Multi Baggers

Kashyap Pujara

Sushilfinance.com

5.30 AM Jan 1st 1970

Kewal Kiran

BSE ID : 532732 NSE ID : KKCL

RECOMMENDED PRICE 194.00

PEAK FROM RECO 735.45 279.10%

CURRENT PRICE 710.15 Resource id #18

Kewal Kiran Clothing is among the few manufacturers of branded apparels in India. We suggest a long-term Buy on the stock with a target price of Rs 297.

Kewal Kiran Clothing is among the few manufacturers of branded apparels in India and has brands such as "Killer", "Integriti", "Easies" and "Pg3 Lawman" in its armor. KKCL designs, manufactures and markets branded jeans, semi-formal and casual wear for men. It is an integrated apparel manufacturer with the manufacturing process encompassing cutting, washing and ironing & finishing.

Investment Highlights

The retail landscape in India is evolving with interplay of factors ranging from demographic to economic ones. The sector is at an inflexion point, with penetration of organized retail poised to improve manifold over the next few years. Apparel segment constitutes 40% of the organized retail market in India & the increasing acceptance of high fashion apparels has created large opportunities for companies like KKCL to expand their offerings & benefit from this trend.

KKCL has brands such as "Killer", "Integriti", "Easies" and "Pg3 Lawman" in its armor with "Killer", its flagship brand being one of the oldest denim brand in the country. It has an in-house design team that constantly tries to predict new trends and fashion. It currently has four apparel manufacturing units with total capacity of 2.7 million pieces per annum. In a season, the KKCL design team works on over 500 designs, out of which a few are picked up to form the new season collection. It has a network of 66 distributors across the country distributing all its brands to over 1000 Retail stores across the country.

KKCL has opened 50 retail stores under the "K-Lounge" brand name as of January 2007. It has a clear plan laid out to take this tally to around 143 (including 45 exclusive brand outlets) by March 2008. It is moving in the right direction considering the kind of retail boom the whole of India is expected to witness. The K-Lounge stores are expected to increase their share in the total sales from around 12% in FY06 to close to 30% in FY09E while the revenue share from MBO’s is expected to fall from 80% to 60% of Revenues despite of a strong expected 26% CAGR in revenues from MBOs in the same period.

Outlook & Valuation

KKCL is one of the few brands led integrated player in the apparel market which has a history of more than 2 decades in India. The commitment to growth, investments in building brands, and a sound distribution strategy has seen KKCL enjoy a leadership position in the branded apparel segment. As all its manufacturing capacities and the retail initiatives come on stream by the end of FY08E, we expect its top line to grow by 50.5%, 41.3% & 26.7% and APAT to grow by 65.4%, 29.2% & 22.7% respectively in FY07E, FY08E & FY09E.

At the current market price of Rs 194, the stock is available at 7.8x FY09E earnings of Rs 24.8, which we believe is very attractive. We expect the stock to get re-rated, once all its retail initiatives are set in place and more contribution starts rolling-in from it. We suggest a long-term Buy on the stock with a target price of Rs 297.