Kitex Garments LTD: Strong Growth Ahead Unique Business Model

Sep 28, 2015
Kitex Garments
Ltd
Sep 28, 2015
Consumer Discretionary - Apparel & Textile Products
Kitex Garments Ltd

Bloomberg Code: KTG IN
BUY
India Research - Stock Broking
Recommendation (Rs.)
Stock Information
Mkt Cap (Rs.mn/US$ mn)
38523 / 643
3M Avg. daily volume (mn)
0.2
52-wk High/Low (Rs.)
1.3
Sensex/Nifty
25843 / 7874
O/S Shares(mn)
47.5
Face Value (Rs.)
Shareholding Pattern (%)

Promoters
54.2
FIIs
2.4
DIIs
0.2
Others
43.2
Stock Performance (%)

1M
Absolute
Relative to Sensex
17
18
3M
6M
12M
(9)
73
70
(15)
59
66
Source: Bloomberg
Relative Performance*
320
At CMP, the stock is trading at 29.8x and 22.1x FY16E & FY17E P/E respectively.
We believe that the stock is currently available at attractive valuations. We initiate a
BUY recommendation with a target price of Rs. 954 per share, which represents
an upside potential of 18%.
240
1. Volatility in the raw material prices.

2. Forex risk.
3. Competition risk
1074 / 442
Beta (x)
Valuation and Outlook
160
80
Sep-14
Key Risks
18
Kitex
Sep-15
Strong Client Network & Distribution: Kitex garments has clients namely
Mother care, Jockey, Toys R us, Gerber and Carter; and recently added two more
large clients- Childrens Place & Kohl to its client base. The garments segment
contributes 100% of its revenues from exports, of which 85% comes from US and
the rest 15% from Europe.
Upside (%)
Jul-15
Own Brand Little Stars to be launched by Fall 2016: KGL plans to launch its
own brand Little Stars, owned by Kitex USA LLC by fall 2016. The management
plans to target this brand as a mass market product in US and Canada. It plans to
launch the brand through the online route.
954
May-15
Tie-up with Lamaze International helps shift focus from B2B to B2C: Kitex USA
LLC (50-50 JV between KCL and KGL) has signed a brand-licensing agreement
with Lamaze International for the sale of infant wear in the US and Canada under
the Lamaze brand. Kitex USA LLC will be the exclusive supplier for Lamaze infant
wear (for children up to five years old) in US and Canada. The contract validity is till
31 December 2020, extendable for five years.
811
Target Price
Mar-15
Capacity Expansion to be a Major Revenue Driver: Kitex has current fabric

capacity of 48 MT & 0.55 mn pcs/day garmenting capacity; & is targeting a
capacity of 1.1 mn pieces/day in two years. The management expects capex of
Rs.350-450 mn for the group & Rs.150-200 mn for Kitex garments exclusively over
the next 2 years.
CMP (as on Sep 24, 2015)
Jan-15
Kitex garments is the third largest global player in the infant wear with a significant
market share of 70% in India. It has marquee clientele like Mothercare, Toys R
us and Jockey who procure products from Kitex, which contributes significantly
towards margin improvement and robust revenue growth for the company.
Nov-14
Strong Growth Ahead; Unique Business Model
Sensex
Source: Bloomberg; *Index 100
Exhibit 1: Valuation Summary (Rs. Mn)

YE Mar
FY13
FY14
FY15
FY16E
FY17E
Net Sales
3170
4422
5111
6466
8008
EBITDA Margin (%)
19.0
21.5
33.0
33.0
33.9
6.2
12.1
20.7
131.1
67.1
39.1
EBITDA
Adj. Net Profit

