30 January 2016
3QFY16 Results Update | Sector: Textiles
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
20.9 / 0.3
Results below estimates; growth story intact
Financials & Valuation (INR b)
2016E 2017E 2018E
75.3 100.0 131.9
Results miss expectations:
KTG’s 3QFY16 revenue de-grew 3.2% to INR1.2b
(est. of INR1.4b), impacted by delayed winter and reduced orders from Jockey.
Garments segment de-grew 6%, while net fabric revenue grew 24%. EBITDA
margin expanded 100bp to 35.3% (est. of 35.1%) and EBITDA stood at INR417m
(est. of INR480m); PAT grew 4% to INR241m (est. of INR282m).
Delayed winter and Jockey orders impact earnings:
Management clarified that
delayed winter in the US, where snowfall began late-December instead of
early-November, impacted shipments. To avoid reporting high inventory as at
year-end, its clients like Gerber and Toys R Us have asked Kitex to delay
shipments. However, management highlighted that all the pending shipments
have been cleared in January—once the snowfall began. One of the clients,
Jockey (which contributes ~15% to revenue), decided to shift gradually from
cotton to synthetic—which resulted in 50% de-growth in sales to Jockey;
however, this shall not impact other clients who are into childrenswear since
infants’ garments segment is unlikely to see this shift. Management highlighted
that Jockey will continue to be a customer for the reduced portion (i.e., 50% of
original orders). However, management is confident of increasing wallet share
from other clients—which will compensate for the lost sales.
B2C foray progressing well:
Management highlighted that Lamaze sales have
been shaping up well and is confident of posting USD7m sales in CY16. Little
Stars is on track for launch in 2HFY17. Little Stars will cater to the mass market
(which is a huge opportunity size) while Lamaze caters to premium market;
hence there shall not be any conflict.
On track to be debt free by 4QFY16:
Management clarified that cash of
~INR650m was converted and ~INR600m will be converted in next few weeks—
which shall be utilized to repay short-term borrowings of the company, making
it close to debt free on gross basis by 4QFY16.
Valuation and view:
We cut EPS estimates by 7%/12%/14% for
FY16/FY17/FY18 on the back of Jockey sales impact. We expect 14% revenue
CAGR along with 25% PAT CAGR over FY15-18. Given the huge scalability,
strong return ratios and free cash generation, we maintain
with a TP of
INR800—valuing it at 20x FY18E EPS (rolled over to FY18).
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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