Kitex Garments Limited

The picture is from a desk dedicated to Carter infant wear (6-24 month’s) at Costco Taipei.
I checked the label of each item on the table and here is the distribution in terms of country of origin -

Cambodia - 3 items, Thailand -1, Sri Lanka -1, Vietnam -3, china - 3, Indonesia -1, Bangladesh -1, Malaysia -1

Looking at the list of countries, makes me question if there is really such a huge entry barrier in terms of product safety, quality etc etc for infant wear as we are thinking is the case for Kitex.
Of course I am assuming Carter/Costco do the same level of due diligence for product quality sold in US and Taiwan and probably the same vendor’s as in this case are also catering to Carter US.

Also makes me think could it be :

  1. Carter and similar other players take a deliberate strategy of de-risking their procurement by going to different vendor in different countries for different items.
    OR
  2. That no single vendor/country is able to manage such a huge order book from a player like Carter. So carter is forced to go to vendor’s from different countries ?
    Any thought’s ?

Regards
Raja

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I dont know about infantwear sourcing… But in general in apparel sourcing, most of the large retailers have agents in each country who go around scouting for good, cheap stuff…These agents don’t stick to a single supplier, but instead point the retailer to good stuff from any supplier when they see some…

These agencies are then paid a commission on the turnover…

The report is about Kitex Limited and not about Kitex Garments Limited. Kitex Limited is a different company owned by the promoters.

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Yes @PP1, That’s what I thought.

Their product line is different and its more about grey cloth than anything related to Infant Wear. On the other side, I think it gives us an idea of how that business is structured.

Anybody, what is the market cap of China’s Wingloo and Singapore’ Gimmel, if they are listed anywhere ?

Thanks

All,

I just spoke with the Managing Director of KGL’s Auditors - Liju V. Rajan Kolath (Kolath Auditors) to dig more into the truth of the 200 crore cash. You can email me if you want his contact details.

In a 5 minute conversation, I asked him straight and direct questions about the existence of the 200 crore, bank details, do they audit other listed companies?. Below were his responses:-

  1. The money is real and the financial statements have been prepared after completing all necessary due diligence. He is not aware if there is any such statutory regulation to mandatorily reveal bank details. He said if that is true, the company should have revealed it in the Annual Reports.
  2. On probing about the bank details, he said I should either have asked this in the AGM or write to the CFO of the company.
  3. He didn’t reveal if they work with other listed companies and said he cannot reveal such information over phone as e doesn’t know who I am but said they are a reasonably big audit firm who work with large companies across Bangalore, Chennai, Mumbai, etc.
  4. He was of the firm opinion that I should go to their AGM next time and if possible must visit their office/plants. He said it is one of the best companies he has visited and worked with.

Overall, he seemed very nervous revealing details over phone and asked me specific questions like my interest in the company, if I was related to someone in the Planning Commission (my name similarity), where in Delhi I’m from etc, etc. Said I should try to understand that some of this information is privileged (bank details, etc) and the CFO of KGL may question him for revealing any such details.

Also said he’d pass on my details to the CFO of the company as a current investor and ask them to respond to the bank details question. (However I have not written any mail to the CFO and only taken details from Valuepickr that nobody has received any responses)

Disclosure - Still not invested, may be soon if there is some correction.

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This is the auditor’s website

http://kolath.in/

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Although a bit dated, this McKinsey report does a very good analysis of Garment Industry in Bangladesh (report dated before the Rana plaza tragedy)

It gives a good picture of the challenges in Bangladesh (apart from the compliance issues), for instance the congested highway from Dhaka to Chittagong increases transport time by 20 hours, lack of deep sea port, etc.,. Overall the impression I get is that supplying garments that require shorter lead times is going to be a big challenge for Bangladesh suppliers.

This is another article that details the challenges after the Rana plaza tragedy and why there is a lot more to be done.

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Does anyone following this have data on Wingloo (largest player) and Gimmill (2nd largest player)? What has been their performance in the last few years? Any headwinds/tailwinds?

Google search on Wingloo refers back many analysis/blog posts on Kitex. Being the biggest player they would atleast have a website?

Gimmill (also known as Ramatex) has a website http://www.gimmill.com.sg/ but not much data points in it.

Also as per Kitex management their capacity utilization is 65% and there is room to produce more here. How exactly is this utlization measured? Are they considering people working in shifts? or do we have under utilized plant and machinary? Is the management capable of scaling up?

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Hi Everyone,

We generally are very tolerant of letting discussions/concerns run its course at VP - as evidenced by this Kitex thread itself :wink: even at the cost of deteriorating discussion quality

We have been receiving lots of messages from well-meaning members to be stricter in enforcing
a) VP culture - of mutual respect and politeness (no abrasiveness, arrogance, or mockery)
b) Value-additive discussions - disallow repetitive opinions/counters of the same viewpoint unless they point to new facts; and off-topic posts

Moderators have stepped in often, but their well-meaning advise isn’t being respected, it would appear.

