Hi @gurjota,
Kitex has been a very popular name in the south for its Dhotis, Lungis, bedsheets etc. This business is run by Sabu’s elder brother through Kitex Ltd. The group is also very popular and leading producer for spices and utensils etc. I think this must have been discussed in some earlier threads.
Regards,
Ayush
Hi Ayush,
I would like to know your thoughts regarding the constant director resignations from a learning perspective. Given that I was aware of the risk and uncertainties (cash issue, Related party transactions) even before I made the investment, I am inclined to give the promoter the benefit of doubt.Does the single issue of director resignation change your investment thesis, given that even you made the investment after knowing the risks involved. Would be glad to know your thoughts.
@ayushmit@donald@hitesh2710
We all at the VP would like to know the views of your seniors on the following issues
Resignation of the CFO and directors
Handling of cash
Converting cash holding in dollars to rupees at specific exchange rate
We are still giving the benefit of doubt to the management on the above issues owing to the quality of business and opportunity size.
We all learners at VP would like to know how much time and to what extent we believe management and what should be first sign to exit the company.
It would be helpful if any of the seniors reply his thoughts on the issue
cheers!!!
Hi Chirag/Umang,
Even I had kitex at 700 and averaged the same at 400. Simple words, I was emotionally attached to the stock and the poems written by Mr. Bakshi. I used to question myself over this for days. The answer was very simple !! I would like you also to ask yourself the same question…
–> If there are 4000 odd listed companies on the exchange, cant I get at least 10-15 good stocks at reasonable valuations??? If yes, then start hunting for them. Why should I stick back to kitex??? Its ok if I couldnt make money on this stock (assuming it rises later on), but what if a scandal is discovered? You and me today have the opportunity to shift our portfolio in kitex to some other good stock.
Till today I understood emotional buying, but Kitex has made me learn emotional holding !! Even I am included here though I have sold it now. Even I have made mistake here - took kitex at 700 (when I already knew about the red flags).
Again, these are red flags, and these might not turn as a scam later on and might be proved wrong…but why to take risk on your capital.** Markets are down, and we can get other good stocks at reasonable valuations.**
Disc - Exited after a lesson.
i am been reading all comments here … it seems that severe price correction has shaken the confidence of many kitex lovers .
please think for a while … if price would hv not got beyond let’s say 700 rs. and would have corrected to say 350 … all of us would have given /treated it like normal correction as nifty it self has given almost 22% correction !!!
according to me it is not fundamental /result/promoter integrity / cash on hand red flag /lungi -jockey stuff but ALL THAT MATTER IS OUR MENTAL ABILITY TO DIGEST PRICE CORRECTION FROM 1000 TO 400 !!!
me too invested … in loss … watching … not adding … let’s wait for another 2 quarter … NO HURRY !!!
CHILL- ENJOY - HPPY WEEKEND !!!
I think the answer to this dilemma is always exit the company if you think fundamentals are deteriorating without considering the price. The price may be moving up or down but if one thinks that there is serious deterioration that is happening in the fundamentals then one should exit.
Just to quote example of Kuotons…initially the company was very promising…just after IPO price of around 300…it went upto 1000 since many more investors jumped into it…Now will it be wise to stick around with brave heart until the price becomes 2 Rs and company getting banned from stock exchange even if you know there are issues with company?? I think NO.
Disclosure: Invested
Kitex suffered from a string of negatives some not in their control and most of them within their control.
Those not in their control was the Jockey order impact. That was probably one of the reasons that led them to miss their guidance. But what I didnt like was the kind of over confidence the management expressed while sticking to their guidance post q2 results. Even now that continues with Sabu declaring figures for fy 17 and so on. (He might very well achieve these figures but markets now dont seem to be in a mood to listen to any positives on Kitex.)
What I didnt like was the management playing the currency game although atleast in this aspect he is proven right with dollar strenghthening. Personally I dont feel there is a big issue about the cash in bank being siphoned off. (but thats my view)
About resignation of CFO and others again I dont consider it a big deal. Might be a routine affair.
Post this correction I have always tried to compare the quality of its business with comparable companies and I dont find anything short here. The business quality remains good. He has built a seemingly good company which has shown great skill in execution and efficiency.
For me the important take home message from Kitex has been not to get carried away by froth accompanied by very hefty valuations. There was some mention about Kitex being the next Page earlier in the thread somewhere. (Lynch maintains that when a company is being touted as the next big thing, it is usually doomed.) And one lesson this correction has taught is that whenever stocks reach overvaluation territory, markets do find reasons to correct these situations one way or other.
Now it seems in some companies the pendulum is swinging to the other extreme of under valuation inpsite of excellent results and prospects. And there’s nothing new in that. Markets always tend to swing from over to under exhuberance.
I dont own Kitex and hence havent suffered from anguish associated with holding it. But if one is disillusioned with the company or if the investment thesis doesnt work out its always prudent to make a surgical incision and move on to the next best idea. Personally I am still watching Kitex and would continue to do so for any improvement in business performance.
