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Kitex Garments Limited

Managment looks pretty bullish. But proof of the pudding in eating only. They are planning to reduce more debt in 1-2 weeks. But the debt at concessional rate of Interest will remain in the book

Only people who faced Management can comments on the call. How they feel …the pulse

66 Crs they already paid off. Balance 7-8 MUSD will be paid in 1-2 weeks as they are expecting a good rate.

Balance Cash balance 224 cr at FY End

friends …anybody who was able to attend the con call…pls share the details.


Key Highlights of the concall:

Fellow participants >> Please add/modify as required…noted these points bit in a hurry:

Fabric capacity increased from 23 to 48 tonnes

Expects minimum 20% growth and upto 30%

Plan to ship 174 Cr in Q4

Will continue TUF loan of 33 Cr.

Paid short-term loan of 66 Crs.; will clear all short term loan in 2-3 weeks

By end of this year we have cash of 224 Crores (balance 33 million)

Recruited more and they are in training phase; hence operating cost increased but not revenue

Winter delayed in US; Customer did not held much inventory

Will end up with approx 560 Cr

Lamaze: Already started selling; planning 7 mn sales

Got trade partnership proposal from Jockey yesterday to manufacture synthetic clothes

15% revenue coming from Jockey

Was connected bit late so not sure if there was any discussion on CFO resignation.

Overall, the same pieces figured out, nothing new, my take vs. last call:

Cash still in US bank account; management either hiding or still speculating on currency instead of focus on core business
No clear explanation of sales fall except some business lost with Jockey
Management still firm of guidance of 560 Cr. (which in my view is very difficult to achieve)

Disclosure: Invested

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Just a quick noting of the concall.

Q3FY16 Concall - Kitex

Winter delayed in US and hence winter sales lower in the US.
After 15th December the customers asked to hold the shipments as they don’t want to carry inventory in their books

Sales Q3FY16 Q3FY15
USD Mn 14 16

FY16 Sales guidance at 560 cr. Revised downwards form 600 cr
560 cr is including other income. 9M figures 361 cr operating revenue and 18 cr other income. Total 380
Reason from drop in sales is due to lower sales to Jockey where consumer preference is changing from cotton to synthetic.
Jockey sales target = USD 16-17 million. Actuals down by 50%
Company thinking whether to start synthetic poduction line? It would be additional opportunity for Kitex
Sales to Jockey = 15% of total sales.

Q4FY16 sales guidance at 174 cr

FY17 guidance 670 - 730 cr (20% - 30% growth). Minimum 20% growth next year

Confirmed bookings for Q1, Q2 and Q3 FY17 at 20% growth

USD 10 million debt repayed. USD 9 million to be repaid in next 2-3 weeks. This is packing credit
Term loan taken under TUF scheme would remain

Over and above 20-30% growth on existing business. Additional USD 7 million (about 50 cr)
sales expected from new customers/own retail brand. USD 7 million is minimum target

Dec-15 cash balance = 251 cr

6 million promoter shares pledged for Kitex Childrenware borrowings

Mar-16 expected cash balance would be 220-225 cr after paying further USD 9 million debt

CFO Resignation - He got another offer. He had completed 3 years. Normal practice and nothing unusual

Large labour recruitment done for future requirements. It takes about 6 months to train new workers

Plan to double the capacity over next 3 years. Capacity not quantifiable and depends upon the product (Body suit, Cap, Etc.)

KCL would be listed separately. Timeline is not decided

Disc: Not invested. Tracking.


The guidance of 560cr includes other income. In FY16, other income would be around 25 cr, so effectively sales guidance is 535 cr.
For FY17, guidance is for 20-30% growth, so this implies 640-695 cr sales.
the 200 cr cash still remains in FC account. going by management’s commentary, they are not planning to increase the dividend payout substantially or putting the cash in debt or mutual funds to get higher interest income.

discl: not invested

Notes from the Conference Call

No Growth in Total Income -

  1. 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
  2. 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

Cash balances
241 in september around 251 crore in december

By Fy16 will end up with around 220 crore balance

Currency Call
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.

CFO Resignation
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
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.


One thing to note is that the mgmt is confident of having minimum 20% topline growth - does this include the B2B business only or B2C also? Any clue on this?
Getting into synthetics can be a good trigger, jockey promising to double the orders.
Topline growth for this year will be 10% from 511 to 560cr. Correct me if wrong.
Capacity going to double in next 3 years.
Debt being repaid.
All this is huge huge positive on the face of it.

But I feel laughing at the dollar-rupee conversion issue. Does he consider us stupid- when he tries to explain that they are betting for the dollar-rupee conversion gain and that to they are betting on china currency devaluation. Is he really into a textile business or he is into betting for small/illogical gains…
What was he doing when the stock market was bullish? Why did not he list his private arm then?

I feel he is a good businessmen. Getting an award from Jockey and scaling the business to this level is a great job done. But, he is not smart enough at the finances or he is oversmart that the books are cooked up.

I think sales falling from key client like Jockey is a negative that too by 50%.

Also, Jockey has made offer to produce synthetic garments. Please note that cotton garment vs. synthetic garments are different altogether. It will be big negative if kitex agrees to produce synthetic garment and move out of its core competency.

On the rupee conversion part, I too was laughing during the call on his argument to wait still more and wait for rupee to come at 69 levels (in the last concall he told that he will repay all debt if rupee comes to 67…and now he is waiting again…!! :slight_smile: )

@vivek_mashrani can you please explain why producing synthetic is going to be a “big negative”… wouldn’t it open opportunities for them to get new order/clients interested in synthetic ?