EPS (Rs.)
RoE (%)
PE (x)
Source: Company, Karvy Research
601
294
26.7
951
574
38.7
1687
2134
2715
985
1293
1743
45.0
40.1
38.0
27.2
29.8
36.7
22.1
For private circulation only. For important information about Karvys rating system and other disclosures refer
to the end of this material. Karvy Stock Broking is also available on Bloomberg, KRVY<GO>, Thomson
Publishers & Reuters
Analyst Contact
Jagannadham Thunuguntla
040 - 3321 6296
jagannadham.t@karvy.com
Sep 28, 2015
Kitex Garments Ltd
Company Background
Company Financial Snapshot (Y/E Mar)

Profit & Loss (Rs.mn)
FY15
FY16E
FY17E
Net sales
5111
6466
8008
EBITDA
1687
2134
2715
Optg. Exp (Adj for OI)
3424
Depreciation
213
Other Income
134
Interest
192
4333
209
97
147
5293
239
120
69
PBT
1417
1874
2526
PAT
985
1293
1743
EBITDA margin (%)
33.0
33.0
33.9
P/E (x)
39.1
29.8
22.1
Tax
432
581
783
Profit & Loss Ratios

Net Profit margin (%)
19.3
EV/EBITDA (x)
22.5
Dividend yield (%)
0.2
Balance Sheet
20.0
17.3
0.2
21.8
13.2
0.2
Kitex Garments Limited is based in Kochi, India. Kitex

Garments Ltd. was incorporated in 1991. It made its public
issue in the year 1995. It is promoted by Boby M Jacob, Kitex
Exports Ltd, Sabu M Jacob and Somy Varghese.
Kitex Garments Limited is in the business of manufacturing
and exporting garments. The company exports its products
to US and European markets. With unmatched global
connections, this company caters to prominent and renowned
conglomerates in USA and Europe.
The company currently employs over 8000 people at its facility,
and has been a business provider to many satellite businesses
in the state. It is the worlds third largest infant wear supplier
and the largest exporter from India. The products of KGL are
Body suits, Sleep wear, Rompers, Burps, Bibs and Training
pants.
Cash Flow (Rs.mn)
(Rs.mn)
FY15
FY16E
FY17E
Total Assets
4272
4901
5780
Current assets
3412
4041
4897
Net Fixed assets
1879
Other assets
56
Total Liabilities
4272
Debt
1408
Networth
2639
Current Liabilities
1081
Deferred Tax
226
2069
56
4901
3818
858
1272
226
2230
56
5780
5346
208
1409
226
Balance Sheet Ratios

RoE (%)
45.0
40.1
38.0
Net Debt/Equity(x)
(0.2)
(0.4)
(0.5)
P/BV (x)
14.6
10.1
7.2
RoCE (%)
43.3
Equity/Total Assets(x)
0.6
Exhibit 2: Shareholding Pattern
44.1
0.8
48.6
0.9
FY15
FY16E
FY17E
EBITDA
1687
2134
2715
Interest
(192)
(147)
(69)
(47)
Other Income
134
Tax
(432)
Changes in WC
CF from Operations
(581)
(783)
1397
1657
(211)
(245)
(400)
(400)
CF from Investing
(245)
(400)
(400)
213
(550)
(650)
152
(550)
(750)
Investment
Change in Equity
Change in Debt
Others
(62)
Change in Cash
996
CF from Financing
0
0
0
447
0
0
(100)
507
Exhibit 3: Segmentation - FY15
Fabric
17.0%
DIIs
0.2%
120
Capex
Others
43.2%
FIIs
2.4%
1090
97
Promoters
54.2%
Garments
83.0%
Sep 28, 2015
Kitex Garments Ltd
Capacity Expansion To Boost Sales and Augur Growth

