Kitex Garments Limited

Guys don’t waste precious space for such comments. Show some maturity.

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Kitex PBT margin has increased from 19% (2014) to 30%(2016). Its current (2016) debt is 91.81 cr ( LT+ST) down from 161cr last year. Its generating a lot a cash. In fact its debt has grown by 8.7% p.a over the last 11 years while assets have grown by 22.3% over the same period which is remarkable. It is a solid business & much researched by industry stalwarts and now that it is available at 20x i think its a great buy and a bit undervalued. Its FV in my opinion is at least in the mid 500 levels. I had lost interest in the stock after crowd mania lifted it to 1000+levels but now after its lost 60% of its value from its 52w high its looking good again! The broad general picture is that the company is in the pink of its health.

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Maybe i missed it, but as per AR the auditors are now changed to Varma and
Varma (http://www.varmaandvarma.com/).

Also E&Y is now appointed as the internal auditor.

Regards,

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If it is Varma and Varma, investors can rest assured that they will get a true and fair picture of th firm. I know them, have worked with them and can vouch for their integrity.

P.S: no investments in Kitex Garments

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Hi All -
In light of the recent election and Kitex’s history in political arena, do any o the member feel a backlash is possible from new Govt?

From what I could gather from media and friends the kitex kept equal distance with both LDF and UDF in the last polls and the local panchayat members whom they control were given freedom to support any front. LDF 's policies are pro working class which kitex is implementing more than necessary. So openly LDF won’t harass them. However there are certain personal equations(rubbing on the wrong side) which is the crux of the problem in the beginning which resulted in Sabu jumping into political arena. That problem was more with UDF leaders. So that way Kitex functioning may be smoother hereafter. Maybe others from Kochi can throw some light into this?

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Picked Kitex to build a financial framework to track performance of invested stocks,Few points which came through, I am trying to put here using below 3 tables.

  1. Their 9 year revenue CAGR and accounts receivable CAGR is inline. So, any fudging through this (cooked revenue, cooked cash) looks difficult
  2. There have been instances where there was a huge accounts receivable buildup (March 09, Mar 11, March 13, Mar 16) and these years th revenue growths were subdued compared to previous and next year. Each of these years were followed by a big jump in revenue. I believe most of the posts have happened in last 1-1.5 years in under-performance of revenue targets but there looks a clear trend of receivables build up with under-performing revenue and next year leading to huge jump in revenue growth and then over 9 year CAGR , both matching perfectly. If history holds true, FY16 was the year for receivable build up and hence, I expect a much better revenue growth (around 20-30%). there seems some kind of 2 year seasonality pattern in revenue growth and fall and accounts receivable growth and fall. People aware of complete operating model/financial model can educate if there is something interesting happening here?

3.Cash a % of long term debt is ballooning concern which has gone from mere 2% to 227% in last 7 years

  1. interest as a % of long term debt had shown some falling trend but again is on rise from last 2 years despite of having so much cash.

  2. Debtor days has increased from 37 days in 2012 to 64 days in 2016.

Data used from screener.in. I have learned finance more as an avid learner and also have stayed away from financial work for a long time. So, there may be chances of mistakes from my side. So, if anyone can validate the numbers would be great.

Disclosure: Invested at 450 levels with less than 1.5% of portfolio

Please check financial analysis sheet for validationKITEX Analysis.xlsx (70.8 KB)
Notes : I am new to posting on forum. So, please highlight in case I am not abiding any forum rules. Thanks

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Kitex is shown as corporate partner on Lmaze website

http://www.lamazeinternational.org/p/cm/ld/fid=553

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Just saw this in a magazine that my kid reads.

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Is anybody attending the AGM Tom ?
This stock has fallen off the many investors radar, very few seems interested, may be a gud time to nibble ?

If AGM provides all clarifications, Q1 may be good, valuations also look reasonable now ?
Is there a case now ? for so called value investors

Thanks

This business is owned by Sabu Jacob’s brother & is not a listed company…

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I see incorrect Balance sheet statements of Kitex on MoneyControl.com . Basically the “Total Assets” mentioned in Kitex annual report (under consolidated balance Sheet) is 616.5 Cr where as in Moneycontrol site its around 456.81 crore only.

Can some one verify please…

KITEX AGM – Supplement Questions
Unable to make it to the AGM due to other pressing engagements
Please note these are follow-up 2nd or 3rd level questions - could be asked once the broad contours are laid out by Mr Sabu Jacob.

