KCL faced rev decline in H1 FY13 due to order cancellation ICRA [KGL could have diverted orders to KCL, but DID NOT..
KGL core EBITDA margin > KCL
KCL
KCL sources BULK of its fabrics from KGL
KCL extended its corporate guarantee to KGL in 2012 FY 13 decline in GROUP sales KCL margins < KGL: Shows KGL sold fabric at premium to KCL KGL given preference over KCL
Probably increasing automation Or might be contract labour 47% CAGR 17k to 178k Capacity
EBITDA margin
FY04 to 08
Emp cost
80% CAGR 49% CAGR
Core sales Emp cost CAGR
7% CAGR @ 178K Capacity Flat 11% CAGR
FY09 to 14
Margin analysis
Core sales
Gross margin
FY 11 ~31% decline in sales Relaed party 2-3% 5-6%
FY99-2010 FY11-14
Excluded fabric sales
Power Accounting adjustments
Nominal sales After merger, inter segment sales
Deduct processing charges for Gross margins Include export incentives in sales
ContrarianValueEdge.com
GM = Garment sales minus RM minus processing charges
FY 99-2001
~40%
FY03-10
FY12-14
Gross margin
~40%
~55% INR depreciation?
Processing plant set up in FY08
Reason Gross margin
ContrarianValueEdge.com
Customers
No Union
State of labour
Excellent facilities to labour See you tube videos...
No RAPID change
Changes in technology
Ecosystem Possible
Regulations
Environmental issues
Labour Cotton prices
Suppliers Exposure to inflation
ContrarianValueEdge.com
RM
Flat sales UK ops LOSSES Space 15% CAGR 5 yrs Profitable
Mothercare UK
India
Wholesaler
International China
resells to > 14k retail
Focus
Gerber
Latam
> 14 yrs old customer Unlisted co.
What happens in West follows in rest of world
Major customer Children wear 13% of Sales
Kohl
ROE = 15% 5 yrs avg
First 10 Rows Kitex products Troubled past
Exclusive stores
Babies R Us
0-4yrs 30% of sales
Division of TOYS R US UNLISTED
> USD4bn debt due in 2018
International 14% of sales
Kitex Claim to supply MAJORITY to first 10 Rows
FY 14 Guidance Flat sales 4 decline in last 5 yrs 9%
SSS
Major Customer
Customers
Children's Place
Total purchase of infant
FY 14 ROE
14%
4th decline in 5 years SSS
Guidance of 10% Y/Y growth next 5 years
FY 10
5%
EBITA margin
38%
Gross margin
> USD 1bn
Kohl > 33% wholesale
Toys R us Walmart etc > 100 yrs old
Mothercare Kohl
Carter brand 0-7 yrs
KCL [unlisted private arm]
> 4 yrs
Children's Place
Carter
Currently buys through agents Per Kitex Direct purchase target > 150M by FY 17
> 80% of sales Top 4 customers ICRA
NOT a MAJOR CUSTOMER YET
Group
> 80% of sales
Kitex relationship
30% market share in organised retail - 0-24 months
USA
AVG ROE > 15%
ICRA
10% Sales CAGR
2006-13 7 yrs > 80% sales
Top ten products Company call it STAPLE PRODUCTS
ContrarianValueEdge.com
Per Kitex
Baby Wear [0-2 yrs] 13.5% USD 3bn Per Carter - USD 22bn
Play wear [0-7 yrs] 70%, USD 16bn
Rough est based on AR of Carter
SleepWear [0-7yrs] 5%, USD 1.2bn Appears to be flat since 2006 per Carter AR
US Market Size [0-7 yrs
0-2 yrs
~ 10bn
Carter gaining Market share from Mom n Pop stores 2006
USD 24bn
2010
USD 22bn
2013
USD 19bn
Looks like change in definition
Market size Per Carter
29 Crs unit sales 2012 0-7 yrs Assuming 0-2 yrs 30% 9 crs units
Per Children Place [0-4yrs - 30% of sales]
Kitex Full capacity by FY 15 1.2crs per annum
Social compliance norm across customers
Industry
Carter
Market share in organised retail is 25% Guidance of 10% CAGR for next 5 yrs Limited experience in direct sourcing My take: Will look for ESTABLISHED and BIG PLAYER LIKE KITEX
Design by customer is the norm
Primarily COTTON 0-2 yrs products Kitex ready access to Cotton in India
END MARKET- Highly competitive China Main
USD 25bn market China + Japan + Canada Per Carter NOT sure whetther Kitex will benefit
Bangladesh
Probably, per ARs of customers
Lanka
Outside US market
Directly
Sourcing
India NOT material Children's Place India Sourcing
Says Benefitting fr Bangladesh > 80% through agents Carter Plan to increase direct sourcing
ContrarianValueEdge.com
5.5L/month 7.5L
FY15
11L
FY 16
Current EXPECT DELAYS IN EXPANSION 48T /day
Kitex group
This Was limiting growth
< 12 Global companies
24 to 48T in 2013 INR 100crs Capex
Capacity > 1L /month
Fabric capacity
NONE makes profit
7.5L/Month
STILL required to MEET Quality
Winlu [China]
Peers
Winlu China serious issue in Fabric
Reduced to 6.5l/month Wages cost Problems Social & Environmental cost
Jay Jay Mills Gyn Foreign peers info from co _No public info
ContrarianValueEdge.com
Singapore based 6.5L /month
Niche sement 43% of Sales
Care analysis
Gerber Initial years > 90% Mother Care
Co able to pass on RM hikes Stable margins High RM inventory to safeguard price volatility
Customers [2008 data]
Walmart Target
Jay Jay Mills
2014 [Consolidated]
UK = 43% Top 5 customers > 85%
Knitting 10 to 18T/day 62 crs capex Processing 8 to 24T/day
US = 43% Geography
2013 JJ mills History
ContrarianValueEdge.com
JJ vs Kitex [excluding fabric sales]
ContrarianValueEdge.com
10MT/day 8 MT/day 1,800
Knitting
Fabric processing
Sewing machines [Garmenting unit] > 85%
1999
2010
Set up
Bala subramanium
Top 5 customers
Tirupur, Tamilnadu
Moderate increase in ASP Bleaching Top 5 Customers > 85% USA > 50% Processing & knitting division
2011
2007
50 crs capex
JJ mills History
Begin Inhouse
Dyeing
Earlier outsourced
Printing Drop in volumes, INR appreciation?
