CRISIL Equities on Kewal Kiran Clothing

Kewal Kiran Clothing (KKCL) is a leading apparel player in the domestic market. It owns four brands namely, Killer, Lawman Pg3, Integrity and Easies. Killer has emerged as one of the strongest domestic brands in the casual men’s wear segment, especially in the denim category. CRISIL Equities expects domestic readymade garment to grow at a healthy rate on the back of rising income levels, preference for ready-to-wear apparel, organised retailing and increasing brand consciousness. KKCL has also forayed into retail with the launch of ‘K-Lounge’, a multi-brand outlet that distributes all its four brands. It plans to expand the outlets from 135 to 400 by 2013-14 in Tier II and III cities. KKCL compares favourably with its peers on account of its strong brands and premium pricing in the readymade garment sector. It commands a high return on equity (RoE) and has comfortable liquidity position. CRISIL Equities expects KKCL’s revenues to grow at a CAGR of 20.2 per cent over the next three years to Rs 252 crore in 2011-12 mainly driven by volume growth of 15.9 per cent. EBITDA margins are expected to be around 24.4 per cent in 2009-10 and thereafter likely to stabilise at around 22 per cent. Net profit is expected to grow from Rs 14.3 crore in 2008-09 to around Rs 33.1 crore in 2010-11 while EPS is expected to more than double from Rs 11.6 to around Rs 26.8. CRISIL Equities has assigned fundamental grade of 3/5 indicating that KKCL’s fundamentals are ‘good’ relative to other listed securities. The valuation grade of 5/5 indicates ‘strong upside’ from Rs 265 level based on the discounted cash flow method.