Kitex has current fabric capacity of 48 MT & 0.5 mn pcs/day garmenting capacity & is targeting a capacity of 1.1 mn pieces/day
in two years. The management expects capex of Rs.350-450 mn for the group & Rs.150-200 mn for Kitex garments exclusively
over the next 2 years. According to the management, the current utilization levels are close to ~65% with 8000 employees
(KGL+KCL). The company intends to increase its utilizations to ~75% by FY16E. The 90mn annual capacity (KGL) & 65mn
Annual capacity (KGL) translate to the 5.5 L/pieces per day.
A total capex of Rs.7.2mn was completed during FY14. This was mainly for the fabric processing segment. Going forward, capex
will be spent on automatic cutting machines, advanced sewing machines and other technology up-gradations. The company
recently completed Rs.600mn-Rs.700mn of investments in the robotics assisted fabric processing plant last FY towards
enhancing capacities and improving efficiencies.
The management plans to bring in automation in new areas, which would bring in 75% labor saving in the long term. For infant
wear, KGL manufactures 10 blocks at present. Each block has eight lines and every line has 25 machines and 40 employees.
Each line produces 5500 pieces a day. It plans to increase another 8 blocks (64 lines) over the next two years and can add three
more blocks.
The company plans to introduce the brand in US and invests significant amount in developing distribution network and branding
exercise. Post capacity expansion, the company expects to cross Rs. 10,000mn export turnover in FY16E against Rs. 7500mn
in the previous fiscal.
Huge opportunity in the Infant-wear market

Indias apparel market (Rs.2300bn) is expected to grow at a positive 9%, with the rising income levels of Indian working class.
Although menswear constitutes the largest apparel market share, kids-wear market is growing at the fastest pace. Overall, the
kids-wear market makes up approximately 20% of the total apparel market, and it is expected to grow at a CAGR of 11% over
the next ten years. The segment is currently estimated at worth Rs 460bn and projected to reach Rs 1200bn by 2023.
Within the kids-wear segment, boys-wear contributes 52% of the overall revenue share of about Rs. 239bn & is expected to grow
at 10% CAGR to reach Rs 610bn by 2023. The girls-wear market stands at Rs 218bn & projected to grow at an optimistic 11%
CAGR to reach Rs 616bn by 2023.
According to a Technopak report, the overall childrens market in India can be broadly divided into five segments: super premium
(above Rs 2,500), premium (Rs 1,000-2,500), mid (Rs 500-1,000), economy (Rs 250-500) and lower (up to Rs 250). Currently,
the mid-segment contributes 30% and is expected to contribute ~60% by 2020.
Key players in the Infant-wear category include The Childrens Place (age group: 0-12); Gap stores-Gap Kids & Baby Gap;
Gymboree (age group: 0-7); Gerber, Carters etc.
Exhibit 4: Infant-wear share to the overall Apparel Market
Exhibit 5: Infant-wear Market Share
100%
300
75%
200
50%
100
25%
0%
FY10
FY11
Others as % of Apparel Market
FY12
FY13
FY14
Infant wear as % of Apparel Market
FY13
FY14
FY15
FY16
FY17
FY18
Infant-wear Market Share

Dominant/Significant Market share in India & Third largest Kids-wear Supplier in the World
Kitex garments is the third largest global player in the infant-wear with a significant market share of 70% in India. Its exports
contribute ~95% of its revenue pie. It has big clients like Mothercare, Toys R us, Jockey, Gerber and Carters who procure
products from Kitex, which contributes significantly towards margin improvement and robust revenue growth for the company.
Sep 28, 2015
Kitex Garments Ltd

Among the global players, Wingloo (China) is the largest supplier of infant-wear globally with a capacity of 0.75 mn pcs/day
followed by Gimmell (Singapore) with a capacity of 0.65 mn pcs/day. Kitex garments is the third largest manufacturer with a
capacity of 0.55mm pcs/day and the largest supplier from the Indian markets. Given the infant-wear markets huge opportunity
size, scalability potential for Kitexs business is huge. The management plans to become Number 1 supplier in the infant-wear
market globally in the next 2-3 years.
Dominant/Significant Market share in India & Third largest Kids-wear Supplier in the World
Kitex garments is the third largest global player in the infant wear with a significant market share of 70% in India. Its exports
contribute ~95% of its revenue pie. It has big clients like Mothercare, Toys R us, Jockey, Gerber, Carters who procure products
from Kitex , which contributes significantly towards margin improvement and robust revenue growth for the company.
Among the global players, Wingloo (China) is the largest supplier of infant wear globally with a capacity of 0.75mnpcs/day
followed by Gimmell (Singapore) with a capacity of 0.65mnpcs/day. Kitex garments is the third largest manufacturer with a
capacity of 0.55mm pcs/day and the largest supplier from Indian markets. Given the infant wear markets huge opportunity size,
scalability potential for Kitexs business is huge.
Exhibit 6: Domestic Market Share (%)
Exhibit 7: Capacities of Global Infant-wear Suppliers

