Notes from the Conference Call
No Growth in Total Income -
- Delayed winter in USA has led to clients (Ex: Gerber) asking Kitex to hold on to shipments in last 2 weeks of December. As US year closing is on 31 Dec, they didn’t want to report high inventory levels in their results. Have already dispatched those shipments in first week of January
- Major customer Jockey (~15% of revenues) has decided to use synthetic material instead of cotton owing to youth/new/fashion trends in industry. Didn’t expect at all Jockey to turn into synthetic. Jockey - 16 million dollar sales has come to 6-7 million dollar sales one of the reasons for shortfall in total income. Almost 50% down. Made up some loss of revenue with other customers. We have to take a decision whether we should start with their synthetic line. That’s additional opportunity as they have offered to double orders. Decision to be taken over the next few weeks. Still continuing with their existing line. Synthetic will have to imported from Taiwan or China. This was the only Men’s / Women’s clothing we were catering to. Jockey business was a special project based on NASA research. Profit margins will not be impacted much because of Jockey. Although efficiency was higher as same product manufactured for 365 days. All other business infant wear. Lamaze has even started organic cotton? (Not sure)
Risk of other customers shifting to Synthetic -
Synthetic trend only related with inner-wear. Because of the climate changes leading to unpredictable cotton supply lot of people are shifting to synthetic/synthetic mix. Currently observed only with the Jockey customer
Kitex’s infant business (Gerber, etc) all are 100% are cotton. Infants are very sensitive to the material. Specialised into Infant wear for 0-24 month old babies. For all our businesses. All businesses are 100% cotton as infants have sensitive skin.
FY16 and FY17Guidance
Fy16 9m operating income - 361 crore
Fy16 9m total income - 380 crore (Sabu Jacob repeatedly highlighted he includes other income as part of total income)
12m - 550-560 crores
Accepted he committed 600 crores but will end up around 550-560. But did he commit 600 crores including other income earlier?
Q4 - 170-180 crores expected sales
Planned 15% top line and 10% bottomline growth for the year.
FY17 - We have got enough commitment from our customer for Q1, Q2, Q3 this year we already have got great orders for 20-30% growth. 20% is lower end and 30% is higher end. Will come up with final numbers for FY17 in Q4. Awaiting feedback on final quantities. K-mart shipment expected in June-July.
Debt Position - September Balance sheet - 103 crore short term debt, 66 crore paid off
Kitex Childrenwear debt - Dont have the numbers
241 in september around 251 crore in december
By Fy16 will end up with around 220 crore balance
Converted 10 $million with 2 rupee gain
and will book remaining 9 $million
Balance will be $33 million in USA account
Permanent affair - currency call? Why take these positions with other businesses to manage?
Explained - Cash balances? Blended interest rate we earn from them - 9 million we are holding is because in 2 weeks we may get 50 paise more. More than the interest we are gaining in the appreciation. Because of China issue and all that we can get a better rate. If you book a forward we can get a better hedge. With China devaluation, we expect the rupee to further depreciate and we can get a better rate. The guy I think Manoj) sitting with Jacob was trying to argue this is always a better investment for the company and this policy will continue.
Jacob intervened - This policy depends on the market situation. Now is the time to have either forward booking. If the situation changes, we will change the policy.
Completed 3 years. People at the top level in Kerala normally work for 2-3 years. Leave for a better package. Nothing unusual.
From a management perspective, who else is the key decision makers?
Every department is handled by HoD. CFO has a group of people supported by people in different departments,
Dividend Payout - Suggested to the management to increase dividend payout to look after minority shareholders as no significant capex planned in future.
Have increased dividend over the years and we will formally come up with a dividend policy and financial plan at year end. (Not convinced with his answer)
Merger of KGL and KCL - Go with the separate listing. And then think about the merger process. Board has taken a decision, timelines we are working on. Market conditions not favourable for listing currently.
Thinking what time it should
Employee cost has increased by 16%
Employees take 6 months to 1 year to reach full efficiency, have taken onboard many employees and sales has not increased. Employees cost increased because we recruited a lot of people to meet future demand. Employees need to be trained for 6 months to 1 year. The result will come in next year. Added 30% labour.
Capacity expansion - Fabric Capacity increased from 23 tonnes to 48 tonnes.
Capacity growth planning of 20-30% , in another 2 months we are coming up with the actual numbers based on customer confirmations. Next year what we expect adding small small additions to machines, equipments, etc. can reach 30-35% increase on capacity
By 3 years to double the capacity from existing production. Number of garments to produce - depends on the line of buyers order and manufacturing.
Acquired Lamaze brand and opened Little Star - concentrating on establishing these 2 brands. Plan is to fully focus on Lamaze and Little Star for 2016-17
Pledge of around 26% - in all our SEBI format we show the encumbered shares
Last quarter, the SEBI has changed the format.
These shares are encumbered by Kitex Childrenswear for their borrowing. 6 million shares has been pledged/collateral for Kitex Childrenswear for their borrowing.
Everyone has little concern with the decrease in total income. More customers will be added this year. Except the total income all the numbers have gone up. Within 3 years expect very good results.
PS: I believe the notes were shared in the thread as I was typing my notes. @adminph2 Let me know if I should delete my post.