The rating is for the group. The financials presented show a marked improvement for KCL compared to KGL.
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Listen to the second story in the above podcast about a company in China that is using indigenous automation to improve productivity in textiles.
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.
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?
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.