Kitex Garments Limited

I think sales falling from key client like Jockey is a negative that too by 50%.

Also, Jockey has made offer to produce synthetic garments. Please note that cotton garment vs. synthetic garments are different altogether. It will be big negative if kitex agrees to produce synthetic garment and move out of its core competency.

On the rupee conversion part, I too was laughing during the call on his argument to wait still more and wait for rupee to come at 69 levels (in the last concall he told that he will repay all debt if rupee comes to 67…and now he is waiting again…!! :slight_smile: )

@vivek_mashrani can you please explain why producing synthetic is going to be a “big negative”… wouldn’t it open opportunities for them to get new order/clients interested in synthetic ?

As per my view, correct me if I am wrong please:

  1. There are several other manufacturers in the world who are already producing synthetic garments, so Kitex will have to face competition

  2. Synthetic garments is not the core competency for Kitex+It has to bring in new machinery+it has to invest in training. Again since it will be selling to players like Jockey, they will squeeze the margin >> So there will be two-fold impact (a) increase in fixed cost to start with (b) margin compression

  3. Also, foray into new area will limit the focus into existing products/business

  4. Cotton is best suited for children. The current trend might turn out to be temporary due to weather condition in US and eventually the fixed cost will be a burden if that materializes

  5. Mr. Jacob has no experience in sourcing raw material for synthetic garments, hence its totally unknown and uncertain territory

  6. Chinese companies has extreme cost advantage in synthetic since it does not need much cotton to produce; Hence the investment in synthetic will not produce good incremental ROCE for kitex

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Hi
As per what I heard Mr. Sabu saying was that the garments they manufacture for Jockey is in the youth wear segment and not children wear. So the change in trend is not in children wear but youth wear. Hence not a big worry.

Regards
Krishna

Kindly read the annual report and website. As far as I know, they are only into children wear. Thanks.

Last year total sales was 524.5 Cr including other income (511+13.5) and he had given guidance of 10-15% growth in % and 600 Cr. in nos. if u take 600 cr then growth comes is 14%+ (600/525)… means he consider other income also while giving guidance.
Now he is saying 6-7% growth in total income means 560 Cr (560/525).

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Source MOSL Kitex report released on 13 01 2015

Following text from Jockey profile from Vault.com. Pl read bold letters ( emphasis mine). does it has anything to do with drop in Jockey volume with Kitex? is Jockey buying from Gerber in competitive price?

Jockey partners with other companies to expand its products portfolio. Thermal underwear leader Komar Layering makes men’s and women’s thermals and layering apparel exclusively for Jockey through a licensing agreement inked in 2011. Adding more thermals to its drawers in 2014, Jockey partnered with global apparel supplier Intradeco, which specializes in sleepwear and thermals.

Jockey is working to extend the reach of its brand. Through an agreement with Page Industries Ltd. inked in 2011, Jockey sells its products in India. Page Industries, as the exclusive licensee, makes innerwear and leisurewear for men and women.

In recent years, Jockey has been chasing after the kid niche. To expand into children’s apparel, the company has partnered with Gerber Childrenswear, a unit of Kellwood Company, to make and market Jockey-branded underwear, sleepwear, and thermal apparel for infants through children. The deal spans the US and Canada.

Jockey has taken a page from the Tupperware and Avon playbooks and joined the home-party niche. Through its Person to Person direct selling unit, the company trains salespeople who peddle Jockey apparel through parties in customers’ homes. Jockey executive Waller launched the concept in 2005 in an effort to help women balance their career and family lives.

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kitex topline including other income is 345 cr till q3. given latest guidance of 560 cr, are we expecting 215 cr topline only for Q4? Q4 2015 was 153 cr , so looking at close to 40% topline growth in q4?? do people tracking kitex think co can meet this guidance?

Attended the call today. Overall impression I got was that the Management did not show the level of preparedness and consistency in what they are talking. There were elements of evasiveness in some of the answering.

  • CFO resignation - The answer was a bit evasive and was made to sound very common.
  • FY16 Guidance - It was ambiguous as I could not understand how 560 Cr projection for FY16 will be met considering 9M FY16 is 360 Cr.
  • About Jockey : Management told Jockey is 16 million business. (100 Cr) which is about 25% of annual run rate of around 480-500 Cr. But Management kept on insisting Jockey forms only 15%. MOSL earlier report indicated 20% share fro Jockey. Again I could not add up the numbers here. I might be missing something. Also my understanding was Jockey’s order for Kitex was still for children wear and need to verify if Jockey is really going for Synthetic for children wear.
  • Sales miss in Q3 FY 2016 : I could not understand how the delayed winter in US can impact children wear. So could not relate the explanation much. Again I might not have understood this well as I joined a bit late.
  • There were some good questions on why dollar sales figures are not provided and also volume figures. But overall the answer looked confusing here.

Overall I felt this was a very important call even from management perspective. But the level of preparedness and consistency in their answering was missing.

Disclosure: Invested ~5% of the portfolio.

Br,
Sudheendra

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As per Sabu their total sales in 380 cr till date. He is adding Operating Income, Other Operating Income, Other Income. Other Operating Income consists of Duty Draw Back, Scrap sale, Job works. Other Income consists of forex gains/losses Subside income from TUFS, Interest income from bank deposits.

