ValuePickr Forum

Kitex Garments Limited

All the investment stalwarts are vocal about one thing in common- a business is considered efficient if your re-investment is able to yield the present ROE or a higher ROE. This company has proved that from 2010 and that’s why it is rated high and Prof has increased his stake @ Rs 441/- and Rs 696/-. Where that trend falters, we need to review.

Investment is based on business and its future and not on accounting unless balance sheet and cashflow reveals some major fraud. P&L plays only a minor role as compared to B/S and CF. Financials are only a confirmation that everything is OK and an investor need to know differentiate between minor and major issues. Too much of financial analysis or trying to base investments on screeners will not help. Try to recall what happened in KSCL. The share has fallen based on future business uncertainties but not on accounting .

Discl : I have a strong conviction and invested heavily and my view can be taken as biased.

2 Likes

@sethufan

While I do not agree with your view about Business taking precendence over Financial and that since Professor has invested and added hence it is great company, I still respect your opinion and your right to invest in company which suit your investment style.

The observation by me where specific to selective disclosure efficiency by company in response to some query raised by investor.

Discl: I do not hold any share in company.

7 Likes

Anyone who has attended the AGM, kindly share the notes. thank you

1 Like

It seems that your calculation is not right. Can you provide much detailed explanation on how you arrived at 1338 crs

  1. Why did you add cash of 241 crs to Rs 1338 crs ? 1338 crs includes that. (Does 241 crs cash exists on books before 2010 ?)
  2. If EPS grows by 35% for 5 years, market cap need not grow by 35%. But if ROE grows by 35%, market cap is bound to grow by 35% sooner or later.
1 Like

Hi Friends,

I attended the AGM of Kitex - have prepared a summary of the same - https://drive.google.com/file/d/0B_iRg8ajGfi3S0RGeVY1d29ZSkE/view?usp=sharing

Regards,
Ayush
Disc: Invested

51 Likes

I hate to say but after reading your excerpts from AGM, I am getting a feeling that this might be the best textile company in the world because they are technology driven, their product is cheap, and they take care of their employees. They guy is paranoid about technology which is the trait I look for an entrepreneur.

Would like to know what feel did you get from AGM ?

Disc - Invested from 500 levels
No transaction in last 1 year

1 Like

Thanks Ayush for the report. Very much appreciated.

Thanks Ayush. I am also curious to know your gut feeling. Small Investors are scared .that they should not face another Satyam. Principally when I read lot of article across, I got a feeling this man’s feeling for employees is amazing and how can I do wrong to Investors ? But Mkt is always right

Please share your opinion on AGM mood etc

Hi Ayush, went through your AGM notes. Thanks for sharing such an informative note.

One concern I have is the statement made by the company that Packing credit loan is cheap and the rate of interest on it will come down to 7%.

There are 2 possibilities here:
a. The present bankers of the company (where they have availed packing credit) are taking them for a ride (big time).
b. The company is not being honest about this and is diverting funds in the name of interest payment towards packing credit.

Packing credit being denominated in dollars attracts a rate of interest based on LIBOR. Even the greediest bankers do not charge more than LIBOR + 3.5%, which works out in the range of 4%. Also, since this is a facility for exporters and dollars are receivable by the borrower, there is a natural hedge and hence no additional hedging costs either.

Any way to clarify on this?

5 Likes

Did a quick check. My understanding is that this is a Rupee Export Credit (not Export Credit in foreign currency). I checked the annual report. It shows that packing credit carries interest @ 6.75%( Current rate at SBI including 3% Interest Equalisation ). I checked this with SBI rates on their website. It does match. Find the relevant snapshots below. Link to the SBI interest rate doc
https://www.sbi.co.in/portal/documents/36873/53953/COMMERCIAL+ADVANCES+INTEREST+RATES.pdf/e6b41ca9-02c1-4711-a916-d903cb474fed

Snapshot from Annual report

Snapshot from SBI interest rate doc

8 Likes

Thanks Ayush for sharing the notes…

Very pleased to see them talking about implementing ERP system… management seem to be keen on technology and automating processes…which is a great platform for future growth…

I think this is a unique business model in Indian garment industry.

