Garment segment has seen an upside and fabrics segment has seen a downside
Cash & bank balance has increased to 241 Cr from 203 Cr in Mar 15. This is lot of cash, almost 2.5 times FY15 profit.
Fabric segment (71 Cr) has more capital employed than garment (110 Cr). The EBITA contribution from fabric segment is hardly 1 Cr. On the other hand, Garment segment contributed 43 Cr.
Why such low returns in Fabric segment as compare to garment?
Doesnât the poor sales growth bother anyone. Management clearly stated 2Q sales growth YoY would be better than 1Q.
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Kitex Oct 15 result.pdf (1.4 MB) This seems like that dividend payout is also coming on an interim basis. I like the result and I find that they are in line with last year and precious quarter. Expected a better top line, yet the bottom line is enough to please us and EPS is close to 6 rs per quarter now.
Bottom line alone is not enough in my opinion. Top line growth has been very low and it appears unlikely that they can report 600Cr of revenue this financial year looking at this trend. If it is so, then the valuation is pretty high
Q2 topline is indeed lower but lets see how Q3 and Q4 pan out because they have maximum sales in that period and also Mr Jacob said that they are book for whole year and eyes sales of 600 - 650 crores.
Moreover lets see how lameze brand and itâs own brand 'Little star â picks up.
2 new clients additions âŚreduction in debt and the US launchâŚsurely they will do better than Q3 & Q4 last yearâŚeven if Q3 & Q4 remains same we are looking at march 2016 topline of 550 crs. if they maintain the operating margins and net margins at 35% and 20%âŚis it sustainable is the main Q? where do we see Kitex going?
friends look forward to your views
Now, the other income , what exactly is this? Is this arising out of weaker rupee ? Can anyone explain please. Thanks
Hi,
This is my first post in this forum and let me just say that based on what I have seen this is a terrific forum.
On Kitex; clearly the key tactical issue for now is what will the numbers be like for the next two quarters and will they meet their guidance of INR 600 - 650 Crores.
The seasonality data for last three years show that the second half can contribute anywhere between 54 to 60% of annual revenues. Based on numbers of first half, the full year revenues of Kitex can range anywhere between INR 471 Crores to INR 542 Crores. Applying the 20% net margin figure and using the 4.75 C Equity base, EPS looks to be around INR 20 to INR 22. The impact of such a EPS on a share trading at this multiple need hardly be spelt out.
Looking at this the other way; in order for them to reach INR 625 Crores for the full year, the second half has to generate revenues of INR 408 Crores; which is 65% of Annual Sales. Given that second half has contributed in the past upto 60% ( FY 12) the number is just tantalizingly within reach but is stretched enough to raise concern on immediate valuations.
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for me it is not a good result. no increase in top line with such a high PE. not my cup of tea
exited
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My base case estimates for FY 16 are as follows:
- Revenue Rs 580 Cr , NP Rs 118 cr , EPS Rs 24.89 p/e 32.18 (MP Rs 801).
- ROE without Capex 41% and EBITDA Margin 38%
- Fair Value comes to Rs 756.
- As long as they maintain the above ROE and EBITDA, p/e multiple will not come down ( under normal market circumstances)
It is a buy for LT around this price and below this price in dips.
Rgds
If we measure kitex on term of PE than we could say it is high ( I would say bit high bcz generally PE is high for company growing at 30 - 35% ).
Now if we measure kitex garments on the cash front than,
Free cash at end of half year stand at : 250 crores
Equity : 4.75 crores
Cash per share : 52 rupees
P/Cash : comes at 14
Isnât cheap. Would like to know from senior members that can we use this metric for valuation for free cash throwing company.
rgdsâŚ
I think before you say that P/cash at 14 isnât cheap, I would really like to know what is cheap. That way, for all companies which have net debt, their market price is astronomical, as per your contention. There is the odd case where a company may have high cash relative to its marketcap (smartlink, Hindustan Zinc, NMDC), but that is hardly ever the case. Indeed, what is the point of holding large amounts of cash @8%, rather than returning it to shareholders.
I really donât think you should use such a metric.
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I think the core issue here is management guidance and ability to execute on guidance. There is a growing sense that this management, while being brilliant at its core business, indulges in over ambitious guidance. While this may be forgiven in an emerging star so to speak, multiples will rapidly drop for Kitex if they continue to do really well but fail to meet targets they set for themselves within timelines. This is the core concern as it is a pattern and unfortunately, not a comforting one.
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I am speculating here. Cotton prices are at 6 year lows. So it may be reflected in the sales price and thereby revenue. If at all this theory is right, then shouldnât we be focussing on profitability rather than top line?
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I would have assumed that normally these are long term contracts and pricing would be known significantly earlier. In which case, management should have factored that into guidance.
I am not even sure why they shoot themselves in the foot with this guidance business. They are not obliged to.
The misplaced guidance is doing more harm than good. If you look at the numbers without the context of a hyped up guidance, they are pretty decent.
