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Kewal Kiran Clothing - Company Update - ICICI Securities

Posted On: 2020-08-01 22:09:49

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.

Valuation and Outlook

KKCL has been conservative in its approach and has always given more prominence to balance sheet strength. The company has virtually debt free status (D/E: 0.2x) with cash and investments worth Rs. 227.5 crore. Factoring in the performance of Q1FY21 and weak consumer sentiments, we revise our earnings estimates downwards for FY21 and FY22E by ~39% and 7%, respectively. We anticipate RoCE will revert back to its FY20 levels (~16.5%) by FY22E. 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).

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Shares of KEWAL KIRAN CLOTHING LTD. was last trading in BSE at Rs.697.55 as compared to the previous close of Rs. 680.7. The total number of shares traded during the day was 87 in over 43 trades.

The stock hit an intraday high of Rs. 703 and intraday low of 669. The net turnover during the day was Rs. 59672.

Source: Equity Bulls

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