I had a decent allocation in Kitex, and had keenly followed the discussions on this forum. There were some genuine doubts raised by some knowledgeable folks, but, it was also clear that Kitex was a good business. After listening to the Q2 concall, I was left unconvinced about the CEO. He kept answering all the questions in generic terms, and kept insisting that that there were no risks, no challenges in the business. At least, this was what I could gather. Had then decided that the revenue/profit projections would be hard to meet and would sell my positions before Q3 results. The stock kept getting pummeled and could sell it only after the results at an avg of 480. Good lesson learnt though. Should not have waited this long to sell it after my conviction was minimal in the stock.
I consider FX as part of business loss or gain and hence I see growth in rupee terms only.
Discl: Bought more today for LT.
Kitex concall: Saturday, 30 January 2016, 11:00 hours IST
Company participants
• Mr Sabu M Jacob, Chairman & MD
Dial-in numbers
India: (+91 22) 6746 8356 / 3938 1079
International: Hong Kong 800 964 448
Singapore 800 101 2045
UK 0 808 101 1573
USA 1 866 746 2133
I dont understand sometimes, why people get too much emotional with a stock. Guyz we have a huge pool of more than 4500 stocks in the big ocean - and getting 300-500+ stocks at cheap or reasonable valuations with good mgmt and good growth prospects(after this decent correction). Why still we burn our hands on this stock. I purchased this stock at 700 and sold it at 600 odd levels - hearing the CFO resigning (which proved my concern correct). I should have understood this early when the top contributors and admins raised the concern. Forget the numbers - why to rely on them when they are cooked !!
I would also ask here to all the VP members - can we deal with such a situation in future? What if the numbers are cooked - I mean to say a company showing good ROE, pays dividends, pays taxes and generates positive Cash flow but the cash flow is cooked? Cash is diverted some where or misused? We can catch the mgmt if it books fake sales (debtors/sales ratio) or books high profits( net profits/OCF) and other such red flags. But what if cash & bank bal is cooked?
Disc- Had invested at 700 odd levels and booked a loss recently.
The concall is being organized by Motilal Oswal.
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/3CAB822F_6D56_41B0_BFCC_104A470C4EA6_171114.pdf
You hit the nail on the head with your comment on emotions.
This stock gets VP’ers charged up.
Successful investors are rational and keep their emotions under check.
As you correctly stated, there are plenty of other good stories out there that currently offer far better margin of safety / capital protection. When we defend managements vigorously from the ringside, we forget that we are mere shareholders and outsiders, and much can happen without our cognizance.
Kitex was also an early investment that I really liked. It was also the very first instance that I was able to successfully book out immediately when a serious red flag popped up. (explanation of “cash” failed to satisfy me).
Whichever way this story plays out, what anyone invested in this story should ask himself is - given the clear warnings that were visible, was it prudent to stay invested - or was it better to get out, wait for the dust to settle and then decide if the story was really worthy of reallocation.
This is a mistake I made repeatedly and paid for dearly in my early investing days, I lost hard earned capital ignoring obvious flags. After burning serious money, I learnt this lesson the very hard way.
Today, If a red flag is seen, I take cognisance of the new facts, revisit and question my hypothesis, and dont hesitate to get out. I prefer an exit mistake to one where I hang on to a bad fruit. It is always possible for me to get in again at a future date - even at higher valuation - if there is a satisfactory explanation / resolution.
I specially feel for fellow VP’ers some of whom have expressed their nervousness but hang on to the stock, I empathise and remember my past journey.
Motilal Oswal Securities is pleased to invite you to the 3QFY16 concall of Kitex Garments
Day, Date, Time: Saturday, 30 January 2016, 11:00 hours IST
Company participants
• Mr Sabu M Jacob, Chairman & MD
Dial-in numbers
India: (+91 22) 6746 8356 / 3938 1079
In Motilal Research report of Sept 2015, the following is mentioned:
The management highlighted that it has converted its USD10m cash into INR and
will convert the balance by the end of 2Q. The proceeds will go towards becoming
debt-free by the end of 2QFY16.
So, it means they have already converted around 60Cr rupees (out of 200Cr). Is there any way of verifying it?
Had a talk with the CS, he said that all the dollar cash has not been converted to rupee yet and Mr. Sabu would address all the questions during the concall
Concall has been scheduled on 30th January as Mr. Sabu was on a business tour to US.
Management always seems to have some or the other reason as to why the cash has not been converted into rupees. Funnily enough in the 2Q concall they mentioned they were waiting for a particular USDINR level to do this. The rupee I think depreciated beyond that level in 3Q. Please correct me if I am wrong.
The key to the call on Kitex is the cash.
---- If they convert cash into rupees and become net cash then the cash exists. If the cash exists then the EBITDA margins reported since FY15 onwards are genuine. In that case one should not penalize the company for an year of slow growth. That is perfectly understable. In that case this is a phenomenal buying opportunity.
----If they dont convert cash into rupees and become net cash then the way to hide it would be by merging with KCL. Then we have to wonder if the EBITDA margins are genuine or not.
Only two people can help you on this issue. Statutory auditor and internal auditor. But they cant do that because of the confidentiality clause. This can happen only if you have a strong reference or a jack. If not possible through this route - better is to get out of the stock !! I had to do the second thing.
