Apparel ƒ :Q3FY15 Result Preview : ICICI Securities, report

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Apparel
ƒ Steady revenue growth to continue
We expect our apparel coverage universe to report revenue growth in
the 4-27% range YoY. Page Industries (Page) is expected to continue its
strong performance and report growth of 27% YoY to | 384.3 crore led
by healthy volume (19.5% YoY) and value growth (6% YoY). Kewal
Kiran Clothing (KKCL), on the other hand, is likely to witness subdued
demand as the company has intentionally refrained from dumping
goods on retailers owing to delayed payments for earlier consignments.
The festive season has also been lukewarm for KKCL. Vardhman, which
had reported revenue growth in mid-teens for the last three quarters, is
likely to report 4.5% YoY revenue growth owing to reduced demand for
yarn from China. Hence, we expect the yarn segment to report a
marginal 2% YoY growth in sales while the fabric segment is expected
to fare better and is likely to grow 13% YoY.
ƒ Operating margin performance to remain mixed
Despite a pick-up in demand, companies have refrained from taking
price hikes. We expect a mixed operating performance for companies in
our apparel universe. KKCL is likely to report a YoY decline of 210 bps
to 17.8% owing to negative operating leverage while Rupa is expected
report a 50 bps YoY improvement at 16.1%. Page is expected to
continue its outperformance with 130 bps YoY improvement in margin
to 19.5%. We expect Vardhman to report an 890 bps dip in operating
margin to 14.5% on the back of lower revenue growth and a dip in yarn
realisations.
On the PAT front, we expect Page and Rupa to report YoY growth of
33.8% and 14.8%, respectively, while KKCL may report a marginal YoY
de-growth of 2.2%. Vardhman may witness a 56% YoY dip in PAT
owing to weaker sales growth and likely margin pressure.
ƒ Macro trends in sector
Globally, cotton prices have fallen sharply while they have been
comparatively steady in India as the government has announced
remunerative minimum support prices to protect the farmer’s interests.
The imbalance in global and Indian cotton prices has rendered Indian
yarn exports uncompetitive as global yarn producers are dumping
cotton yarn at lower prices. To provide relief to Indian cotton yarn
exporters, the government in December 2014, decided to abolish
mandatory registration of cotton and yarn export with the Directorate
General of Foreign Trade. This move is expected to reduce the
transaction costs and make cotton yarn exports more competitive.
Based on the data provided by Office of Textiles and Apparel (Otexa),
India’s apparel and non-apparel exports to the US between January and
October 2014 increased 6.2% and 7.5% YoY to $2947 million and $2772
million, respectively

Company specific view (Apparel)
Company Remarks
Kewal Kiran Revenues are likely to increase 8% YoY to | 93.2 crore led by 4.8% YoY increase in volumes to
9.1 lakh pieces & 3% YoY increase in realisation to | 991/ piece. The operating margin is likely to
dip 210 bps YoY to 17.7% owing to negative operating leverage. PAT is likely to de-grow 2.3%
YoY to | 10.4 crore
Page Industries Healthy volume growth in the women and leisure segment is likely to enable 27% YoY growth in
revenues to | 384.3 crore. Volumes are likely to increase 19.8% YoY to 30.8 million pieces. The
EBITDA margin is likely to improve 130 bps YoY TO 19.5% leading to YoY PAT growth of 33% to |
46.3 crore
Rupa &
Company Revenues are likely to increase 10.5% YoY to | 209.3 crore. The EBITDA margin is likely to
increase 50 bps YoY to 16.1% with EBITDA increasing 14% YoY to | 33.6 crore. However, owing
to higher depreciation, PAT growth is expected to remain muted at 14.8% YoY to | 18.1 crore
Vardhman
Textiles
Revenues are likely to grow 4.5% YoY to | 1479.7 crore led by 2% and 13% growth in the yarn
and fabric segments, respectively. Owing to a fall in realisation of yarn, we expect the operating
margin to dip 890 bps YoY to 14.5%, thereby leading to PAT de-growth of 56.0% YoY to | 77
crore
Source: Company, ICICIdirect.com Research

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