ICRA assigns fundamental grade '4' to Kewal Kiran Clothing

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ICRA assigns fundamental grade '4' to Kewal Kiran Clothing

ICRA Equity Research Service has assigned the Fundamental Grade ‘4’ and the Valuation Grade ‘C’ to Kewal Kiran Clothing Limited (KKCL).

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ICRA Equity Research Service has assigned the fundamental grade '4' and the valuation grade 'C' to Kewal Kiran Clothing  (KKCL). The fundamental grade "4" assigned to KKCL implies that the company has "Strong Fundamentals". The Valuation Grade 'C' assigned to KKCL implies that the company is "Fairly Valued" on a relative basis (as on the date of the grading assigned).

Kewal Kiran Clothing Limited (KKCL) is one of the leading manufacturer and retailer of branded apparels and fashion-wear in India. KKCL has over two decades of experience in the domestic readymade garments industry with some established brands like 'Killer', 'Lawman Pg3', 'Integriti', 'Easies' and 'ADDICTIONS'. KKCL markets its products through a chain of 223 'K-LOUNGE' showrooms and exclusive brand outlets (EBOs) across the country. Besides, KKCL's products are widely marketed at over 3,500 multi-brand outlets (MBOs) and national chain stores like Shoppers' Stop and Hypercity.

KKCL is an established player in the denim Jeans category through its flagship Killer brand, besides having a presence in Trousers, Shirts, T-shirts & Jackets. It has also entered the lifestyle accessories segments like shoes, belts, watches, bracelets, wallets, caps, bags, sunglasses and deodorants through the ADDICTIONS brand. KKCL's designing and manufacturing facilities are mainly located at Dadar and Goregoan (Mumbai), Daman and Vapi in Western India.

Grading Positives
The key grading positives in our view are: 1) Strongly positioned to benefit from the domestic consumption play due to Pan-India presence, including its first-mover's advantage in the Tier-II / Tier-III cities as well as relatively less penetrated eastern states 2) established brand equity of its flagship product - Killer Jeans 3) Asset light model reduces overhead costs while maintaining product & service standards 4) Continued focus on profitable growth and careful store expansion are expected to ensure healthy profitability indicators (like RoCE) for the company going forward 5) Strong designing expertise, vast experience of the promoters' in the branded apparel business

Grading Sensitivities
The key grading sensitivities in our view are: 1) Intense competition in the domestic branded apparels market with presence of large number of domestic as well as global brands 2) Vulnerability to cotton price fluctuations and regulatory changes (like excise duty levy) 3) Ability to scale up business while maintaining its financial profile 4) High dependence on multi-brand outlets (MBOs) and National Chain Stores, which together contribute ~70% of revenues, can limit bargaining power 5) Increasing contribution from value brands (like Integriti, Lawman Pg3and low margin products (like shirts, T-shirts) could moderate margins; cash reserves held by the company yields lower returns. 6) Merchandise obsolescence risks due to rapidly evolving fashion trends and changing customer preferences.

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To read the full report click on the attachment