Kitex Garments Limited

Receivables is 314 Cr for the year that is approx. 40% of the total sales with almost 5 months receivables days ! Still a curious case !

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Just about when they were about to exit Kerala, the recent announcement of the alliance with Aam aadmi party could mean that the promoters focus on business could be distracted, in fact they will have to provide for more CSR grant as they usually do, also, the rising receivables and debt and a mammoth capex of 3400 cr could keep the performance of the company subdued. Until the cloud gets cleared its a wait and watch.

Disc - Exited at cmp

I follow this stock mainly for learning insight into management behavoiur.

FCF is the most important sign of management integrity of a profitable company.

Beware

  • When the profits dont go to the retail investor’s hands as dividends or .
  • When the promoter gets too close to or fights with the govt. Both situations are bad.
  • Retail investor is doomed when the profits are diverted as
    ** increased Debts and recievables (PC Jewellers, kitex)
    ** Random capital expenditure which was never needed or even never undertaken except on paper. (Sintex?, kitex with telangana buzz)
    ** Increased extraordinary payout to promoters but does not work once the companies go very big.
    ** Creating of random subsidiaries generally used to siphon off money. (Kelltron Tech, Kitex USA LCC where the company made more losses than the investement made)
    ** Very lofty claims about the future by the management which are not backed by results almost always. (Vakrangee which went into the MSCI index claimed to open 1000000000000 atms as an excuse of not paying dividends, kitex about the set up in telangana project)
    ** You are told that there are sales but u dont see products in the markets. Generally the claim will be its sold in places you dont live in. (Eg: manpasand beverages, Teledata informatics (past), kitex )
    ** Claim to achieve something that no competition however good can achieve without the presence of any significant “moats” (eg: Manpasand, kitex vs. page)

A friend who is an expert at this once told me. FCF does not generally lie. P&L statement is bs.

This comes from someone who like most of you started off investing by looking at the stocks with the filter showing lowers PE number.

I know people here come to hear good news about their favorite stock. But may be devils’ advocate is not always wrong.

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70% funds from debt
it will be interesting to see how they manage the debt

as per Mr. sabu they get an interest subsidy from the state govt. and their net cost will be only 1%. Also, they get PLI and other incentives from various govt. He says almost 70% of the invested amount they will get back in the forms of various incentives over 2 to 3 years.

Disc: Invested

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