Kitex manufactures garments for kids. Who in the US will stop buying a piece of cloth for his Kid irrespective - why would he hinge his buying decision on who is going to be elected? If the probable assumption is US clients are holding off on orders from India, why didnt this play out with other garment exporters. Please think and never take a promoter’s comments on face value.
Thats what keeping a close look on close competitors, if this is the case, not only childwear, this should be valid for other textile companies also like indo count, trident etc. Any idea, if any of these companies results are out or which one is most closer to track?
Who in sane mind will accept the reason that parents would defer buying dresses for their kids and newborns due to elections? Forget election, I would splurge on dresses for newborn even when I am unemployed. I have no stakes here but it looks like the promoter is reversing some aggressive revenue recognition done before. Inventory accumulation also support this point and it sometime happens during change of regime in corp. finance dept or auditor.
Sumi00: It is true that many clients are holding on with there business plans for elections to complete. I am working in NIKE and there is a big time hold on many of the projects just for this reason alone. I knew some of the other clients who are doing this as well. I do not understand the reason why this is done, but for sure this is happening.
Also i got to know that consumer spending is very active rather say increasing in USA throughout last year/quarter, but corporate spending is very lame.
Got your point but Nike’s products are discretionary in nature which could be deferred to an extent while the initial argument in favour of this company was that it is a recession proof biz. There is credibility issue as well given his growth projections and continued disappointment on actual delivery.
While hearing interview, when Sabu was asked about reduction in other income, he said same due to lower fabric sales. What I recollect that the company used to give segment wise sales breakup between Fabric and garment. How can fabric sale be classify as other income? Any thought?
Discl: No investment but closely following for learning
I am not really keen to invest in company and hence would restrict my discussion to what I read on forum. Having said that I was not able to convince myself about the business of Kitex and had stayed away from the company. I still follow to understand it as a test case to improve my understanding. Now since you have been on conference call and there Sabu said that it was forex related charge, on Bloomberg TV it is fabric sales which is not correct. The company has reported fabric sales in past and now management suggest that Fabric sale is other income increases my concern.
Wish all investors all the best for there investment.
Since he said he had to hold back inventory of 35 crores, one would have assumed most of it would be finished goods inventory. But on checking balance sheet and income statements over last six months, 25 crores of it seems to be raw material inventory. Maybe I am nitpicking.
Also on the balance sheets in Kitex ARs, there is never any work-in-progress inventory. Is it possible for a manufacturing company to have no WIP inventory. Since you have an accountant background wanted to ask this.
In my limited understanding, operating units sell (which I assume fabric is for Kitex as reported in past) would be part of operating income/reveue/sales. The cost associated with this sales (net of inventory addition/deduction) are charged to P&L. Hence, incerase in inventory would have reduced cost by way of increase in inventory figure appearing in P&L account and, that can no way in my understanding increase other income. I know accounting but does not claim to be expert on same.
My question was more on the balance sheet. Shouldn’t any unfinished inventory which is still being worked on at the end of the accounting period show up on the balance sheet as work-in-progress inventory. How is it possible that there is never any partially finished inventory at the end of any accounting period. In contrast, the financial statement of SP Apparels make much more sense.
Inventory are broadly subhead of Raw material, Work in Progress, Finished Goods and Store. That details are provided in annual report. In six monthly,all these four heads are aggregated and appear as inventories in balance sheet. Hence, about break up between work in progress/finished goods/raw material, one has to ask sepcific question on conference call.
About specific point on inventory, please refer to my old comment in May 2015 after reading annual report for FY15. I am enclosing link to same for your refrence.
WIP is function of “throughput” time. i.e. time taken from raw material stage to finished goods. If the time taken is few hours, company may be considering only 2 stages for the purpose of accounting. This means all inventory lying at different stages maybe shown as raw material till it gets converted in FG. It is also function of what kind of ERP software they use. When company shows WIP, it is loading up portion of its factory overheads (carrying them to next accounting period) for valuing WIP (raw material+ some portion of overhead depending on stage of completion).
If Kitex is not showing WIP, this means they are considering only 2 stages - RM and FG. You may want to check their accounting policy. But it is actually conservative policy as it will reduce current period profits (as compared to another company which is showing WIP) and increase future period profits when their inventory goes up.