ValuePickr Forum

Kitex Garments Limited

(newbie_4ever) #1346

https://rss.acast.com/theeconomistmoneytalks

Listen to the second story in the above podcast about a company in China that is using indigenous automation to improve productivity in textiles.

https://www.lesouk.co/articles/tex-style-news/china-invests-in-robots-to-modernize-textile-factories

So, we need a big push in automation and robotics in India by the Indian Govt as well to compete with companies from China.

What about the unions in India? Will they be willing to modernize?

Is Kitex Garments Ltd where Berkshire Hathaway, the textile company was before Warren Buffet took over? Invest money to keep up or go out of business but won’t be able to stay ahead of the curve because everybody is doing the same?

Kitex Annual Report talks about automation and the difficulties it has faced in implementation. What kind of automation? Will they be competing with automation in the US markets implemented by the textile companies there? Or will Kitex still hold an advantage with the labor cost which will be still required? How long before the automation reaches a level where the manual labour cost is not a factor?

Disclosure: Invested, on Hold.

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(Johns George) #1347

I have been thinking about this since the MD came up with the 5 yrs expansion plan.

Almost until 2016, Kitex was able to generate superior profit growth and returns, with many qualities that formed its moat. The MD talked about his ambition of reaching 2000Cr by 2020.

Since 2016, with the same business characteristics, they failed to grow the revenue, failed to add new major Customers that constitute meaningful % of the total sales, they even lost two key customers. And now they need this expansion or change in course - manufacturing a slew of related but new things, getting the packing in house etc - to grow at 20% per year for next 5 years, from 2018-19.

This means that the business has fundamentally changed, isn’t it? That what seemed a moat earlier is not anymore. Is it?

(Susindar) #1348

I think there was never a moat as the business model of textile export in India is all based on low cost which is not a strong moat. Unless there is a brand, and the brand caters to strong local consumption, none of the textile companies in India have a moat as we now have much lower cost producers in Bangladesh and Pakistan.

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(shikhar mundra) #1349

Kitex Garments insider trade: Acquisition of 112,781 equity shares worth Rs 114.45 lacs by promoter today.

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(guest_eps) #1350

these insider traded shares not part of volume reported daily at nse/bse ? … because volume shown at nse bse are much less than what is mentioned above… its 59 k at nse and some 7 k at bse…

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(shikhar mundra) #1351

it was acquired on 28th jan , was disclosed to the exchange today.

(akiagarwal) #1352

Has Valuequest India Moat Fund (Prof. Sanjay Bakshi) exited Kitex fully?

Was able to see 4.71% holding for June end, but the name does not feature in the shareholders list for Sept and December.

(shikhar mundra) #1353


results not as per estimates
-company says- Turnover for Q3 is lower than projected as buyers have shifted a portion of quarter 3 shipments to quarter 4 to reduce their inventory holding for financial year closing .However
this will have no impact on full year performance.
-estimate for q4 has been given to be 230 cr.( revenue)

Disc - Invested

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(guest_eps) #1354

seems this is good atleast:

Key Accomplishments in Q3:
As per the US Bankruptcy Court’s confirmation in respect of Toys R US, the claim 9.17 million USD (~INR 75 Crores) has been allowed in favour of the company Interim disbursement of 1.60 million USD has been received by the company in January

1.6 million USD around 11 crores will get added to Q4 results, i believe, and with usual q4 good results this will make overall results looking good… :slight_smile: lets see …

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(bmathew) #1355

There are rumours that Sabu might contest from Chalakudy lok sabha constituency, some of the portals have already reported the news. whether this will have an impact on the business positively or negatively one will have to wait and watch

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(shikhar mundra) #1356

From where do you track these numbers?

(AJ) #1357

At the end of an extremely painful year in terms of market cap erosion, Kitex has finally closed the year 2018-19 with reasonable operational improvement in terms of sales and and profitability growth of approximately 10% each.

See the results here.

Some of the interesting observations:

  1. Change in CFO: the guy who was at the helm of finance during the bull phase in Kitex is back. Lets see how this is going to pan out.
  2. Receivables position: The US bankruptcy court has accepted the claims of Kitex in relation to receivables from “Toys R US” with 17.5% of the claim is already paid. The remaining receivables from this is about $7.5 Million which would roughly translate to about 52.5 Crore will take its own due course to come. If we remove this from the receivables balance of 163 Core we will end up with a very healthy collection period of about 55 days - which is in line with the historical averages.
  3. Inventory position: Sharp increase in inventories as compared to historical averages - considering Kitex has manufactured goods only based on firm orders, the current inventory levels looks abnormally high. If this is for a significant new order that they have won, then i would take it with a happy face - else this would be the single biggest reason for me to exit from this stock as it is definitely a sign of inefficiency and mismanagement.
  4. Associate burning cash: The loss from associate is on an uptrend, with the current year loss at nearly 10 Crore. Need to really find out the reason for this cash burn. Investors should request the management to place the audit report of this entity at the AGM and also request the management to provide a turn around strategy. This is definitely a red tick.
  5. Cash position: The net cash on the books is significantly low at about 10 Crore. The borrowings has increased sharply to 87 Crore. Don’t think one need more explanation on this considering the elevated inventory levels and cash stuck in the bankruptcy proceedings.

Disclosure: Invested.

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