Hello All,
Could you explain what does this mean ? "Please treat the Company’'s earlier communication of January 28, 2016 as cancelled."
Are they going to re-announce results ? or live telephonic interview has been pre-poned ?
On Jan 28 they announced : http://www.bseindia.com/corporates/anndet_new.aspx?newsid=4395fe29-7368-4243-b0f7-2e04e5dc4e90
“Kitex Garments Ltd has informed BSE that ET Now, Mumbai will be telecasting a first and exclusive interview on February 08, 2016 at 10.40 A.M in their show Hot Stocks anchored by Avanne Dubash and Kamiya Jani following the announcement of Q3FY16 financial results in our Board meeting held on January 25, 2016.”
Now they cancelled the TV appearance and will just do a telephonic one.
Given that there’s already been a lot of valid bullish and bearish arguments raised by people on the future prospects of Kitex, I’ve nothing much to add except that I’m bullish.
However, that doesn’t mean I don’t have my fair share of concerns.
The no.1 amongst them is the management integrity. I sort of overlooked the attitude of the CEO after Q2 results whilst answering the queries on the cash and then likened the revenue guidance growth with the Avanti management (who seemed recklessly bullish to me but seem to be walking the talk).
But such flat results of Q3 are only increasing the questions on the management and with the possibility of the management guidance being met seeming impossible, my decision to remain invested hinges a lot on this concall. I always believe in - innocent until proven guilty. However, any type of behaviour to avert/divert important questions or indirect responses would be a deal-breaker for me.
It is good to see them proactively communicating any public interviews. It may also appear to be triggered as a ‘face-saving’ exercise after the market cap has been consistently hammered over the past few days. I see a telephonic TV interview on 30th Jan as a much better outcome than a F2F interview a week later. Much better to clear the air quicker than letting any rumour mongering run amok.
Let the music begin 
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One of the investment checklists i have is avoiding companies whos ceo comes on business channels very often. Found it very effective. I am talking about smallish companies ( say <5k market cap). not generalizing it though. but it works 
this may be an off topic. you guys should listen to eclerex q3 con-call. in the opening remarks itself, the ceo warned about fy17. and also look how they answer various other questions, possible threats etc. remember this is on a quarter where reported stellar sales and profit growth. had they not done, people would have extrapolated it taking the stock price high. what a great management.
Discl: Never held kitex or eclrex.
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- I’m not sure how your post is relevant to Kitex as I’m hardly aware of many TV interviews it’s CEO may have given in the recent past.
- Not a good checklist criteria IMHO - Check out CanFin’s performance and frequency of the MD appearing on CNBC.
Kitex Garments Ltd has informed BSE that the Company has received the “JOCKEY Debra S Waller Award for Great Partnership 2015” at the just concluded vendors meet in Hong Kong.
- you can check the last few quarters. (ET now )
- as i said, i am not generalizing it. anyways, this has worked me. i am not recommending this strategy to others.
Tried dialing into 11:00 AM conference call hosted by MOSL but couldn’t get any operator.
It’s just me or some other folks got same issue?
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I too have same issue
In concall- they are saying debt has gone down. converted 10 MUSD to pay back debt. and 20%-30% growth next year.
They missed shipments because of delayed Winter and so they missed top line
670 -730 cr next year
Hello Nil, I couldn’t join the conference call. I tried all the numbers but no luck. Am I missing any trick here?
Try now. I just got connected
I am in now. Thanks!
Managment looks pretty bullish. But proof of the pudding in eating only. They are planning to reduce more debt in 1-2 weeks. But the debt at concessional rate of Interest will remain in the book
Only people who faced Management can comments on the call. How they feel …the pulse
66 Crs they already paid off. Balance 7-8 MUSD will be paid in 1-2 weeks as they are expecting a good rate.
Balance Cash balance 224 cr at FY End
friends …anybody who was able to attend the con call…pls share the details.
thanks
Key Highlights of the concall:
Fellow participants >> Please add/modify as required…noted these points bit in a hurry:
Fabric capacity increased from 23 to 48 tonnes
Expects minimum 20% growth and upto 30%
Plan to ship 174 Cr in Q4
Will continue TUF loan of 33 Cr.
Paid short-term loan of 66 Crs.; will clear all short term loan in 2-3 weeks
By end of this year we have cash of 224 Crores (balance 33 million)
Recruited more and they are in training phase; hence operating cost increased but not revenue
Winter delayed in US; Customer did not held much inventory
Will end up with approx 560 Cr
Lamaze: Already started selling; planning 7 mn sales
Got trade partnership proposal from Jockey yesterday to manufacture synthetic clothes
15% revenue coming from Jockey
Was connected bit late so not sure if there was any discussion on CFO resignation.
