| Kewal Kiran, the owner of the famous Killer jeans, seems fairly valued going by its strong brand presence and aggressive retail foray.
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| Many companies, especially in the textiles and garment sectors, are changing their strategies keeping in mind the growing number of young people in the country. They are focussing on tomorrow's India.
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| Kewal Kiran Clothing Ltd (KKCL) is also a part of the bandwagon. The company has come out with its initial public offer (IPO) of 31 lakh shares in the price band of Rs 250-275. The offer opens on Monday and closes on March 23. Post-issue, the promoter's shareholding is expected to come down to 70.02 per cent from 93.56 per cent.
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| Based on the EPS of Rs 11.5 (annualised nine-month EPS of Rs 8.64) for FY06, the stock trades at 22 times and 24 times at the lower and the upper price band, respectively. Analysts say the issue is fairly priced since the company owns a strong brand "Killer". Besides, Kewal Kiran has presence across various price segments and markets, which insulates it from any downturn.
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| However, like other textile companies that have tapped the markets for expansion recently, Kewal Kiran will also take some time to ramp up operations. The full benefits of capital raising will be visible only in FY08.
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| In terms of the business model, the closest peer of the company is Provogue India, which trades at 41 times on the basis of its annualised earnings for FY06. Moreover, Provogue's high multiple may also be due to its larger size. With sales of Rs 116.9 crore for the nine months of FY06, Provogue is 1.7 times the size of Kewal Kiran.
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However, if you are looking for investments in a pure garment manufacturing company, there are better scrips like Gokaldas Exports, Zodiac Clothing and Celebrity Fashions, which are much bigger in size and also available at attractive valuations.
| GARMENT PLAYERS | | Company name |
Sales
(9 month ended FY06) |
P/E
FY06E | | Kewal Kiran Clothing Limited | 68.90 |
22-24 | | Provogue India | 116.92 | 41.00 | | Gokaldas Exports | 645.37 | 21.80 | | Zodiac clothing | 119.75 | 31.60 | | Bombay rayon | 98.28 | 43.90 | | Celebrity Fashions | 118.31 | 26.30 |
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| Kewal Kiran plans to utilise the Rs 75-odd crore raised through the public offer for doubling its current garment capacity to four million pieces with the introduction of a new manufacturing facility, location of which is not yet decided. The company also plans to increase the number of its exclusive retail stores, K-Lounge, to 143 in the next two financial years.
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| Kewal Kiran is an integrated apparel manufacturer with plants in Dadar, Goregaon, Vapi and Daman. The company is experienced in analysing various fashion trends as its promoters have been in the apparel business for about 25 years. It has a wide distribution network of 29 K-Lounge stores, apart from 66 distributors who sell to over 1,000 retailers at 48 locations across the country.
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| For the nine months ended December 2005, the sales contribution of K-Lounge was 13 per cent to the total revenues. According to Dilip Agarwal, manager of accounts, KKCL, "It is expected to increase to 25-30 per cent by FY08."
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| The company has a strategy of retailing its products through K-Lounge at the high-end malls in metros and large cities. This augurs well for its future growth.
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| Kewal's product line consist of jeans, denim shirts, cotton trousers, cotton shirts, non-cotton shirts and non-cotton trousers. These are targeted towards fashion-conscious youth. It has an in-house design team and its brands range from high-fashion, premium apparel such as 'Killer' for denimwear and 'Easies' for casualwear like T-shirts to the middle and economy segment brands such as 'Lawman' (shirts) and 'Integriti' (trousers).
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| With these brands, the company is present in every price segment of the market. Though it only produces men's garments, the company plans to introduce women's denimwear and casualwear as well.
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| Kewal plans to acquire brands present in the men's formal, women's wear and kids' wear. This apart, it plans to exploit its brand potential by launching other lifestyle consumer products such as eyewear, watches and casual jewellery under its Killer brand.
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| But there is a concern for the company "� its overdependence on its flagship brand Killer jeans. The brand contributes around 53 per cent of its total turnover. Killer jeans competes mainly with the international brands like Lee, Levis and Pepe priced in the higher-end segment.
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| However, analysts feel that even if there is competition, price realisations won't be affected much as every brand has its own identity and brand recall. Moreover, branded retailing is going to be the in-thing in future, as brand-consciousness is increasing day by day. Thus, in that sense, Kewal Kiran is expected to benefit.
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The company is also expected to gain from the overall growth of the Indian organised retail industry, as apparel retailing is the largest segment of the retailing pie.
| FINANCIAL | | Rs crore | FY04 | FY05 | % change | 9 months
ended
Dec-05 | | Net sales | 72.90 | 76.20 | 4.50 | 68.90 | | Raw material | 33.20 | 33.30 | - | 30.80 | | RM/Sales | 45.50 | 43.70 | - | 44.70 | | Operating profit | 16.20 | 15.70 | -3.00 | 15.50 | | OPM | 20.40 | 18.90 | - | 22.20 | | NP | 14.20 | 13.20 | -7.30 | 9.80 | | NPM | 17.90 | 15.80 | - | 14.10 |
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| Agarwal of KKCL says, "The company acquired the operating units of Kewal Kiran Enterprises in FY05." On a consolidated basis, the company has reported net sales at Rs 68.9 crore and a net profit of around Rs 9.8 crore for the nine months ended December 2005.
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| Thus, the company's FY06 performance is expected to be even better as it has already crossed over 90 per cent of sales and 70 per cent of net profit of FY05. With the commercial production of its new facility and opening of new stores, analysts expect to see the company's real growth in FY08. |
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