13 January 2015
Results Update | Sector:
Equity Shares (m)
TP: INR720 (+29%)
Strong margin expansion drives profitability
Kitex Garments Ltd (KTG) reported 3QFY15 numbers with a revenue of INR1.22b (est.
M.Cap. (INR b)/(USD b)
INR1.31b), compared to INR995m in 3QFY14, marking a YoY growth of 22.8%. Growth
52-Week Range (INR)
was lower than our estimates due to higher-than-normal yearend spill-over of sales by
1, 6, 12 Rel. Per (%)
US clients from 3QFY15 to 4QFY15. EBITDA grew by 106% this quarter to INR419m
Avg Val/Vol ‘000
(est. INR302m), EBITDA margin stood at 34.3% (est. 23%) in 3QFY15, compared to
Free float (%)
20.4% in 3QFY14, an expansion of 13% YoY driven by lower cotton prices, higher
pricing and lower wastages due to technology upgradation. Hence, PAT for 3QFY15
Financials & Valuation (INR Billion)
stood at INR231m (est. INR173m), compared to INR113m in 3QFY14, marking a YoY
2015E 2016E 2017E
growth of 104%. Capacity utilization in the processing unit is ~50-55%, while in the
sewing unit it is ~100%. KTG is planning to double the sewing capacity in the next
three years and further upgrade technology, thus driving further efficiencies.
EPS Gr. (%)
Brand launch on the right path
We expect KTG to capture a larger pie of the value chain through its forward
integration with the launch of its own brand in the US market and licensing of private
labels in the US market. During the quarter, company already made significant in-
roads in both these endeavors and expects revenue from brands and private labels to
generate in 1HFY16. Forward integration holds high significance for the company as
margins in its own brand will be double of the current business (~60% v/s ~30%
currently), along with higher realization. We have not factored additional growth from
brands business, which provides further upside to our estimates.
Valuation and view
Management has guided for doubling of current turnover to INR10b over the next
three years, along with margin expansion led by foray into brands business. Further,
capital expenditure over the next three years will be limited to INR0.4-0.5b, thus
resulting in significant free cash generation. We upgrade FY15/16/17 earnings by 6%
each to factor in stronger margins and expect 23% revenue CAGR and 36% PAT CAGR
over FY15-17E. With huge scalability, strong return ratios and free cash generation, we
believe KTG deserves a multiple of 20x one-year forward. We maintain
target price of INR720, valuing the stock at 20x FY17E earnings.
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
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