Overall, the same pieces figured out, nothing new, my take vs. last call:
Cash still in US bank account; management either hiding or still speculating on currency instead of focus on core business
No clear explanation of sales fall except some business lost with Jockey
Management still firm of guidance of 560 Cr. (which in my view is very difficult to achieve)
Disclosure: Invested
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Just a quick noting of the concall.
Q3FY16 Concall - Kitex
Winter delayed in US and hence winter sales lower in the US.
After 15th December the customers asked to hold the shipments as they don’t want to carry inventory in their books
Sales Q3FY16 Q3FY15
USD Mn 14 16
FY16 Sales guidance at 560 cr. Revised downwards form 600 cr
560 cr is including other income. 9M figures 361 cr operating revenue and 18 cr other income. Total 380
Reason from drop in sales is due to lower sales to Jockey where consumer preference is changing from cotton to synthetic.
Jockey sales target = USD 16-17 million. Actuals down by 50%
Company thinking whether to start synthetic poduction line? It would be additional opportunity for Kitex
Sales to Jockey = 15% of total sales.
Q4FY16 sales guidance at 174 cr
FY17 guidance 670 - 730 cr (20% - 30% growth). Minimum 20% growth next year
Confirmed bookings for Q1, Q2 and Q3 FY17 at 20% growth
USD 10 million debt repayed. USD 9 million to be repaid in next 2-3 weeks. This is packing credit
Term loan taken under TUF scheme would remain
Over and above 20-30% growth on existing business. Additional USD 7 million (about 50 cr)
sales expected from new customers/own retail brand. USD 7 million is minimum target
Dec-15 cash balance = 251 cr
6 million promoter shares pledged for Kitex Childrenware borrowings
Mar-16 expected cash balance would be 220-225 cr after paying further USD 9 million debt
CFO Resignation - He got another offer. He had completed 3 years. Normal practice and nothing unusual
Large labour recruitment done for future requirements. It takes about 6 months to train new workers
Plan to double the capacity over next 3 years. Capacity not quantifiable and depends upon the product (Body suit, Cap, Etc.)
KCL would be listed separately. Timeline is not decided
Disc: Not invested. Tracking.
2 Likes
The guidance of 560cr includes other income. In FY16, other income would be around 25 cr, so effectively sales guidance is 535 cr.
For FY17, guidance is for 20-30% growth, so this implies 640-695 cr sales.
the 200 cr cash still remains in FC account. going by management’s commentary, they are not planning to increase the dividend payout substantially or putting the cash in debt or mutual funds to get higher interest income.
discl: not invested
Notes from the Conference Call
No Growth in Total Income -
- Delayed winter in USA has led to clients (Ex: Gerber) asking Kitex to hold on to shipments in last 2 weeks of December. As US year closing is on 31 Dec, they didn’t want to report high inventory levels in their results. Have already dispatched those shipments in first week of January
- Major customer Jockey (~15% of revenues) has decided to use synthetic material instead of cotton owing to youth/new/fashion trends in industry. Didn’t expect at all Jockey to turn into synthetic. Jockey - 16 million dollar sales has come to 6-7 million dollar sales one of the reasons for shortfall in total income. Almost 50% down. Made up some loss of revenue with other customers. We have to take a decision whether we should start with their synthetic line. That’s additional opportunity as they have offered to double orders. Decision to be taken over the next few weeks. Still continuing with their existing line. Synthetic will have to imported from Taiwan or China. This was the only Men’s / Women’s clothing we were catering to. Jockey business was a special project based on NASA research. Profit margins will not be impacted much because of Jockey. Although efficiency was higher as same product manufactured for 365 days. All other business infant wear. Lamaze has even started organic cotton? (Not sure)
Risk of other customers shifting to Synthetic -
Synthetic trend only related with inner-wear. Because of the climate changes leading to unpredictable cotton supply lot of people are shifting to synthetic/synthetic mix. Currently observed only with the Jockey customer
Kitex’s infant business (Gerber, etc) all are 100% are cotton. Infants are very sensitive to the material. Specialised into Infant wear for 0-24 month old babies. For all our businesses. All businesses are 100% cotton as infants have sensitive skin.