0.8
Others
13%
0.6
Jay Jay
Mills
12%
0.75
0.65
0.55
0.4
0.2
Kitex
Garments
75%
Wingloo
Gimmell
Kitex Garments
Global Infant-wear Suppliers (mn pcs/day)

Tie-up with Lamaze International helps shift focus from B2B to B2C
Kitex USA LLC (50-50 JV between KCL and KGL) has signed a brand-licensing agreement with Lamaze International for the
sale of infant wear in US and Canada under the Lamaze brand. Kitex USA LLC will be the exclusive supplier for Lamaze infant
wear (for children up to five years old) in US and Canada. The contract validity is till 31 December 2020, extendable for five years.
Lamaze is a non-profit-organization established in 1960 and focuses on parenting, educating new moms through its network
of 2000 educators, and also licenses its brand for the toys and apparels categories for babies. It has been in the infant wear
business since 2008 through a licensing arrangement with Gerber. Lamaze products are sold by well-known retailers like Buy
Buy Baby, ToysRUs and other department stores, which we believe reiterates the brand power of Lamaze, providing high
pricing power.
The management is confident of clocking US$8m sales in CY16 through th brand tie-up and of achieving the minimum guarantee
with royalty rates at ~5% of sales. Most of the products manufactured under the Lamaze brand will be made-to order and
inventory risk will not be borne by Kitex.
We believe this long-term agreement not only provides huge visibility of growth in the B2C category for Kitex but will essentially
enable Kitex to improve its margins further and utilize its spare capacities better during lean quarters. Kitex plans to position
Lamaze garments as premium products, which we believe can aid in higher margins than its existing business. We believe that
Kitexs expertise in infant-wear manufacturing complimented by strong brand recall of Lamaze makes it a sound combination for
strong growth with higher margins.
Sep 28, 2015
Kitex Garments Ltd
Own brand Little Stars to be launched in Fall 2016

KGL plans to launch its own brand Little Stars, owned by Kitex USA LLC by fall 2016. The management plans to target this
brand as a mass market product in the US and Canada. It plans to launch the brand through the online route. It has also
highlighted that apart from the in-licensed brand, it plans to launch its own brand Little Stars in fall 2016, which was earlier
scheduled for launch in the Q2FY16E, would be postponed due to final regulatory and compliance approvals.
The management doesnt expect any inventory risk for the licensed brand and owned brands business, as it will make samples
first, take orders, and then ship.
Strong Clientele and Distribution Network

Kitex derives its 100% garment revenue from exports; of which 90% are to US and 10% to Europe. However, management
downplayed this geographical risk, as majority of customers to whom they supply have global presence. Though KGL faces
significant customer concentration with three players (Gerber, Jockey and Toys R US) accounting for majority of revenues till
last year. It has recently added major customers like Kohls and Childrens Place. The management doesnt supply more than
~$30mn-$40mn to a single customer. Kitex not ready to supply more than $50 Mn to a single player. It is much safer to spread
the same volume between 3-4 leading players.
The company has five large clients Gerber, Toys R Us, Jockey, Mothercare and Carterss and has added two large clients, via
Childrens Place and Kohls in April-September period of FY15. KGL intends to improve its revenue mix in favor of high margin
clients like Toys R Us, Jockey and Mothercare, who procure high value-added products which will drive continued margin
improvement.
Kitex Clients: Gerber is the number one wholesaler in the US with ~40,000 stores; Carters is a wholesaler (supplies to
Wal-Mart, Target), a retailer (~600 outlets) and buys ~US$1.1bn of infant-wear globally.
Kitex won the Best Manufacturer Supplier Award for the year 2011 and 2012 from Toys R Us, U.S.A. The company also won
the Best Manufacturer supplier award from Gerber Children wear, USA for the second consecutive year. It is the most preferred
player among the US companies in terms of its quality and management.
Exhibit 9: Kitex Clientele
Exhibit 8: Client Share (%)