Everyone is requested to think twice before posting -
a) Am I adding value to the existing discussion
b) Am I taking the discussion forward by quoting relevant/new information or facts
c) Am I adhering to the VP Culture of always being polite, and respecting other/contrary viewpoints, or am I being self-righteous in wanting to prove a point at any cost, with a couldn’t-care-less attitude

We are a set of ordinary individuals at VP who have been able to raise the bar continuously through extra-ordinary teamwork - by respecting each individuals contribution, always being humble and open to learning from the next guy. We are careful to shun abrasiveness and arrogance, always open to owning up to mistakes made on that front, always trying to be polite (no matter how much we may disagree with the viewpoint expressed (even repetitive)).

We have rarely ever stepped in to actively edit/delete posts at VP, but our hands are now being forced with the surge of new membership - who (we suspect) are yet to assimilate the VP Culture/ethos - and develop that innate sense of belongingness/responsibility to the community - and need more time, and some firm hand-holding :smile: perhaps!

Some of you might have noticed a few posts edited/deleted in this thread recently. We will have to become stricter in enforcing VP culture/discussion quality till such time we see things improve. If you think some actions are out of line, we will be happy to hear from you directly (privately), so we can improve.

We will step-in more often from now, and edit/delete posts as necessary.
We also reserve the right to review all existing posts and wield the axe retrospectively.
Please allow us that space and discretion.

Thanks

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See news item http://timesofindia.indiatimes.com/city/kochi/AGs-Pvt-Office-Filed-Case-Against-Kerala-Govt-on-Delimitation-CMs-Claim-Proves-Wrong/articleshow/48478372.cms

Why would Kitex be interested in getting notification for delimitation of Gram Panchayat quashed? This seems active politics. Any ideas of Kitex’s interest in politics?

Disc: Invested

Continuing the discussion from Kitex Garments Limited:

How can keeping money in EEFC a/c take ‘advantage of tax’ or lower tax rate if that is what you mean?

Keeping cash in dollars for currency appreciation essentially is a speculative action because currency fluctuations can cut both ways. Instead typically you would book a forward contract to sell dollars and get a foward premia which would enable you to make additional cash when you settle the contract with the dollars you receive from export of goods. No one would say that they would keep all cash in dollars (even if they violate the RBI rules) because they expect a huge ₹ depreciation! That is because if God forbid ₹ appreciates by 3-4% for some reason, you just shave off 10-15% of your annual profits @25% margin say. Do note ₹ has gyrated between 48 and 39 in the hey days. I used to run an analytics business and we would book monthly or quarterly fwd contracts based on what cash we expected to receive. We would be torn to pieces by the Board if we tried something something like above.

As for providing $ for imports they could as well take a dollar short term borrowing pre and post shipment credit. So they need not keep $ in EEFC a/c. Also imports seem to be to less as mentioned by @varadharajanr so the balance may be moved at least to be in compliance. Separately they seem to take short term borrowings for packing credit at 10.45% in ₹ when they can possibly get $ loans cheaper with natural hedge. Maybe there is a good reason but cannot figure out. Or maybe I am wrong.

Warm regards,

Have been skeptical of Kitex for quite some time now. My rationale below. A lot of the points would be repeated and already discussed on this forum (repeating points only because we should look at all the points together). A few points would hopefully be new.

  1. Apparel manufacturing (even children’s wear) is a largely commoditized business and a good apparel manufacturer makes less than 15% EBIT margin (Kitex’s competitors make less than that). How does Kitex operate in the same industry but have margins as high as 39% (Q4 FY15)? How does Kitex have margins far superior than an ITC, HUL, Page - i.e. businesses with very strong moats? The biggest investing blunder of Buffett was investing in Berkshire Hathaway - a textile business which did not have any significant moats. Buffett’s dislike for textile businesses has been well-documented. So, for Kitex to generate the kind of margins that it does, it would need to be really special. However, considering its low share of customer wallet and limited product differentiation, the margins reported seem suspect. Kitex is a small supplier for its customers while for Kitex each customer has a high share of its revenues. In such a scenario, it is the customers that have bargaining power not Kitex. Even if Kitex does have a moat, is it stronger than that of Page?