As per my view, correct me if I am wrong please:

  1. There are several other manufacturers in the world who are already producing synthetic garments, so Kitex will have to face competition

  2. Synthetic garments is not the core competency for Kitex+It has to bring in new machinery+it has to invest in training. Again since it will be selling to players like Jockey, they will squeeze the margin >> So there will be two-fold impact (a) increase in fixed cost to start with (b) margin compression

  3. Also, foray into new area will limit the focus into existing products/business

  4. Cotton is best suited for children. The current trend might turn out to be temporary due to weather condition in US and eventually the fixed cost will be a burden if that materializes

  5. Mr. Jacob has no experience in sourcing raw material for synthetic garments, hence its totally unknown and uncertain territory

  6. Chinese companies has extreme cost advantage in synthetic since it does not need much cotton to produce; Hence the investment in synthetic will not produce good incremental ROCE for kitex

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As per what I heard Mr. Sabu saying was that the garments they manufacture for Jockey is in the youth wear segment and not children wear. So the change in trend is not in children wear but youth wear. Hence not a big worry.


Kindly read the annual report and website. As far as I know, they are only into children wear. Thanks.

Last year total sales was 524.5 Cr including other income (511+13.5) and he had given guidance of 10-15% growth in % and 600 Cr. in nos. if u take 600 cr then growth comes is 14%+ (600/525)… means he consider other income also while giving guidance.
Now he is saying 6-7% growth in total income means 560 Cr (560/525).


Source MOSL Kitex report released on 13 01 2015

Following text from Jockey profile from Pl read bold letters ( emphasis mine). does it has anything to do with drop in Jockey volume with Kitex? is Jockey buying from Gerber in competitive price?

Jockey partners with other companies to expand its products portfolio. Thermal underwear leader Komar Layering makes men’s and women’s thermals and layering apparel exclusively for Jockey through a licensing agreement inked in 2011. Adding more thermals to its drawers in 2014, Jockey partnered with global apparel supplier Intradeco, which specializes in sleepwear and thermals.

Jockey is working to extend the reach of its brand. Through an agreement with Page Industries Ltd. inked in 2011, Jockey sells its products in India. Page Industries, as the exclusive licensee, makes innerwear and leisurewear for men and women.

In recent years, Jockey has been chasing after the kid niche. To expand into children’s apparel, the company has partnered with Gerber Childrenswear, a unit of Kellwood Company, to make and market Jockey-branded underwear, sleepwear, and thermal apparel for infants through children. The deal spans the US and Canada.

Jockey has taken a page from the Tupperware and Avon playbooks and joined the home-party niche. Through its Person to Person direct selling unit, the company trains salespeople who peddle Jockey apparel through parties in customers’ homes. Jockey executive Waller launched the concept in 2005 in an effort to help women balance their career and family lives.


kitex topline including other income is 345 cr till q3. given latest guidance of 560 cr, are we expecting 215 cr topline only for Q4? Q4 2015 was 153 cr , so looking at close to 40% topline growth in q4?? do people tracking kitex think co can meet this guidance?

Attended the call today. Overall impression I got was that the Management did not show the level of preparedness and consistency in what they are talking. There were elements of evasiveness in some of the answering.

  • CFO resignation - The answer was a bit evasive and was made to sound very common.
  • FY16 Guidance - It was ambiguous as I could not understand how 560 Cr projection for FY16 will be met considering 9M FY16 is 360 Cr.
  • About Jockey : Management told Jockey is 16 million business. (100 Cr) which is about 25% of annual run rate of around 480-500 Cr. But Management kept on insisting Jockey forms only 15%. MOSL earlier report indicated 20% share fro Jockey. Again I could not add up the numbers here. I might be missing something. Also my understanding was Jockey’s order for Kitex was still for children wear and need to verify if Jockey is really going for Synthetic for children wear.
  • Sales miss in Q3 FY 2016 : I could not understand how the delayed winter in US can impact children wear. So could not relate the explanation much. Again I might not have understood this well as I joined a bit late.
  • There were some good questions on why dollar sales figures are not provided and also volume figures. But overall the answer looked confusing here.

Overall I felt this was a very important call even from management perspective. But the level of preparedness and consistency in their answering was missing.

Disclosure: Invested ~5% of the portfolio.



As per Sabu their total sales in 380 cr till date. He is adding Operating Income, Other Operating Income, Other Income. Other Operating Income consists of Duty Draw Back, Scrap sale, Job works. Other Income consists of forex gains/losses Subside income from TUFS, Interest income from bank deposits.

As per him, they gave guidance of 600 cr, they will fall short by 40 cr. He says they can do 180 cr in Q4 as some shipments are shifted from Q3 to Q4. But we need to consider the loss of 8 mln usd business from Jockey as it will effect Q4 also.

Disc : not invested

Quoting from an article in forbes.
"Jacob says he is not interested in making “easy products.” He took an order from Jockey International to make NASA-grade, temperature-controlled underwear for adults because it was “unusual and challenging.”

Marion Smith, a Jockey senior vice president, admits that he was “blown away” when he first visited the Kitex factory: “It’s important to us how our partners treat their workers. Sabu has spent more than he needed to on worker welfare.” As for the comfort underwear project, “it was mission impossible, but Sabu made it happen. He is relentless and will do whatever it takes.”"

Now jockey wants a mix of synthetic in this product line.


Would also like to add that Kitex pays its workers healthy wages and bonus.
This is implied from the fact that even due to the retrospective amendments in the Bonus Act the company doesn’t have to bear extra employee cost. This is one sign of a labour friendly company.

Yes there looks like corporate governance issues and transparency issue. But a company treats its employees so well, how he can do harakiri ? His treatment of his employees is really good , and that came in multiple news items. I am not able to relate. Hope I am not proved wrong. Something looks missing in the whole story that only his ex-cfo can tell…