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D e n t e d b y e a r l y f e s t i v e s e a s o n & h i g h e r c o s t s …
Kewal Kiran Clothing’s (KKCL) Q3FY12 numbers were disappointing on all
aspects. Revenues remained flat YoY and operating margins came under
pressure due to higher costs and increased dependence on outsourcing.
In Q3FY12, revenues remained flat YoY at | 64.2 crore (| 63.0 crore –
Q3FY11) as against our estimate of | 81.6 crore. While garment
realisations improved by 10.6% to | 801 per piece (I-direct estimate:
| 796), volumes dipped 9.3% to 7.7 lakh pieces lower than our estimate of
9.4 lakh pieces. Topline growth was also impacted due to an earlier
festive season (as KKCL recognises sales when goods are sold to
distributors; that would be about a month prior to the actual festival time).
The operating margin at 18.6% was significantly lower than our estimates
(25.3%) as the impact of the excise duty was not fully passed on to
consumers. Also, the company incurred incremental selling expenses to
promote the accessories brands. Consequently, the bottomline was
dented and witnessed de-growth of 22.4% YoY to | 8.8 crore.
ƒ Expanding retail presence
During the quarter, the company added 26 new retail stores;
10 K-Lounges, seven Killer exclusive brand outlets, seven Integriti
stores and two Lawman Pg3 outlets. With this, the company has a
presence in over 110 cities and 19 states across India.
V a l u a t i o n
The company has reported a flat topline growth and bottomline degrowth for the first time in the last 10–12 quarters. This tepid performance
can be attributed to a number of reasons like early festive season,
dampened consumer sentiment due to higher interest costs and inflation
and also rising promotional expenses for the company. Consequently, we
have downgraded our FY12E and FY13E EPS by 12.4% and 11.1%,
respectively. While the virtually debt free status and strong cash (| 87 per
share) work in favour of the company, we remain cautious about the
pressure on the operating margin and the dampened profitability. We
have valued KKCL at 12.0x FY13E EPS to arrive at a target price of | 588.
The stock is currently trading at 15.7x and 12.9x FY12E and FY13E revised
EPS of | 40.3 and | 49.0, respectively. We maintain our HOLD rating on
the stock
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
D e n t e d b y e a r l y f e s t i v e s e a s o n & h i g h e r c o s t s …
Kewal Kiran Clothing’s (KKCL) Q3FY12 numbers were disappointing on all
aspects. Revenues remained flat YoY and operating margins came under
pressure due to higher costs and increased dependence on outsourcing.
In Q3FY12, revenues remained flat YoY at | 64.2 crore (| 63.0 crore –
Q3FY11) as against our estimate of | 81.6 crore. While garment
realisations improved by 10.6% to | 801 per piece (I-direct estimate:
| 796), volumes dipped 9.3% to 7.7 lakh pieces lower than our estimate of
9.4 lakh pieces. Topline growth was also impacted due to an earlier
festive season (as KKCL recognises sales when goods are sold to
distributors; that would be about a month prior to the actual festival time).
The operating margin at 18.6% was significantly lower than our estimates
(25.3%) as the impact of the excise duty was not fully passed on to
consumers. Also, the company incurred incremental selling expenses to
promote the accessories brands. Consequently, the bottomline was
dented and witnessed de-growth of 22.4% YoY to | 8.8 crore.
ƒ Expanding retail presence
During the quarter, the company added 26 new retail stores;
10 K-Lounges, seven Killer exclusive brand outlets, seven Integriti
stores and two Lawman Pg3 outlets. With this, the company has a
presence in over 110 cities and 19 states across India.
V a l u a t i o n
The company has reported a flat topline growth and bottomline degrowth for the first time in the last 10–12 quarters. This tepid performance
can be attributed to a number of reasons like early festive season,
dampened consumer sentiment due to higher interest costs and inflation
and also rising promotional expenses for the company. Consequently, we
have downgraded our FY12E and FY13E EPS by 12.4% and 11.1%,
respectively. While the virtually debt free status and strong cash (| 87 per
share) work in favour of the company, we remain cautious about the
pressure on the operating margin and the dampened profitability. We
have valued KKCL at 12.0x FY13E EPS to arrive at a target price of | 588.
The stock is currently trading at 15.7x and 12.9x FY12E and FY13E revised
EPS of | 40.3 and | 49.0, respectively. We maintain our HOLD rating on
the stock
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