Buy Kewal Kiran Clothing; target of Rs 1235: ICICI Direct

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.

Outlook

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).