FY16 and FY17Guidance
Fy16 9m operating income - 361 crore
Fy16 9m total income - 380 crore (Sabu Jacob repeatedly highlighted he includes other income as part of total income)
12m - 550-560 crores
Accepted he committed 600 crores but will end up around 550-560. But did he commit 600 crores including other income earlier?
Q4 - 170-180 crores expected sales
Planned 15% top line and 10% bottomline growth for the year.
FY17 - We have got enough commitment from our customer for Q1, Q2, Q3 this year we already have got great orders for 20-30% growth. 20% is lower end and 30% is higher end. Will come up with final numbers for FY17 in Q4. Awaiting feedback on final quantities. K-mart shipment expected in June-July.
Debt Position - September Balance sheet - 103 crore short term debt, 66 crore paid off
Kitex Childrenwear debt - Dont have the numbers
Cash balances
241 in september around 251 crore in december
By Fy16 will end up with around 220 crore balance
Currency Call
Converted 10 $million with 2 rupee gain
and will book remaining 9 $million
Balance will be $33 million in USA account
Permanent affair - currency call? Why take these positions with other businesses to manage?
Explained - Cash balances? Blended interest rate we earn from them - 9 million we are holding is because in 2 weeks we may get 50 paise more. More than the interest we are gaining in the appreciation. Because of China issue and all that we can get a better rate. If you book a forward we can get a better hedge. With China devaluation, we expect the rupee to further depreciate and we can get a better rate. The guy I think Manoj) sitting with Jacob was trying to argue this is always a better investment for the company and this policy will continue.
Jacob intervened - This policy depends on the market situation. Now is the time to have either forward booking. If the situation changes, we will change the policy.
(NOT CONVINCED)
CFO Resignation
Completed 3 years. People at the top level in Kerala normally work for 2-3 years. Leave for a better package. Nothing unusual.
From a management perspective, who else is the key decision makers?
Every department is handled by HoD. CFO has a group of people supported by people in different departments,
Dividend Payout - Suggested to the management to increase dividend payout to look after minority shareholders as no significant capex planned in future.
Have increased dividend over the years and we will formally come up with a dividend policy and financial plan at year end. (Not convinced with his answer)
Merger of KGL and KCL - Go with the separate listing. And then think about the merger process. Board has taken a decision, timelines we are working on. Market conditions not favourable for listing currently.
Thinking what time it should
Employee Cost
Employee cost has increased by 16%
Employees take 6 months to 1 year to reach full efficiency, have taken onboard many employees and sales has not increased. Employees cost increased because we recruited a lot of people to meet future demand. Employees need to be trained for 6 months to 1 year. The result will come in next year. Added 30% labour.
Capacity expansion - Fabric Capacity increased from 23 tonnes to 48 tonnes.
Capacity growth planning of 20-30% , in another 2 months we are coming up with the actual numbers based on customer confirmations. Next year what we expect adding small small additions to machines, equipments, etc. can reach 30-35% increase on capacity
By 3 years to double the capacity from existing production. Number of garments to produce - depends on the line of buyers order and manufacturing.
Acquired Lamaze brand and opened Little Star - concentrating on establishing these 2 brands. Plan is to fully focus on Lamaze and Little Star for 2016-17
Pledge of around 26% - in all our SEBI format we show the encumbered shares
Last quarter, the SEBI has changed the format.
These shares are encumbered by Kitex Childrenswear for their borrowing. 6 million shares has been pledged/collateral for Kitex Childrenswear for their borrowing.
Everyone has little concern with the decrease in total income. More customers will be added this year. Except the total income all the numbers have gone up. Within 3 years expect very good results.
PS: I believe the notes were shared in the thread as I was typing my notes. @adminph2 Let me know if I should delete my post.
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One thing to note is that the mgmt is confident of having minimum 20% topline growth - does this include the B2B business only or B2C also? Any clue on this?
Getting into synthetics can be a good trigger, jockey promising to double the orders.
Topline growth for this year will be 10% from 511 to 560cr. Correct me if wrong.
Capacity going to double in next 3 years.
Debt being repaid.
All this is huge huge positive on the face of it.
But I feel laughing at the dollar-rupee conversion issue. Does he consider us stupid- when he tries to explain that they are betting for the dollar-rupee conversion gain and that to they are betting on china currency devaluation. Is he really into a textile business or he is into betting for small/illogical gains…
What was he doing when the stock market was bullish? Why did not he list his private arm then?
I feel he is a good businessmen. Getting an award from Jockey and scaling the business to this level is a great job done. But, he is not smart enough at the finances or he is oversmart that the books are cooked up.