But that is the crux of the issue - is there an increasing disconnect with ground realities? Is the management entering hubris zone?
cotton prices didnt go down yesterday to 6 year lowsâŚor last qtrâŚthe price is near low 60âs for last 5 qtrs barring intermittent small reboundsâŚPrice action in stock suggests something wrong with the companyâŚ
Discl:Not investedâŚ
Just putting down few random thoughts:
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This isnât the 1st time that Kitexâs H1 revenues are flat or less as compared to previous FYâs H1 earnings.
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Not the 1st time that Kitexâs Q2 earnings are less than Q1 earnings. Last year too similar apprehensions were there on topline growth but mgmt. had said that they wud deliver in H2 or by last Qtr. (which I believe they did).
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This year too mgmt. has come on record to say that this has always been the pattern that Q1 is not great and H2 is always better with best earnings normally being reported in Q4.
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Mgmt. maybe ambitious in their targets and guidance, but at the same time we do have their previous performance which speaks for itself. They have created state of the art manufacturing unit over the years with good labour conditions etc.,. which is there to see.
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Previously there were apprehensions about when would new clients be added, when would the US brand be announced etc.,. That eventually did come.
Few other points:
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Earnings canât always be linear.
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We should give good mgmt. time to perform and time to nurture their business. We should allow an investment thesis to play out over a period of time.
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If we have a decent mgmt. in a good business that has performed well and has good future potential
then we should give benefit of doubt in terms of delivery i.e. if what the mgmt. says will be delivered in 1 year is delivered in 2 years then still we should persevere as long as we believe that delivery will come [even if with a lag (not saying that this wait should be infinite
)]. -
I think it is also not a bad idea to sometimes discount mgmtâs. plans in terms of time it will take for delivery of the same. Helps keep expectations (sometimes unrealistic expectations) in check.
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Would we be have been asking same questions if stock price had reacted positively to same set of results/numbers? Maybe not
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Why we might not have raised apprehensions if stock price would have moved up on same results? Maybe coz we like excitement as humans or as humans we always want something to keep happening, and we get that excitement or satisfaction from stock price moving up.
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Why do we start asking questions or raising doubts when stock price moved down on same result/numbers? Again maybe coz we as humans always want some action. When we donât get that action in stock price, then we start finding that action or sense of excitement by trying to find reasons into
why this happened? We try to satisfy ourselves and convince ourselves by trying to justify the so called reasons that we find. -
2 years back we may have been happy with this same set of numbers. But we may not be satisfied today coz we have seen a rally in the markets in last 2 years. It becomes more difficult to accept status-quo or inaction when things around us are moving so fast.
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If price action from 830 odd to 750 odd makes us think that there is something wrong in the stock, then maybe we should be putting our money to work at some other place and not stock markets. By this logic there might really be something great that might be happening in the company as we have seen price rising from 58 to 750 in last 2 yrs
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In bull mkts. we start expecting the businesses also start performing in a fast forward mode (which doesnât happen overnight, it takes time), which is not fair.
)].Above are just my thoughts (not sure if they make sense as I am not good at expressing/explaining my thoughts n the best possible way) with all due respect to other peopleâs views.
Discl: Invested and maybe biased.
Regards.
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Hrfacebuk,
Your post is clear and cogent. Thank you for that. In fact, it acted as a trigger for me to check out the data. Below are the data for total income for the first half for the last five full financial years. Except in Sept 12, they has not been a half yearly degrowth.
Sep-15 Sep-14 Sep-13 Sep-12 Sep-11 CAGR
243.33 230.96 200.58 129.37 148.28 13.18%
As far as quarterly numbers go, it is clear that Q1 numbers look a lot weaker than Q4 of previous year and this is evident when one looks at the numbers and has also been reiterated by management multiple times. But Q2 numbers almost always look stronger than Q1 numbers; including for this year.
The abiding concern ( even for someone like me who inherently sees a lot of growth left in this company) though is that management needs to be more nuanced in their guidances, especially since now the stock is under the limelight. The days of escaping unscathed from over ambitious guidances are over for this stock. It has to pay the price of being an outperformer and that normally is nuanced and conservative guidances.
The multiples are coming from growth estimates. Underpinning them is the degree of credibility of these estimates; both on a numerical and time scale. If over time there is an established pattern of over guidance and achievement of targets, but over delayed time horizons, one can be sure the multiples will very quickly reflect that.
Having said this, I agree with your behavioural observations. My only fervent request to the management is to get their guidance philosophy right. And the deeper concern is whether this tendency to over guide is a reflection of a mindset which is getting increasingly disconnected with ground reality; given the spectacular growth over the last few years.
I also agree that it is not a bad idea to discount management guidance in this case. Keep in mind, if everyone does this, that is essentially a PE erosion which is the direct outcome of their cowboy attitude to guidance
The next quarter holds the answer.
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Could someone proficient in charting share their technical view on the Kitex Chart?