Mothercare
20%
Carters
15%
Gerber
25%
Jockey
20%
Toys R us
20%
State-of-the-Art & Cost-efficient Manufacturing Facilities

The company has spend Rs.700 mn last financial year as a capex where they have spend on buying new machines,
up-gradation of current facilities etc. In the next two years, the company plans to spend Rs.300mn - Rs.400mn in capex which
will help the company to expand its capacity from 0.55mn units per day to 1.1mn units per day. It is a vertical set-up with Knitting
& Processing of fabrics, until finished garments are done in-house.
A 240 meters long and 70 meters wide process house that covers an area of 180,768 sq. ft, one of the largest in the world under
one roof, makes fabrics for its garmenting units. Equipped with digital dispenser system for error-free, automatic and computercontrolled preparation of color recipes, high quality knitting machines, most modern dyeing, printing and finishing machines that
use cutting-edge technology, the plant produces 50,000 Kilograms of knitted fabrics that are of exceptional quality, and is well
appreciated and recognized by reputed children-wear apparel brands in the United States and Europe.
5
Sep 28, 2015
Kitex Garments Ltd

Its garmenting unit uses latest machinery for pattern Computer-Aided-Design (CAD), plotting and grading. It has Automatic
spreader machines which enhance the speed of spreading and Automated cutting machines that enable faster & precision cutting.
The factory is equipped with latest sewing machinery ensures stain-free, quality sewing and state-of-the-art spectrophotometer
ensures electronic color reading & transmission.
Strong Growth during FY09-14; Performance to accelerate during FY15-17E

Kitex Garments (KGL) posted a healthy and strong growth in revenues with a CAGR of 19.4% during the period of FY09-14.The
company reported high EBITDA and PAT growth of 41.5% & 42.0% respectively on back of strong export demand and growing
contribution from new clients. We expect a robust growth of 25% CAGR revenue growth during FY15-17E as the company plans
to expand its capacity to 1.1mn pcs/day by the same period.
Exhibit 11: EBITDA and PAT Margins (%)
Exhibit 10: Historical Revenue Performance

5,000
50%
5000
25%
4,000
40%
4000
20%
3,000
30%
3000
15%
2,000
20%
2000
10%
1,000
10%
1000
5%
FY10
FY11
FY12
Revenue (Rs. mn)
FY13
FY14
Growth(%)
0%
FY10
FY11
Revenue (Rs. mn)

PAT margin (%)
FY12
FY13
FY14
0%
EBITDA margin (%)
Sep 28, 2015
Kitex Garments Ltd
Exhibit 12: Business Assumptions

Y/E Mar (Rs. Mn)
FY14
FY15E
FY16E
FY17E Comments
Revenue
4422
5111
6466
8008 Higher sales on account of improving volume and value
Revenue Growth (%)
39.5
15.6
26.5
23.8 realizations.
EBITDA
951
1687
2134
2715 EBITDA to grow further due to lower input and
EBITDA Margin (%)
21.5
33.0
33.0
33.9 manufacturing costs due to technology up-gradation.
PAT (normalized)
574
985
1293
1743 Since Kitex has near zero debt, the companys lower
Normalized PAT Margins
13.0
19.3
20.0
21.8 interest expenses yielding to higher PAT.
Fully Diluted EPS
12.1
20.7
27.2
36.7
Fully Diluted EPS Growth (%)
95.3
71.7
31.3
34.8
Revenues
The company plans for a capex of Rs.300mn-Rs.400mn

