ValuePickr Forum

Kitex Garments Limited

@Shikhar Thanks for collating the questions to be asked in AGM. Please find my questions below

  1. In the recent interview, Mr Sabu mentioned that there are tie-ups already in place with customers and hence they are increasing production by 3.5x? Can we get more details about these tie-ups? Will KGL directly deal with it? Or through Kitex USA LLC? Or through the 2 new subsidiaries which are proposed to be created?

  2. What is the logic of creating 2 new subsidiaries? Can’t further business be done through KGL or Kitex USA LLC itself?

  3. What are plans of listing KCL? Are the earlier proposed timelines still valid?

  4. Last year in the AGM it was mentioned that automation efforts failed. Has there been more efforts this year done for automation and what are future plans about the same? Are the newly proposed factories in Karnataka/Orissa/AP/Kerala going to be more automated or is it going to be labour intensive?

  5. When can we expect concrete plans on new plants? Also what is the utilization of current capacity and is there further scope for increasing capacity in the current KGL Kerala campus.

Disc: Invested.

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My mistake - I meant “Try calling up the company secretary for information” and I really want at least 10 people to

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Presentation made at AGM today.

https://www.bseindia.com/corporates/anndet_new.aspx?newsid=61a58c05-5eaf-48a9-8e72-3b71a4734534

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The presentation contains projections for turnover up to 2024-25! First time I have seen! What was the need for that?
Disclosure: Got out from the stock around 350 levels.

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Hey Shikhar, How are you. Can you share the details of AGM and what were discussed. Were you able to ask the questions and what was the response from Kitex/Mr. Sabu?

Great, thank you Shikhar. Awaiting the details.

The news on CFO is reassuring!

Why is the Sales to Kitex USA LLC shot up 10 times in an one year and is now 45 % of total sales ? Is the decline in TOYs R Us met through sales to Kitex USA LLC?

  • There is a new trend in US market, buyer prefer goods on LDP ( landed duty paid ) and Kitex is the first company to move to this. The top vendor from China hs now moved to a similar model
  • Gerber FOB business is now on LDP basis , has no effect on revenue or profit of KGL since it is invoiced on same FOB to Kitex USA LLC.
  • Previous year figures are only for 2 months of Kitex USA LLC.
  • Toys R Us bankruptcy filing has impacted only in 4th Quarter of FY 17-18 shipment.

Question – Kitex USA LLC has not paid for 1/3rd of purchase made from KGL

  • All sales of Gerber were made through Kitex USA this year, hence we have 65 cr out of those 85 cr receivables pending by Gerber( our largest clinet)
  • Gerber was in the favor of Kitex USA LLC structure.
  • Our overall debtor days Is almost same as last year ( 120 -130 days)
    Question – Kitex USA LLC not audited
  • There is no statutory requirement for conduct of audit of accounts of entity as per the applicable Federal laws in USA.
  • Auditor has expressed the view the impact of unaudited figures is not material to the company
    Alleged shady related party transactions between KCL & KGL
  • KCL was incorporated in year 91 , a year before KGL.
  • They are in two different lines of business, KCL manufactures for 0- 16 years, while KGL manufactures for 0-24 months.
  • KGL is more profitable due to larger revenue.
  • Both entities are audited by the same auditor
  • Management and promoter has no motive of inflating profits of KGL, he hasn’t sold a single share of the listed company since 1995.
  • The processing charges paid by KGL to KCL are nothing but the embroidery work done on the garments

Sudden change of auditors

  • The company has got on board new auditors ,BDO which is the 5th largest company in the world
  • KPMG is already a partner of the company, hence the company was not able to get a top 4 on board.
  • Representatives from both the auditors (Varma & Varma , BDO) were present at the AGM.
  • Logically it doesn’t make sense for the company to cook up its books and hire a better auditor.
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@Shikhar, Thanks, that was useful. Did you manage to get answers for the below queries?

  1. In the recent TV interview, Mr Sabu mentioned that there are tie-ups already in place with customers and hence they are increasing production by 3.5x? Any more details about these tie-ups?
  2. From the recent presentation, I understand that land is finalized. They were looking at various states. Was the location disclosed?
  3. Any news on KCL listing?
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  1. I think they r planning to scale up existing customers. For example take gerber…for them india wil be a small place in the map. And kitex will be even smaller. They will look up to consolidate their suppliers.hence kitex will in a sweet spot to capitalize on such opportunities.
    Also india seems to be gaining competitive advantage with respect to China. China and usa trade war puts us in a sweet spot
    Kitex will also be looking to manufacture wet tissues, diapers, socka for children which can be sold to rhe same clients .
  2. Kerala has been finalized. Along with kpmg they evaluated karnataka and AP as well but settled with kerala as the best place finally.
  3. No plans for kcl listing…i am personally not bothered with KCL at all. KCL has no relation what so ever to KGL. Both are in completely different age group of garments.
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Sabu jacob even added that when Kitex USA turns profitable he might remove KCL as its co owner and make it 100 percent KGL owned.
He expects kitex usa to become profitable in a couple of years as majority costs r fixed. Kitex usa has hired a 8 man management team and is paying heavy salaries to them right now. He has some very experienced and senior people in the team.
I also asked him regarding the increasing spend on CSR.he said he will take loan in personal capacity and do it from next year onwards.
From what i understood from the locals is that CSR spending is actually required in states like kerala to garner local support in order to run business smoothly.kerala is typically a tough place to do business with severe labor problems and political goons. Hence the need for kitex to get into gram panchayat and stuff… these reports of sabu jacob having political ambitions are completely baseless.

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Seems like company has accidently revealed Q1 results in AGM presentation by giving margin % numbers…works out to be 27cr PBT…Lets see ;)(Q1 results are on 13th Aug)

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results for this quarter
turnover of - 132.22 cr ( other income - 9.41 cr)
PBT - 30.16 cr

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Kitex gave decent numbers for Q1FY19.

  • EBITDA Margins declined yoy from 28.19% to 22.82%. EBITDA Margins improved qoq from 14.46% to 22.82%.
  • Current qrtr working was supported by Rs. 9.4 cr Other income.
  • Appointment of Mr. Krishnaraj S. as CFO from 01.10.2018. Mr. Krishnaraj S. has a good background.
  • Setting up unit in Infopark SEZ in Kochi with project cost of Rs. 3 cr.

Board Meeting outcome.

Regards
Harshit

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Is there any impact of flood on production?

Sabu M Jacob and kitex story in andhra pradesh news paper sunday edition … inspiring

The prices are going steeply up since Wednesday 29th Aug 2018. Despite looking around, I fail to see any reason for this. The unaudited quarterly results were declared on 13th Aug (18 days ago), and since then it only went down slightly after trading flat. Anyone can shed any light on this?

Disclaimer: I’m relatively new to investing world, so kindly excuse me if this is a stupid question. I’m interested in Kitex as have small holding that were purchased about 8-10 years ago by my father and I’m now trying to get to the bottom of this.

Latest interview…

Rgds
RR

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https://www.bseindia.com/corporates/anndet_new.aspx?newsid=f487c7e2-dd00-4acd-a3bb-9178af746717

incorporation of wholly owned subsidiary in the name of ‘Kitex Littlewear Limited’. How different is it from the current line of business?

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As per the BSE shareholding pattern, Valuequest moat fund reduced its holding in Q1 2018 and exited completely in Q2 2018. Could it be indicating deeper troubles with governance? I guess VQ moat fund would have exited taking a loss…