A. LAMAZE LICENSING
We have earlier heard of a roughly $6Mn (40 Cr) sales target for Lamaze in FY17

  1. If Royalty, salaries, sales & distribution, design and other overheads are capped at $1 to $1.2 Mn, how come we are talking about only a 10-15% mark-up over costs (given Lamaze is premium label positioning).
    Assumptions
    a) FOB billing to KITEX LLC : $3Mn (Gerber model costs 7$, sells 75% at 14.99$, rest in 25% to 50% discounts)
    b) All overheads: $1Mn
    c) Markup is $2mn or 50%
    At worst case, if overheads touch $2mn, it is still a 20% markup??
  • Does this mean, we are anticipating much higher initial costs??
  • What are the target assumptions/goals on the margins front for this business in 2-3 years?
  • Is it fair to assume atleast 50% of this manufacturing will be routed through KItex Garments Ltd (another customer like Gerber). Additionally another 50% of Sales/Profits of Kitex LLC will accrue to Kitex Garments Ltd, just as it would to KCL?
  1. On-line Lamaze sales were to be launched in February 2016
    Kindly update progress on the same. (website url??).
    What has been the sales experience, if any?

B. LITTLE STAR
Branding/Positioning strategy Lamaze: High-end
Little Star: middle or lower brands

  • Will it be correct to say, apart from Royalties (<5% of Sales), the cost structures for the two brands are more or less similar?
  • Why will the overheads not be significantly higher since brand establishment should take more time/effort/cost and incentives to trade will have to be significantly higher?
  • How much lower will be the retail shelf space booking cost at Little Star retail outlets vs. Lamaze outlets like Kohl’s? (10-15%?)
  • Besides, pricing for Little Star will be significantly lower? (25-30% or more?)
  • If yes, and if Lamaze business can only have a 10-15% mark-up, what are our assumptions/goals on the Little Star business?

C. CAPACITY
We are factoring in a 20% (volume+value) growth for the next 2-3 years. This is in sharp contrast to the ambitions of doubling of combined capacity (KGL+KCL) from 5.5 Lakh pieces

So we see Kitex business scaling to $145 Mn in 3 years by FY19. And if Lamaze business were to scale to $50Mn in that timeframe, will it not be correct to say we are being quite pessimistic on scale up business from existing customers? (less than 5% CAGR??)

Something does not add up here. Kindly explain the outlook, especially on existing customer business.

Could you share update on Mothercare business size? Is it true that much of the business has shifted to First-Step, Bangalore? What about Children’s Place business?

D. FIRST COMPANY TO DECLARE RESULTS
Kindly explain why is it so important/matter of pride for the company to be the first to declare results?

If we talk to Cost Accountants/Company Secretaries most opine that it is virtually impossible for any company to consolidate/verify transactions across vendors/customers in such a short time, and sign-off in 2-3 days.

So how are we able to achieve this?


Anyone attending AGM, please try and extract answers to above. If we are able to ask and get answers in an orderly manner, these should help clarify and model in the next 2-3 year picture, to a large extent

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With good systems it’s possible to have reports fairly soon
Cooked books are the ones that take the most time as Accountants are continuously worried they might have not covered their tracks completely
Their only time consuming activity might be stock taking but a good inventory management system will easily handle that
I think it is a fact to be proud about, as managers rely on reports for their decision making. A report issued late can be sometimes a bit too late for taking corrective action
Inventory might be building somewhere where actual sales might have fallen behind budgets
I’ll be surprised if their answer is not along these lines

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I think the point you are missing is lack consistency. While for March quarter, company is first to report number, for other quarter it is not. Also, whatever good system follow, getting numbers with all auditor report/sec audit report/cost audit report sign would not be practically possible. You do not even get confirmation for TDS from other parties (as for March quarter time for reflection of same is extended till End of April) in your PAN.

Find enclosed all quarter details:
Quarter End Result date
March 31 2016 April 4 2016
December 31 2015 Jan 25 2016
Sep 30 2015 Oct 19 2015
June 30 2015 July 20 2015
March 31 2015 April 4 2015
Dec 31 2014 Jan 12 2015
Sep 30 2014 Oct 16 2014
June 30 2014 Jul 9 2014

So there is lack of consistency and efficiency is demonstrated only for Year end March quarter.

Secondly, same efficient company has failed and paid penalties to Ministry of company affairs in past many years for necessary regulatory filing.

The “selective” efficiency of management is what raise concern for me. You can read more about same threads in July-August 2014 period in case interested

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Thanks Dhiraj, good point

March quarter results are certified by the auditors which usually takes more time compared to other quarters whereas per your details that’s been the fastest close of any quarter

Its a cause for concern and should be taken up with the management

@Edwardlobo

There has been lot of discussion on this thread about pros and cons of business. In case you are really interested, I would suggest you read whole thread, which itself may take more than 7-8 hours. But can assure you that you would knowing majority of unknown and take correct decision.

Regards

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Hi Dhiraj
Yes I agree, there are very valuable points in the whole thread
I’ll read it as soon as I get some time
Thanks

If anyone attended the AGM , can you please update the rest of us with your observations.

Thanks