Capex (ex. Acquisitions)
(718)
(245)
(400)
(400)
for the overall group (KCL+KGL) and expects to do

capex of Rs.150mn-Rs.200mn for garment expansion
for KGL.
Net CFO
1007
1090
1397
1657
Net Debt
158
(625)
(1622)
(2779)
Free Cash Flow
290
845
997
1257
The company has excess cash and plans to become

debt free in the near term.
Exhibit 13: Karvy vs Consensus

Karvy
Consensus
Divergence (%)
Revenues (Rs.mn)
Comments
FY16E
6446
6399
0.7
Higher revenue due to new client additions,
FY17E
8008
7910
1.2
to capex expansion in the garments segment.
FY16E
2134
2102
1.5
FY17E
2715
2652
2.4
input costs and increasing revenue growth.
FY16E
27.2
26.8
1.3
Due to near-zero debt, the company wouldnt
FY17E
36.7
35.8
2.5
the PAT is expected to be significantly higher.
EBITDA (Rs.mn)
higher volume, value realizations and also due
Higher EBITDA margins on account of lower
EPS (Rs.)
incur any interest costs. On account of the same,
Source: Bloomberg, Karvy Research
Sep 28, 2015
Kitex Garments Ltd
Revenues to grow at 25% CAGR during FY15-17E

KGLs revenues have been growing consistently from the past five years. During FY09-14, Kitex posted revenue CAGR of 19% on
back of higher volume and value realizations in the garments segment. We expect it to further grow by 25% during FY15E-17E on
account of better product mix and operational efficiency. The management plans to increase its current garment capacity to 1.1
mn pcs/day, which makes it the largest in the world. We believe this to contribute significantly to the top-line growth, going forward.
As of FY15, the garments contribute 83% to the overall revenue pie. Going forward, we believe the revenue share to increase to
~95% due to strong export demand and addition of new clients.
Exhibit 15: Revenue (Rs. Mn) & Growth (%)
Garments
30%
20%
10%
Fabric
Revenue
FY17E
FY17E
FY17E
FY17E
FY16E
FY16E
0%
FY15
FY15E
2000
FY14
FY14
25%
FY13
FY13
4000
FY12
FY12
50%
40%
FY16E
FY16E
6000
FY15
FY15E
75%
50%
FY14
FY14
8000
FY13
FY13
100%
FY12
FY12
Exhibit 14: Segment Revenues
0%
Exhibit 16: Break-up of Revenues (Rs. Mn)

4200
3100
2000
900
-200
FY10 FY11 FY12 FY13

FY14 FY15
FY10 FY11 FY12
FY13 FY14
FY15
Growth (%)
Exports
Domestic
EBITDA margins to Increase on Lower Input Costs

Exhibit 17: EBITDA (Rs. Mn) & EBITDA Margins (%)
3000
40%
30%
2000
1000
0
KGLs EBITDA margins increased from 9.3% in FY10 to 21.5% in FY14

despite soaring cotton prices in FY12, which form a major part of its
20%
consumables.
10%
Going forward on lower cotton prices and higher realizations, we expect
0%
FY12 FY13 FY14

FY15 FY16E
FY17E
FY12 FY13 FY14 FY15E
FY16E FY17E
EBITDA
EBITDA Margin (%)
EBITDA to grow at a 26.8% CAGR during FY15E-17E & EBITDA margins

to grow by 34% during the same period.
Net Income to continue uptrend with Margin improvement

Exhibit 18: PAT (Rs. Mn) & PAT Margin (%)
1700
30%
1275
20%
850
10%
425
0
0%
FY12 FY13 FY14 FY15 FY16E

FY15E FY16E FY17E
FY12 FY13 FY14
FY17E
PAT
PAT Margin (%)
PAT grew at 42% CAGR during FY09-14, while the PAT margin grew by
13% in FY14 on back of healthy volume dispatches.
The margins are expected to improve further purely based on efficiencies
of higher turnover & EBITDA margins. We believe the PAT to grow by 33%
CAGR during FY15E-17E on back of robust revenue growth and higher
EBITDA margins.
Sep 28, 2015
Kitex Garments Ltd
RoE & RoCE to improve significantly

