Notes from latest Concall
please excuse repitition of some points already well-discussed in the threads. some minor inconsistencies in answers have been reproduced as is.
Guidance/plans
)- Q1 is typically a weak quarter. Q2 was better. Q3 and Q4 are expected to be even better. or at least as good as Q2.
)- 250 cr. shipment pending (Q3 and Q4). in other words Q3+Q4 target is 250 cr.
)- have commitment (order book) of 500cr. for FY15-16
)- drop in cotton prices leads to drop in yarn prices but with a lag of a month or so. effect of drop in cotton prices will have an effect on Q3 where raw material costs will be less.
)- but this is a short term benefit, since some (but not all, maybe 50% to 75%) benefits of drop in cotton prices will be passed on to the clients.
)- double capacity in 3 years to 1.1 million with maximum increase of 20% to 25% increase in labour costs.
)- use all newly added capacity for direct sales, maybe add a client or two if needed. later on slowly shift to 100% direct sales (own brand + brand licenses).
)- direct sales will see about margin improving by additional 15% to 20%.
Cash, Debt, etc.
)- 160 crore cash, 110 crore debt. Debt taken to get 10% capital subsidy and 5% interest advantage under a govt scheme for textile industry. company is practically debt free because surplus cash exceeds debt.
)- no interest income- the cash is in EFC account in dollars. taking into account the 5% interest advantage and expected rupee depreciation, it is profitable to forgo interest and keep money in EFC account. this money will be encashed at the right time.
)- other operating income, 6.5 crores is forex gain.
90% revenues is export. 10% is domestic (this is all fabric sales).
)- kitex does not hedge forex. whenever we hedged we lost money. plan to hedge for a year if an opportune time comes.
KGL/KCL merger
)- ENY has been engaged to study details related to merger. They will just study and give a report.(no timeline given).
US plans:
)- registration and some legal process are going on to enter the US market. This will take about a month. Some numbers will show up in Q3.
)- efforts are on to get licence and to also launch kitex’s own brand in the US. this might result in slightly more working capital requirements but this will be peanuts as compared to the gain. selling own brand and trying to get brand licenses (about 2 to 3) will result in 15% to 20% margin improvement. note that since 90% sales are from US, such margin expansion will have a big-time effect.
)- US plan is to concentrate on small and medium sectors and it does not conflict with interest of current clients who are not selling there since they are either themselves retailers or they sell to biggies like walmart, target etc.
Clients
)- any client should give us 12 to 15 million dollars. maximum 30 million to any client. more than this will give undue bargaining power to the client. no plans to increase this limit.
)- gerber has been a client for 14 years since kitex started production in 2000.
)- 2 or 3 clients were discontinued but by kitex itself in the past because they failed the minimum 12 million criterion.
)- other clients in pipeline and all formality has been done, and they are waiting for production allotment.
)- all additional capacities are planned for direct sales in US, maybe add at most one client if needed. very long term plan is to reduce existing clients and reach 100% direct sales.
Capex plan
)- every 5 crore spent increases revenue by at least 12 million dollars (72 crore rupees).
)- capex required to reach target capacity of 1.1 million pieces per day in 3 years is about 25 to 30 crores. this is in addition to this years 15 crore capex is done. This years 15 crore capex is for replacing all machines which are 5 years old. this itself will result in addition of 5 to 10% capacity
Growth drivers
)- US birth rate going up so expect more orders.
)- lot of buyers shifting from China and other countries to India related to quality, wage and political problems and buyers get best quality from kitex.
)- direct sales in US (2 or 3 brand licenses and launching of own brand).
