Kitex Garments Limited


(Bheeshma Sanghani) #1012

Disc - not invested

This is one company i have followed from a business, technical and capital structure point of view. Obviously when the professor is involved in the stock, it draws attention like it should.

From an educational “vantage point” :slight_smile:- This is a great learning opportunity

There are three questions - i invite comments from all at VP. I believe that it may lead to a pattern which may lead to a mental model that will help us all in the future investing activities

Q1 - Is the cash real? ( business point of view)
Q2 - Should or should not - a company issue bonus shares in times of a crash in the prices of the stock? ( capital structure point of view)
Q3 - is the fall in stock prices a price correction or a time correction? ( technical point of view)

When looking at kitex i always struggle with these questions. I am unable to answer them perhaps the folks here can throw some light and create a unique case study from this unique situation.

Also, if you look at the thread from its beginning ( July 2012) all the respected practitioners at VP have been looking at the stock. @akbarkhan @hitesh2710 @subhashnayak_19_ , @ayushmit @saf @dkirand @sunilsurana @Donald @anil1820 @ankitgupta and many others ( you can mention only 10 users in one post)

Dear seniors - can you use kitex as a case study to illustrate some important points about investing? i personally would look forward to your inputs so that it benefits all here.

Pls note - Kitex may well may be a great business. But since many of the common questions we sonetimes face in our investment process have cropped up in the kitex situation i am using it simply as an example. Strictly an educational endeavour.

Sincerely,
Bheeshma


(nitinku5021a) #1013

Some Points I think which is not discussed here:

  1. In 2015, Sabu formed another company called " Kitex Infantsware Ltd." which is in the same business as of Kitex Garments. Its neither a subsidiary nor associate company. I don’t know what might be the intention here.

  2. It formed an LLC to sell directly through E-Comm @ USA but 50% of that share holding is with KCL and other 50% with KGL. The average price at which Kitex sells the garment to retialers in USA are 45-135/- per pc. By direct selling under their own brand, it will surely going to hit the big profit but I really doubt if the full benefit will be transferred to KGL. The formation of new company and splitting the share of LLC @ USA, it certainly raises the red flag.

I might be completely wrong here doubting the intention and corp. governance of KGL but their record is not spotless.


(Janarthanan Natarajan) #1014
  1. Clearly the results are disappointing(mainly topline growth) after what Mr Sabu Jacob said in his Q3 confcall. Anyways there is no surprise here - Mr Sabu has always been bullish in his commentary and projections. But the numbers have been consistently below par for quite sometime now.
  2. Personally I have not doubted the cash part(check my previous post for the reason I think so). Also if one considers the cash movement by looking at the balance sheet YoY then it roughly seems to tally. However the finance cost still continue to be high. Mr Jacob mentioned in Q3 confcall(in response to Ayush’s query) that it is because of bank charges,guarantees for exports etc. I am yet to cross-verify this statement from another source.
  3. Inventory and receivables are high YoY. Clearly working capital is deteriorating. Need to understand why this is the case in the conf call.
  4. The huge capex plan is a surprise. Need to understand this too.
  5. Upto 100Cr could be invested in liquid investments. Need to track this too in the next year.

Unfortunately there are more questions right now than answers (at least to me).

Disc: Invested for long(3 years). Views might be biased.


(gautham1) #1015

I remember reading some interview when the MD said, for kitex Q1 > Q2 > Q3 > Q4. I am surprised at the top line dgrowth. Could this be because of slowdown of population growth in the US?.
Also, the steep fall in bottom line is surprising. As per the MD, they have technology, automation, efficiency etc. Then I wonder why the profit fell? The cocall should throw some light.


(us121) #1016

I exited this stock, booking losses few quarters back.
I certainly got attracted initially with quite a few respected investors being there and also reading about few articles and interviews.

But with few quarters of commentary, i found my self very uncomfortable with Sabu Jacob’s style of answering questions in Earning Calls. To me it was more casual, least respect for what he projected in earlier calls and always sounding more bullish than telling about issues faced by company if any.

With all due respect to the company and Promoters, i found something missing as a coherent story.
At the end i gave up for peace of my mind!


(kauban) #1017

Kitex seems to have wiped out almost all their debt as per the latest BS published to the exchanges. ST Debt = 0 and LT Debt ~ 3 Cr. Its a good sign according to me. any comments from those tracking the stock?