As per him, they gave guidance of 600 cr, they will fall short by 40 cr. He says they can do 180 cr in Q4 as some shipments are shifted from Q3 to Q4. But we need to consider the loss of 8 mln usd business from Jockey as it will effect Q4 also.

Disc : not invested

Quoting from an article in forbes.
"Jacob says he is not interested in making “easy products.” He took an order from Jockey International to make NASA-grade, temperature-controlled underwear for adults because it was “unusual and challenging.”

Marion Smith, a Jockey senior vice president, admits that he was “blown away” when he first visited the Kitex factory: “It’s important to us how our partners treat their workers. Sabu has spent more than he needed to on worker welfare.” As for the comfort underwear project, “it was mission impossible, but Sabu made it happen. He is relentless and will do whatever it takes.”"

Now jockey wants a mix of synthetic in this product line.
Thanks

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Would also like to add that Kitex pays its workers healthy wages and bonus.
This is implied from the fact that even due to the retrospective amendments in the Bonus Act the company doesn’t have to bear extra employee cost. This is one sign of a labour friendly company.

Yes there looks like corporate governance issues and transparency issue. But a company treats its employees so well, how he can do harakiri ? His treatment of his employees is really good , and that came in multiple news items. I am not able to relate. Hope I am not proved wrong. Something looks missing in the whole story that only his ex-cfo can tell…

I think the important point that most of us are missing is shareholding pattern is not submitted. I am not sure if i missed it in the long thread. But why is Shareholding still not published after the result? Has there been promoter offloading ?

Disc: No Holding , Have exited my positions.

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In concall mgt. clearly mention about 174 Cr turnover in Q4 means atleast 554 Cr (380+174) turnover plus any gain from forex it will add… Jockey is not for children’s wear… synthetic is for Men & Women innerwear… 0-24 infant have very sensitive skin and nobody will use synthetic… don’t be confuse… As per them if they are saying 560 Cr means it includes other income also…

Disclosure: Invested 10%+ of my portfolio

Hi, will any con-call transcript be released from motilal or kitex ? I would like to read the conversation if available.

you can listen concall details hear
https://www.researchbytes.com/Kitex-Garments-Limited-K0213.htm

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Mr Sabu seems confident of 20-30% growth next year… This could result in decent growth in PAT… Also sales from Lamaze brand could bring a +ve surprise as well… Newly added double capacity to help as well…

Disclosure:Sold all holding around 900 but would start accumulating as the valuations look very attractive considering future growth.

From the past experience, he is very likely to reduce the growth figures once quarters keep on unfolding. Don’t believe his words to the fullest, people have burnt their hands by believing in his projections in past.

Just listened the concall after reading the comments in this forum and moneycontrol.
I am a bit relieved after the concall. Atleast the management spoke to retail investors well. I am aware of companies where the management doesn’t speak to investors for years despite the panic in markets about the results. I can tell you I have seen far more worse managements in the way they communicate with minority shareholders. (RS soft, sesa goa …)

I feel many of the opinions here are too much negatively biased. I am not sure why. Yes there are genuine concerns like

  1. ‘how winter can effect children garments’ ------> (I would give benefit of doubt to management as no one questioned this logic during concall)
  2. Sudden CFO resignation. -----> (I will not doubt this if they pay debt with in a month as mentioned in concall. Ofcourse I will look at rupee vs dollar)
  3. Sabu’s Math logic. 380 cr instead of 361. (I still dont know which maths text book should I refer. :slightly_smiling:)
  4. How jockey is 15% of sales. -----> (I guess he calculated for FY17, for 600/560 cr income).
  5. Jockey suddenly moving to synthetic and Sabu not aware of this before giving FY16 projections.
  6. KCL vs KGL (Future will tell)
    7 Dividend if the cash is idle and have no capex plans. (I will take this seriously)
  7. Sabu coming to interviews and boosting the projections without meeting them. (This is generally a red flag)

Some +Ves:

1.Sabu treats his employees well. He has a good reputation. I don’t believe he can win politically without good reputation against a politically strong party. I give some extra points to keralites in corporate governance (I may be wrong though).
2.New US brand - ‘little stars’ ( Of course it will take 1-2 yrs to commercialize)
3.He said they will pay debt in a month. (We should track this)
4.I saw sudden CFO exits in many companies. May/Mayn’t be satyam. I don’t know. I go with “May n’t”

I believe too much of negativity may be because of strictly following Sabu’s projections (expectations). I feel one should remember kitex showed consistent growth in last 5 yrs. If Sabu’s projections doesnt come true in next 2-3 years (aggregate projections) then YES it is genuine reason to dump the stock irrespective of market conditions. I belive today market is charged up with Sabus projections and some vested traders are making huge money by shorting and creating panic (Just see last week trading volumes). I feel even Sabu cant predict what can happen in next quarter (I read that Sabu has the habit of giving consistently wrong projections).

I sincerely thank all the members for their genuine opinions (particularly skeptical members). I very much liked this forum. Anyways, as senior members in the forum suggested, I will take sabu’s words with a pinch of salt.

DISC: Accumulated some at 550. Still holding.