I will point out a few of the management/business traits which have been often discussed:
a) The 100 crores in foreign account.
b) Outspoken management with aggressive guidance.
c) Management interested in local politics.
d) Auditor a local guy
e) KCL/KGL, related party concerns.
and there could be a few more. Go back a year, go through this thread and ARs and you will still see the same issues with management/business. Except for growth (again aggressive managements should be discounted) this quarter I do not see anything that has changed. ROCE as a measure of business quality is still intact.
IMO Kitex thread is a great example of investor psychology and how not to behave. Most of the folks entering late followed a herd mentality totally ignoring the prevalent risks and margin of safety, looking for quarterly gratification. I think folks should desist from advising others as to what to do with their holdings and sit back, analyze the company, analyze changes in the business environment and take a call.
DIscl. Not invested. No trades in last six months.
I too spoke to the CS…He said that partial cash has been converted in January…On being asked to quantify it to percentage value, he advised me to raise this question in conference call…Regarding debt servicing he sounded very confident and was saying that this cash being converted will be used for the same…
To each his own but there was never 100% clarity even two years back when the stock started its upsurge…And nothing much has changed on that front in the last 6 months…I will wait for the conf call for clear answers.
Disc: Invested
As per the management, couple of dispatches were delayed and hence did not show up in the numbers. The benefit of which will be seen in Q4. Still confident will deliver 25% growth for the next 2 years (not the first time of such confidence) as order book is full for the next 2 years. Rest of the questions will answered on the call.
what is the source of this information?
An analyst (who was the first to cover the name) spoke to the management and shared this feedback.
The sentiments can improve after the concall. I have added more today as I see lot of value and adequate safety around Rs 375-Rs400. If I am proved wrong, I will exit as of now I strongly feel there are no fundamental changes in the business.
Please compare this with the case of KSCL . You will understand.
Rgds
IMHO
Writing on this Kitex thread almost after 18 months and after too much discussion have already happened on this story …
I would have few humble points for fellow travellers in investment journey… It is not suggestion or advice but just sharing my own thought process…
-
Kindly check your thesis for investing at the time of investing… Especially what is your initial expectation from the company and from the stock … Here what I mean is what growth of earning you expect (intrinsic to the company) and what growth of price you expect (it can be PE rerating, market sentiment, euphoria, bandwagon effect etc and to a large extent extrinsic variable)?
-
If the price goes berserk ahead of the underlying growth of the company or if market starts giving huge premium to its future possibilities and you achieve your price target much ahead of your expectation then what you should do?
I feel, in spite of all the negative and positive issues involved in Kitex story and discussed ad nauseum in this thread, Ms. Market at some point gave 45 + trailing PE to Kitex for reasons and quirks best known to herself. So, it was clear that it was disregarding the negatives and only focussed on the positives. So, isn’t it obvious that Ms. Market would, at adverse time, act very negatively and very ferociously?
If you look into my initial investment note (in a doc file available on this thread), I rated Kitex at a 30% compounder for 3 years and hence my expectation was Kitex to double in about less than 3 years but never expected it to treble in price in a span of one year on the basis of PE rerating from stable to unstable range (not from underrated / undiscovered level to stable range) … Whatever wonder they may be doing, whatever great products they may be having, whatever great the management might be … To me, no business unless those which work on Networking Effect (Power Law) can match the expectation created by the market on Kitex in the first place.
To me the sell time came when I found … Kitex went beyond my initial thesis without any new development or insight, and the price action on the stock went on a decline from the euphoric high … I know that I don’t know almost anything about how Ms. Market behaves … So for me every stock has a price to buy and every stock has a price to sell … And every stock has an opportunity cost for holding …
So, even if there were no negative news, no Cash Balance issue, no CFO resignation, no political adventurism by the management, no slackening of growth I would have anyway sold it off at the valuation which Ms. Market offered me 6 months back because my initial thesis was only for 30% compounding and no fantastic things happened to change that hypothesis unless there is egregious fraud as mentioned by some valued members elsewhere here.
Another point, I feel, at times, putting too much effort to analyse a stock gives a kind of emotional attachment to it … as if I am being rewarded or I should be rewarded for my hard work!!! Hard work is sine qua non for making even for Rs. 100/- investment but price action in market also tells a very important story and I always think it is critical to look into the price action and take appropriate course correction before portfolio gets seriously dented.
Lastly, imagine a situation that Kitex stock price didn’t move at all for last 1 year and remained at about Rs. 375/- - Rs. 400/- level … Would you all have discussed the issue the same way as is being done here? Now everything in Kitex looks dark to many people … Is it because we entered a dark room from a scorching sun? If it hovered around this level, possibly we would have adjusted to the darkness of the room and felt very happy if sunlight entered even through a small hole 
Kitex Garments - Updates
With reference to the earlier letter dated January 28, 2016, Kitex Garments Ltd has now informed BSE that ET Now, Mumbai will now be telecasting a live telephonic interview on January 30, 2016 at 13.00 IST in their showNews First- Weekend Edition anchored by Avanne Dubash (Instead of February 08, 2016 at 10.40 A.M as already informed) following the announcement of Q3FY16 financial results in the Company’‘s Board meeting held on January 25, 2016. Please treat the Company’'s earlier communication of January 28, 2016 as cancelled.
http://www.moneycontrol.com/stocks/stock_market/corp_notices.php?autono=2735201)
It is good that they made it public. Some traders linked to these media houses take undue advantage of advance info. on who is coming on TV with what sort of questions getting answered.
Disc: No stakes