  2. The high cash balance in current accounts along with high debt has already been discussed a lot. I haven’t seen such a practice in any quality business. That the management is indulging in currency speculation with its cash is a serious issue. Only in a case of sharp depreciation of the INR would holding $s make sense while paying 10-14% interest on its debt. The fact that not a single rupee generated from business profits has been used to pay down debt is of concern. On the contrary, the company has taken on more debt. Which then raises concern of whether these $s even exist. I do not think RBI permits holding $s for more than a month. Would appreciate if some one can clarify how Kitex has managed to not convert $s for years now (with specifics).

  3. Existence of several entities which are into the same business as KGL raises doubts if KGL’s profits are inflated by booking expenses in other entities. Both Kitex Childrenswear and Kitex Limited have sizable operations but much lower profitability than KGL. Shouldn’t investors than be focusing on the profitability of the entire entity rather than just KGL? I found both Kitex Childrenswear and Kitex Limited having high debt (as per 2014 Balance Sheet on MCA). Does this imply that while the overall Kitex operation does not generate attractive ROCE, the listed entity has good economics? In such a case, can KGL continue to report high ROCE even while entities like Kitex Limited suffer?

  4. In the 2015 AR, I found that entities like CKG Supermarkets, CKG Finance, CKG Securities, Gopinath CK, Jinsha Nath CK and Hareendran CK have significantly reduced their shareholding. These parties are I believe acting-in-concert based on the similar names and “CK” surname. CK Gopinath had bought Kitex shares in 2009 at a time when its market cap was less than 100 cr (http://www.equitybulls.com/admin/news2006/news_det.asp?id=62231). This is not the typical stock market investment as CKG has not made similar investments in other companies. So, it is likely that CKG is a friend/relative of the Promoters. So should we consider CKG’s selling of shares as Promoter selling? If yes, that is a red flag.

  5. One of the reasons for not repaying debt that I read was the interest subsidy that Kitex gets under the TUFS scheme. This should lower interest costs by 5% and reduce debt burden. However, over the last 2 years Kitex has not reported any significant income from TUFS subsidy. Also, Kitex carries over 8 crs of receivables from TUFS. These receivables have been outstanding for more than 2-3 years now. So does the company get any benefit from TUFS or not? If it does, what explains the failure to collect its receivables under TUFS?

“In the world of business, bad news often surfaces serially: you see a cockroach in your kitchen; as the days go by, you meet his relatives.” - Buffett

The reason I doubt Kitex’s profitability is the existence of cockroaches such as 0-interest cash in $s, related parties, CKG selling and TUFS. Add to that the knowledge that textile businesses do not inherently have ability to generate such high profitability is enough to convince me that Kitex is spinning a fancy yarn (pun intended).

Regards,
Amit
@amitmantri

Disc: Not invested

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A google search for CKG supermarket Kerala showed that the names of Directors are as in this link. Looking at those names, it looks like they may not be related to Sabu Jacob. Doesn’t mean much but just wanted to present a nugget of info. Chittilangatkalam Gopinathan, Chittilangatkalam Hareendran and Changaramkandath Padmanabhan Usha are the Ds of CKG

https://www.zaubacorp.com/company/C-K-G-SUPERMARKET-LIMITED/U51909KL2001PLC014486

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I can confirm that a company can only hold USD or any other ccy in their EEFC account only till the last date of the next month. Lets say a company receives FCY on any date in Aug’15, it will have to encash them by the last date of Sep’15. Hope this clarifies the issue, regarding EEFC account.

Another method is to park, FCY in a foriegn subsidiary, but even then max you can hold is till a year. (not 100% sure about this).
KRBL used to this. They used to hold their receivables to fund their foreign subsidiaries, as those subsidiaries were loss making.

Disclosure : Hold a small position, less than 2% of PF.

Here is a partial list of some chinese competitors http://www.cnga.org.cn/engl/member/children.asp

No mention of Wingloo here. Most of them don’t have a website but found this one to have a lot of information http://www.redkids.com/

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Dear @sethufan

You had claimed that there are certain “tax advantages” of keeping money in EEFC a/c? I am not sure how. Can you please help me understand?

Thanks and warm regards,

Dear @sethufan,

There has been no response from you, despite multiple requests, even as you have posted in the forum elsewhere. Consequently I am only left to conclude that your assertion “that there are certain “tax advantages” of keeping money in EEFC a/c” is incorrect.

I just hope it was not wilfully misleading.

I believe that as forum members we carry a basic obligation to be factual and honest in our assertions / facts / data. The forum’s reputation depends on it. We know who said, “It takes 20 years to build a reputation and 5 mins to ruin it” :smile:

Warm regards,

KItex thread is being closed temporarily for Clean-up/Maintenance along with Kaveri, Just Dial and Vaibhav Global threads.

Please bear with us for a few days, while the clean-up exercise is on.

Let us see if pruning works;
if that doesn’t we may have to start restricting posting rights for folks
We are hoping that we don’t have to resort to the last resort!

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