to 26% from 25%. FY2013, the company has been
focusing on promoting Integriti, like they promoted Lawman in FY2012.
Outlook & Valuation: Kewal Kiran operates as branding and marketing
company in retail apparels category. Most of its products are in the valuedriven
segment, which are expected to register good growth going forward.
At the CMP of Rs. 690, the stock is trading at a 16.1x and 13.5x of FY13E and
FY14E EPS, respectively. We value KKCL at 14x FY14E EPS, and add Rs. 98
per share of cash and liquid investments of FY13E. We maintain our “BUY”
recommendation with revised target price of Rs. 813 per share, which
represents an upside potential of 18%.


Actively reviewing and expanding distribution channel: During the quarter, the
Company opened 17 stores, i.e. 5 K‐Lounges, 1 K‐Lounge for Her, 4 Killer EBO, 5
Integriti EBO and 2 LawmanPg3. It has also closed down 24 stores during the
quarter i.e. 8 K‐Lounges, 2 K‐Lounge for Her, 9 Killer store, 3 integriti stores and
one each of LawmanPg3/Integriti and Addiction.
The Company also opened 12 stores on Dussehra in October and expects another
10 before Diwali. This leads to a total number of stores to 272.