Own brand launch is the next trigger and need to keep a watch on how it progresses.

Disc : Invested and views can be biased.

1 Like

Ayush did by any chance you asked the management that how are they able to provide the results so fast ?

It has actually been replied.

The first line in second last paragraph from below on Page 2.

Even in finance dept there are points for efficiency and correctness, this is why we are able to finalize acs so early.

Basically, Sabu Jacob explained that his organisation is very much process driven with lots of incentives and disincentives in place to ensure every employee is efficient, productive and maintain proper work-life balance.

While it sounds perfectly logical, it does not account for the inconsistency of Q1-Q3 result announcement dates as raised by @dd1474.

On a more positive note, was pleased with his response this time with respect to the stock price movements.

Thanks Ayush for making the trip and taking the notes.
:pray: :ok_hand:

3 Likes

Thank You @ayushmit for the notes.Much appreciated.

Basically all organisations have a monthly accounts closure…So its never a issue in closing accounts time. So for eg, if every month I prepare full accounts and make it a habit, it can be easily done in 5-7 days. I speak this out of experience. In my organisation where we have a 5000 crore turnover, we close our monthly accounts in D+5 Days (D being the last date of the month)

Rgearding Confirmations and other audit procedures. Please realise that auditors also know that this is a long process, and hence world over a concept of hard close has emerged. Hard Close means choosing an earlier date (say December or January) and checking all documents, getting all confirmations etc and resolving all issues as on that date. So instead of March being a close date, this hard close date becomes an annual cleaning/thorough checking date.

This solves two purpose

a. Auditors get more time - Otherwise, how do you feel , that a company like Larsen Toubro or Infosys manages to close their accounts within 45 days from year end. This activity is not possible in 10/45/60 days even. World over auditors do hard close earlier than the Annual Audit so that they get more time and better quality.

b. Annual Closure would then need only few thins…Closing the accounts like a normal month, paying the statutory dues and completing other typical March end issues

Anyone who has spent time in a Big 4 Audit Firm or in the accounts department of a large corporation will vouch for my explanation.

The only negatives I find with Kitex Promoter are :slight_smile:
a. Over promising and under delivering…He gets over aggressive
b. Too much of saying “We are the best…No one can be like us”

Rgearding accounts closure and cash issue…with my experience of 10+ years…I can say with a lot of confidence that I dont find anything problematic here.

27 Likes

Thanks Ayush for AGM notes. Appreciated your hardwork

We have a D+3 timeline for monthly accounts closure but audited annual accounts is a different ballgame altogether. There are processes to be vouched, confirmations to be made and much more. Hard close and all that is fine but how many companies are actually able to achieve this feat? Moreover, where is the consistency?

I’ve been in a big environment for 4 years and I do not vouch for this completely. Internally you can finalize accounts in 1 working day but getting it through statutory audit is a rigorous exercise. Even big 4 auditors with all their savvy gadgets and big teams take months to do their basic checks, ticking boxes to ensure all checks are done (even big 4s have an ERP system where they have to upload working papers to make sure audit trail is complete). Heck it takes atleast 3 days to get manager-partner review done even when the partner is sitting on the site.

I’m not saying that the auditors are hand in glove with the company, but this practice of the company is raising more eyebrows than appreciation.

6 Likes

Yes…From an auditor point of view it is a bit difficult - Agreed. I was speaking only from point of view of management.

Have updated a couple of more points - the link to the updated document is - https://docs.google.com/document/d/1EDYZUhX3IPuUY5c1uWWrxAIv9CBnCfr7E9nJWzOH2EA/edit?usp=sharing

In reference to some of the queries of members:

@nil_71 - I won’t like to give any personal opinion and hence I have just tried to share sort of a transcript of the AGM for the benefit of the members. I have been invested in the stock for 2-3 years now and continue to follow and monitor and trying to understand things better.

@ankitkhemka7 - @jana_n has provided the relevant extract from the annual report and thats the reason.

In respect to early accounts finalization - we did discuss with the finance head…and he said that its possible if you want to do something…one has to plan accordingly…they have monthly finalization and then around 25th March most of the things are freezed.

16 Likes