ICICI Direct is bullish on Kewal Kiran Clothing has recommended buy rating on the stock with a target price of Rs 1235 in its research report dated July 25, 2019.
ICICI Direct's research report on Kewal Kiran Clothing
Kewal Kiran Clothing (KKCL) reported moderate revenue growth of 4.0% YoY to Rs 110.2 crore. The topline growth was mainly driven by volume growth of 6.8% YoY to 10.9 lakh pieces. A rejig in product mix (higher sales of tops compared to jeans) and spike in sales from non-traditional channel (national chain stores) translated into a decline in realisations by 2.6% YoY to Rs 1008/piece. Gross margins enhanced significantly by 470 bps YoY to 52.5% on the back of enhanced bargaining power and timely payment to fabric vendors. However, a sharp spike in selling and distribution expense (up ~3x) led EBITDA margins to come in at a constant 20.4% YoY. KKCL hosted a dealer’s event in Goa, which led to higher selling expenses (half of the expense would be accounted for in Q2FY20). Lower fixed maturity plan (FMP) yield led to a decline in other income (down 46% YoY). Subsequently, PAT grew 1.6% YoY to Rs 14.1 crore.
The stock price has corrected sharply by ~20% since our last result update, making it available at valuations of 13.8x FY21E earnings. We have a BUY recommendation on the stock with a revised target price of Rs 1235 (16.0x FY21E EPS).
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