Hold Kewal Kiran Clothing; target of Rs 755: ICICI Direct

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ICICI Direct's research report on Kewal Kiran Clothing

Store closures owing to Covid-19 disruptions and nearly non-existent demand for jeans as a category (~60% of sales) led revenues to decline significantly by 94% YoY to Rs 7.0 crore in Q1FY21. Gross margins declined sharply to 41.7% vs. 55.6% in Q1FY20. Cost control measures restricted EBITDA losses, to a certain extent. Employee expenses declined 30% YoY to Rs 10.7 crore while the company significantly curtailed selling & distribution expenses (Rs 1.1 crore vs. Rs 16.9 crore in Q1FY20). Subsequently, KKCL reported EBITDA loss of Rs 16.2 crore vs. EBITDA profit of Rs 22.5 crore. Other income grew 2.1x YoY to Rs 5.7 crore (up 47% QoQ). Net loss was at Rs 8.8 crore vs. 14.1 crore in Q1FY20. On the balance sheet front, trade receivables declined 24% YoY to Rs 130.3 crore leading to release in cashflows. The company continues to be net cash positive, with cash and investments worth Rs 227.5 crore as on Q1FY21.

Outlook

Given the unprecedented and challenging scenario, we downgrade the stock from BUY to HOLD with a revised target price of Rs 755 (13.0x FY22E EPS, previous target price: Rs 820).

For all recommendations report, click here

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