(kauban) #1018

@bheeshma: Regarding your Q1, pls check latest BS, seems like they have used their cash to clear off almost all the debt. This to me is the strongest sign that the question marks on the cash sitting on their BS is unfounded. Happy to hear any counter views.


#1021

As most of its revenue is generated from US market, so the appreciating INR against USD might also affect the revenue and margins in coming short period.

Reductions in debt is also a good sign. Seems like Monday would be a good opportunity to acquire more of it.

Updated: Invested.


(mukul aggarwal) #1023

I am not able to understand how reduction in debt has affected the income statement?

If they have reduced debt then corrospondingly cash should be reduced on B/S without impacting the P&L.


(Vivek Mashrani, CFA) #1024

You are right…debt reduction never gets reflected in P&L. It should be only in BS and cash flow statement.


(jirohit) #1025

key observations having impact on results:

  1. other expenses have shot up from 62 cr to 88.5 cr , most of it in Q4. clarity will come from mgmt tomorrow most likely, but i feel it could be related to setting up of design center in US and other marketing expense.
  2. other income down from 19.81 cr to almost 2 cr. actually as of dec, 2016. I checked last year annual report and most of this income comes from forex gains, so, my guess is this could be due to USD INR adverse movement in Q4, where INR has strengthened by 6-7%.
  3. key concern will be over bullish mgmt and not being able to deliver on guidance, which will make investors nervous. if we discount mgmt guidance, its a growing business with one year of flattish revenues and declined profitability due to higher other expenses/lower other income.
  4. good part is long term debt down to minimal and short term debt paid off and PAT margins are intact. So, mostly a debt free business with good return ratio struggling to grow. So its a call on mgmt capability to grow business from here , get revenues in new lines of business like own brand etc.

(Krishnaraj) #1026

If the debt is dollar denominated, then the exchange difference while settling the debt will get reflected in the P&L.


(Furkan Alam) #1027

This is to inform yon that ET Now will be telecasting the first interview on Tuesday, May 2, 2017 at 10.15 A.M in their show "The Market’’ following the announcement of financial results for the year ended 31.03.2017 in our Board Meeting held on Friday April 28, 2017.


(Nolan) #1028

ET Now - Sabu says that a customer shifted 25cr order to April which will be recovered in Q12018. Secondly, the labor cost increased due to delay in Automation.

What can we make of it? I am convinced of the fundamentals, however, undecided about the commitment of the management towards shareholders.


(Bheeshma Sanghani) #1029

There seems to be an inverted cup and handle formation (not a classic one as in its proper form the handle formation time has to be shorter than the cup formation time. This looks more like a lemon squeezer!). Would wait for awhile to see if it does what it does.If the pattern is correct & the handle breaks then its telling us that prices will be under severe pressure in the coming days.

Disc - not invested. Just like following kitex because it does interesting things.


(Furkan Alam) #1030

Yes he again has promised better growth to Q1 and Q2 FY18. Lamaze and Little Star doing well and being accepted.
He mentioned Little Star would now be sold in Walmart stores, which he sees as a great opportunity

This he also mentioned of some 20 cr forex loss.
On Margins falling , he mentioned that should be back to normal next two quarters.

As for me i would still wait out for next few quarters and keep a close eye on numbers.

Disc : Invested.Not a stock recomendation. Please do your own research.


(Nolan) #1031

Sabu on NDTV Profit - http://chirb.it/yHJbdg

Forex loss should continue in Q12018 as they take order of six months in advance. Future orders will be adjusted for currency fluctuations. Besides he mentioned something about eliminating seasonality and bringing parity in all four quarter sales with 10%(+/-) variation.


(Finrahul9) #1032

13495.pdf (124.4 KB)

Today’s circular


(newbie_4ever) #1033

If Kitex is trying to promote its own brand in the US, wouldn’t its existing customers find it better to buy from Kitex’s competitors than Kitex itself? Are they competing with their own customers? Is my understanding of their clientele wrong?


(nitinku5021a) #1034

Can some senior guide how this works?

Kitex said that it approved investment of 1.5 mn USD into Kitex USA in which it has 50% share holding. How do they do that? I understand that it will not be sitting as debt in the Kitex USA account. And another 50% of Kitex USA is with Mr. Sabu through Kitex Childrenware.