Hi @Umangs88 & @chiragjain1976,
I think Hitesh bhai has summed it up perfectly. Its a classical case of pendulum swinging from nothing to one extreme and now coming back.
I have been invested in the stock and continue to hold (barring some small profit booking done earlier 10-15% of total qty).
Regards,
Ayush
To add to my previous comment - it was pretty comforting to hear (in the latest concall) that the management has repaid $10 mln of debt and intends to repay the remaining $9 mln of debt and become debt free. The March 16 balance sheet would confirm the same.
Regarding missing of growth/guidance - its normal for any business to face setbacks. And this is why I agree with Hitesh bhai that its not good to see Mr. Sabu again giving guidance for next year or going into details what the sales would be in q4. Infact, none of the cos should give guidance…businesses are always unpredictable.
Since 2010, the EPS has grown 35% cagr. If you take the TTM EBIT and assuming a WACC of 13.4%, no growth valuation comes to Rs 1338 crs and add cash of Rs 241 crs. The total comes to Rs 1579 cr. The present market cap Rs 1927 cr ( @ Rs 406). Does the market pay 18% only for a 35% growth in EPS. This is where markets are inefficient and waiting for Mar 16 qtr.
Even if yu do a DCF ( assumptions 15% growth sales, Terminal 4.92%,EBIT 30% tapering down to 25%,Sales to capital 2.37%) fair price comes to Rs 400/-
Technical
Positive divergence noticed on 29-2-2016 on daily charts.
Discl: Added more between Rs 350 and Rs400 with sl 300 ( for investment also)
Annual result announcement on 4th and con call on 5th at 12 noon
Dial in numbers : India 022 6746 8356/3938 1079
How do they get all sale/cost/cash receipts to tally for auditors to give a firm opinion in less than a week?
As you know, Audit is on-going process. So I think only few days require for audit of closer to month end transactions. Though Verification/conformation from debtors and creditors in such short time is what I am more concern about.
Infy with 100x size business mostly reported with in 10days of Q end. Though business are not exactly comparable as Infy (Service company) with Kitex (manufacturing), my point is Auditing isn’t much time consuming. What require more time is “ADJUSTMENTS in accounts”.
With ERP, it is possible. I am not sure whether Kitex has implemented ERP. Statutory auditors complete the audit by 25th March. A week’s verification is done within 2 days. We have done so many times. My guess all the doubts should be put to rest on 4th. Fingers crossed.
as market is sensing result will be good this time but bigger problem with this kind of approach (giving better result early and bad result later ) is that it speaks about intent of management to communicate good news very loud and (may be ) delay bad news communications
point to notice is if annual result (audited) can be generated in 2 -4 days why dec,2015 quarterly results are given after 3 weeks 
i like buffet approach (" tell me bad news first good one can wait")
disc: no holding
Kitex Garments Ltd has informed BSE that ET Now, Mumbai will be telecasting a first and exclusive interview on Tuesday, the April 05, 2016 at 8.30 A.M
in their show “The Market” anchored by M/s. Nikunj DaImia, Ayesha Faridi and Niraj Shah following the proposed announcement of 4th Quarter and full year 2015-16 financial results in the Board meeting to be held on April 04, 2016.
Great Result Turnover INR 184.35 Cr PAT: INR 44.90 Cr
As per Q3 concall Jacob told Q4 turnover would be 174 Cr… meet guidance.
FY 16 turnover 565.63 Cr (including OI) and PAT: 112 Cr
Kitex FY2016 balance sheet shows 90 crore of debt (hasn’t turned debt free by Fy2016 as was expected). However I do see approx 250 cr of cash on books. Obviously a judicious mix of debt for W.cap management may be good but can someone please throw light on what’s going on here? I mean, will it not be wise to pay 90 cr and be left with approx 150 cr of cash? Please help throw some light.
Co. EPS grew 14% over last year on 6% revenue growth… helped partly each by other income (what would these be?) and reduced finance cost (a positive point)
One red flag is Board’s reco to change auditors (again based in Kochi). What should we derive out of this please?
Disc: Holding (at a book loss right now).
Finance cost for Q4 is only Rs. 36 lacs vs. 494.63 lacs YoY
Full year Finance cost 13.76 Cr vs. 19.16 Cr
Full year tax expenses 58.96 Cr vs. 43.15 Cr increase of 36.64%
As per Companies Act 2013 now mandates the rotation of auditors after the specified time
period.
Hi,
90 cr of debt is mostly from TUFS where company’s net interest cost is much less than what it can earn on FD. Thats the reason why it has not been paid. This was mentioned somewhere by the MD in last quarter.
Sales grows at 6.6% and total expenses grows at 4.5% (approx).
Does this show lamaze effect and some operating leverage kicking in?
Further, Finance costs have reduced, Operating income have increased and tax rate is 34% compared to 30% last year leading to more tax expense this year.
