Scripscan:Kitex Garments Limited
5 year CAGR return expected:25-30%
5 year target potential range:1031rs-1254rs
Quote:Am mostly into single liners which enables me to pick up stocks.Lengthy note helps in keeping away a large number of impatient readers,detrimental to the alexa ranking of my blog.Jokes apart,here's a real deal.Its more like a Page Industries in a different segment.I have summarized everything in the conclusion segment.
Business:Kitex Garments Ltd manufactures toddler wear for most of the international brands such as MotherCare, Toys R Us, Gerber etc and is ranked as the third largest company of such type in the world.Company also supplies to jockey.Group employees to over 8000 peeps.It is the only company in the world which uses Acutex 1 quality of input.Add up more safety features like 100% certified safe process and organic dyes using threads from the number 1 codes etc which makes it the most favorable supplier for infant clothes.The company has to its credit the Best Vendor Award from Toys R Us and Gerber for the past couple of years(among over 280 rivals).
Few points which attracted me the most:Business is recession free as proud parents would never compromise on quality.I mean how odd it sounds,say kinda in an interaction,Mother retaliates by saying my cuty pie taking her first steps with the Chinese attire,scares the heck out of the listener for sure.There's even some mandatory saliva test in this particular segment.A newly born increases in size by 30-40 grams a day,think about the service cycle.I mean from the day or birth to till 2 years,think how many times the parents would need to make their babies put on Kitex's stuff.From infrastructure to technology,company claims to be second to none which helps it to charge premium in comparison to other suppliers.Kitex Group also has special criteria for taking orders where its clients should have a minimum $15 Millions on Free on board basis.Kitex even rejected orders from the likes of Tesco owing to such criteria,fact speaks volumes about their dominant position.Total infant wear market stands at a massive 1.2 lakh crs.This particular industry has very strong entry barriers too.
More soothing stuff:Even after 15-20 washes,Kitex products retain their quality,while competitors products don’t.Debt stands at a comfortable position.To my knowledge,it never diluted equity over the last decade.Company has amazingly designed its units for a 3 shift operation.Presently it operates with a single shift but if demand rises higher,it wont be hard for the company to cater to it which will also help in raising its ROE higher.Niche product,seller power catering to cream clientele,dominant leader with high quality products,visionary promoters-What else do you want?
Brand play:Kitex is all set to roll out its own branded products in the United states within the next quarter.Management expects turnover of 30-40crs in the maiden year.
Concern:Promoter got his own company called KCL(quite similar business,Large transactions with sister concern ought to raise lot of eyebrows) which he plans to merge once it reaches the turnover of 400crs+ from the present 250crs.Till that happens, corporate governance issue will linger and keep away a lot of investors.Also around 100crs cash is in current account which its loosing out on the interest side(real money or?).Even bank FD would have given it around 8crs of yearly interest.
Last fiscal:The Company achieved an all time high performance on account of both Revenueand profits. While the Gross revenue touched Rs 456 crores which was up by 42% and the PBT went up to Rs 88 crores which went up by 100% when compared to last year.Company achieved an EBITDA margin of over 21% which its confident of even improving it in the coming years(pricing power and high demand on a larger scale).The Company now plans to take its performance to next level by further modernization, creating new markets in Europe and US by implementing niche products using high tech and time saving machinery and devices.
Prospects:On words of the management,"China’s prominence in the garment business is fast eroding due to high wages and low safety standards in the industry.Several apparel manufacturing units have now shifted operations to Vietnam and Bangladesh.Earlier,65 per cent of the garments exported to the US were from China. This has come down to 45 per cent. Though Cambodia, Vietnam and Bangladesh are strong competitors,safety issues and lack of potential for scalability had minimised their opportunities.This has provided India a good business opportunity to source a major chunk of the global garment manufacturing business.Today, India exports 25-30 per cent of the textile goods to the global market.The shift in orders from competing countries like China, Cambodia and Bangladesh would help us to strengthen our order book position".Was pondering over a media report which suggested Wing lu,a Chinese rival,was even planning to reduce its capacity.
Conclusion:Kitex garments specializes in infant wear(0-24 months)market.The company derives majority of its revenue from export sales with exports contributing more than 90% to sales revenue in FY14.The company is about to be the world's biggest infant wear manufacturer in the next 2-3 years(presently 3rd largest manufacturer with capacity of 5.5L pieces per day only behind Wing lu of China and Gyn of Singapore with capacities of 7.5L and 6.5L pieces per day respectively).Sales and PAT over a 10 year period have grown at a fierce speed of 21% and 43% respectively.Company boasts of a ROE of over 35%.Kitex is expected to grow 28-35% CAGR for the coming few years.The company is aiming a PAT of 100-106crs in fy16.At present prices it quotes at a forward PE multiple of 16x its fy16 earnings.This kinda companies trades at 20-25 PE's in most days.PE will expand more once it bags the bragging right of being the largest player in its segment.Assigning a PE of 22x,the target price gets assigned.FII's will eat up this kinda amazing businesses.A great medium to long term buy.
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Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Disclosure: It is safe to assume that I might have kitex in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.