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Kewal Kiran Clothing - Better execution with flat EBITDA YoY - ICICI Securities

Posted On: 2021-01-24 22:18:43 (Time Zone: Arizona, USA)

Kewal Kiran Clothing (KEKC) has reported EBITDA of Rs135mn (flat YoY) with margin strong at 11.4% (+83bps YoY) owing to strong revenue recovery and strict control across all cost fronts in Q3FY21. Revenue decline restricted to 7% YoY, to Rs1.2bn, owing to festive season and uptick in discretionary spends. Gross margin sharply contracted 1,160bps YoY to ~37% owing to change in channel mix with significant increasing contribution from online and LFS channels). KEKC has net cash of Rs2.4bn (22% of mcap) as of Dec'20 and has declared interim dividend of Rs8/sh (Rs23/sh in 9MFY21). Factoring Q3FY21 beat, we increase our FY22E-FY23E EBITDA estimates by 13-14% and target price to Rs970/sh (earlier: Rs810) based on 13x FY23E P/E on half-yearly rollover. Maintain ADD. Key risk being slower recovery in discretionary spends.

- Revenue declined 7% YoY to Rs1.2bn owing to festive season, uptick in discretionary spends and strong growth in LFS and online channels. Historically, KEKC has higher dependence on MBO channels (>40%), which is seeing delayed recovery, in our view.

- EBITDA stood flat YoY at Rs135mn with margin increasing 83bps YoY to 11.4% (industry-leading) owing to improving revenue trajectory and substantial cost-saving measures across all cost fronts. Gross margin sharply contracted 1,160bps YoY to ~37% mainly due to change in channel mix with higher contribution of sales from online and LFS channels. Employee costs have declined 26% YoY to Rs139mn. Administrative expenses increased 18% YoY to Rs99mn which includes Rs25mn (including interest) against Export Promotion Capital Goods (EPCG) scheme towards shortage of export obligation. Selling and distribution expenses declined sharply 70% YoY to Rs61mn (~5% of sales), while PAT fell 6% YoY to Rs109mn in Q3FY21.

- Company has net cash of Rs2.4bn (22% of mcap) as of Dec'20 and has declared second interim dividend of Rs8/sh totalling Rs23/sh in 9MFY21. Record date for interim dividend has been fixed on 4th Feb'21. The board has approved the incorporation of K-Lounge Lifestyle Ltd (wholly-owned subsidiary) to focus on further developing and enhancing its retail footprint.

Shares of KEWAL KIRAN CLOTHING LTD. was last trading in BSE at Rs.901.25 as compared to the previous close of Rs. 916.65. The total number of shares traded during the day was 118 in over 26 trades.

The stock hit an intraday high of Rs. 930 and intraday low of 890.7. The net turnover during the day was Rs. 108182.

Source: Equity Bulls

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