ICICI Direct's research report on Kewal Kiran Clothing
Kewal Kiran Clothing (KKCL) reported a moderate set of Q4FY20 numbers. Revenue de-grew 4.9% YoY (flat sequentially) to Rs 126.6 crore, mainly owing to volumes declining 6% to 13.0 lakh pieces. Jeans category (59% of sales) declined 10% YoY to Rs 73.4 crore whereas revenue from shirt segment (21% of sales) grew 15% YoY to Rs 25.8 crore. Owing to an unfavourable product mix, gross margins declined 510 bps YoY to 47.4%. However, controlled operating expenses and lower selling expense led EBITDA margins to decline 370 bps YoY to 17.0%. EBITDA de-grew 22% to Rs 21.5 crore. Subsequently, PBT de-grew 28% to Rs 21.7 crore while PAT de-grew 22% to Rs 15.8 crore owing to a lower tax rate (27% vs. 33%).
EBITDA margins for FY20 have dipped to 18% (vs. 22.4 in FY19). In a bid to sustain double digit topline growth, the management has alluded at a possibility of dilution in margin profile to a range of 18-19%. Despite the same, KKCL remains one of the most profitable branded apparel players with a robust balance sheet with cash & investments worth ~Rs 275 crore. Owing to Covid-19 impact, we revise our earnings estimates downwards. However, we maintain BUY rating on the stock with a revised target price of Rs 820 (13.0x FY22E EPS).
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