Vol declined by 20% ASP > 23%
43% of Sales
2012
Gerber Initial years > 90%
Garment sales FLAT Customers Knitting 10 to 18T/day 62 crs capex Processing 8 to 24T/day
Walmart
2008
2013
Mother Care
Target Capex 40crs Expansion
to 10T/day [Grey fabric] Knitting, Embroidery & Sewing
ContrarianValueEdge.com
40% inc in sales Probably Fabric processing plant
1995
Incorporated
2014
US To target NEW MARKETS EUROPE PLAN TO LAUNCH OWN BRAND
Incur losses
1997
Aggressive guidance
Frequent power cuts
1998
Cited WC limit inadequate, limiting growth
22% inc in sales No capacity expansion
1999
2012
GUESS 2012 Full utilisation No spare capacity lead to FLAT SALES IN 2013
History
Talked about worldwide recession
Profits decline by 50%
2000 Steep Inc in Cotton prices
Co quote int & Quota charges Strategic shift to DIRECT SALES than through agents
2011
FLAT SALES Capacity utilisation 77%
2002 New capacity operational 32% increase in sales
20% decline in sales Co cited recession in exports
2010 2004
Overseas Branch in Taiwan
Only 4% sales inc Capacity limit NOT SURE
Reason Worldwide recession
FULL CAPACITY utilisation
2009 2008
Guided inc in sales by increasing productivity To explore option to exports FABRICS
ContrarianValueEdge.com
2009 SALES FLAT
To commission new plant by Dec 2006 One year delay
INR 25 crs sales for 1999
2006 1998
NOT crossed 25crs till 2003 1999-2002 sales between 15-17 crs
Processing plant by Mar 2007 On time
2006 2000
Actual by Dec-13, 9M delay
Actual sales INR 15crs
Aggressive guidance
INR 100 crs capex Sch date Mar-13
inr 30CRS Sales guidance fr 2011
2012
2003
INR 50crs for 2004 Actual sales INR 36crs
Fabric processing plant
2005 By the SAME & EXISTING CEO& CHAIRMAN
ContrarianValueEdge.com
125crs for 2006 Actual 106crs
FY01-08 - 60days FY10-14 - 50days 48 days
Receivable days
FY 14 Nominal FG
INR 3-5 crs 40 days
FY 01-07
AVG 90 days
FY08-13
Inventory
NWC OCF
RM days
FY14 - 10 days
Cash flow analysis
16%
FY01-08
24%
FY11-14
Due to RM inventory
Outliers [32% & 1%]
% of sales
FY09 & 10
ContrarianValueEdge.com
Manufacturing process
ContrarianValueEdge.com
Grade Yarn
Oeko-Text Standard Class I Legally required for < 3yrs kid
Manufacturing process China
Cotton
50-60% of world stock
Dec-13
Polyster Filament Yarn
PFY
Substitute for cotton Can it be used for Kids garments exports???
4% to GDP
Indian textile industry
17% to exports 2nd largest employer AFTER AGRICULTURE
Floating Topic
ContrarianValueEdge.com
Clarifications from Mgt
Capacity expansion progress
To follow closely More info on competitors
Care reports
ContrarianValueEdge.com
Children later in life
Working for business
Demographic trends
High income, more spend Grand parents spending more than previous generations
Psychology factors Working against business
ContrarianValueEdge.com
by FY16 NO. 1 infant manucter GLOBALLY Possibiity of merger in next 2-3 yrs
Other positives
No standards for infants clothes Yet In INDIA
Current promoter holding 54%, post merger ~ 74-75% Carter, Mother care international expansion
Business model. See key parameters Why Re-rating. Why Not something else. % allocation. 6-7%. Increase post merger/expansion. When to sell. Wholesale ...
Apr 3, 2014 - List of Directorship held in outside Public Limited .... In the preparation of the annual accounts, the applicable accounting standards have been followed. ...... Capitalised Software costs is amortised over a period of three years.
Apr 3, 2014 - Notice is hereby given that the 22nd Annual General Meeting of the Members of Kitex Garments Limited. (CIN:L18101KL1992PLC006528) will ...