Exhibit 19: RoE (%) & RoCE (%)
50%
RoE & RoCE have improved to 38.7% & 36.2% in FY14 due to increased
EBIT margins and high asset turnover.
40%
30%
We expect RoE & RoCE to improve on a similar note to 38.0% & 48.6%
20%
equity base.
by FY17E on account of higher profitability, asset utilizations and growing

FY12
FY12
FY13
FY13
FY14
FY14
RoE (%)
FY15E
FY16E
FY15
FY16E FY17E
FY17E
RoCE (%)
Revenue per Employee is Increasing Consistently

Exhibit 20: Revenue per Employee
5000
1.5
3750
1.0
2500
1250
0
FY10
FY11
FY12
FY13
FY14
Kitex currently has a strong labor force of 4000 employees each for KCL
0.5
& KGL. The sales per employee grew significantly from 0.78mn in FY10
0.0
technology up-gradation in-order to limit its labor force in the long term.
to 1.09mn in FY14. The management plans to increase its investments in
Number of Employees
Sales per Employee (Rs. mn)
Kitex to be a Debt-free Company by FY17E

Exhibit 21: Debt-Equity Ratio
1.0
0.8
Kitex has strong market share and pricing power. The Debt-Equity ratio
0.6
stands at 0.5x as of FY15 and is expected to become debt-free by FY17E
0.4
on back of excess cash flows that could be used for capacity expansion in
0.2
0.0
the long term.

FY12
FY12
FY13
FY13
FY14
FY14
FY15E FY16E
FY17E
FY15
FY16E FY17E
Debt-Equity Ratiio
Improving Working Capital Ratios

Exhibit 22: Working Capital Ratios
151
Kitex has good working capital ratios. The cash conversion cycle has
99
improved from 116 days in FY10 to 42 days in FY14 and expected to come
47
-5
down further. The inventory, sales and payable days reduced to 35 days,
FY10
FY11
FY12
FY13
Cash Conversion Cycle

Sales Days
Inventory Days
Payable Days
FY14
43 days and 37 days in FY14 respectively due to strong management

capability and improving cost efficiency.
Sep 28, 2015
Kitex Garments Ltd
Dividend payout to Increase Further; Higher FCF

Exhibit 23: Dividend & CFO (Rs. Mn)
1,800
1,200
Kitex has been consistently paying higher dividends. In FY14, there was
600
Going forward, we expect the payout ratio to further improve to 18% due to
a decline in the same due to cash utilizations for capacity expansion.

generation of free cash flows in the next 2-3 years.
FY12
FY12
FY13
FY14 FY15E
FY15 FY16E
FY16E FY17E
FY13 FY14
FY17E
Dividends paid
CFO-w/o dividend
Valuation & Outlook

At CMP of Rs. 811 per share, the stock is valued at 29.8x and 22.1x FY16E and FY17E P/E. We reiterate a BUY with a target
price of Rs.954 per share based on 26x FY17E P/E, representing an upside potential of 18%.
Exhibit 24: P/E vs. RoE
50
Page
FY17E P/E (x)
40
30
Kitex
20
Lovable
10
0
KPR Mills
0 5 10 15 20 25 30 35 40 45 50 55 60
FY17E RoE (%)
Source: Company, Karvy Research; * Bubble size reflects the size of Market Capitalization of respective companies
Exhibit 25: Comparative valuation summary

CMP
Kitex
Mcap
EV/EBITDA (x)
Rs. Mn
FY16E
811
Page
Lovable
FY17E
Sales
EPS
EBITDA
FY16E
FY17E
Price Perf (%)

3m
13.2
29.8
22.1
25.2
26.8
33.0
40.1
38.0
(16.0)
4402
18.7
15.1
21.2
17.3
13.3
10.8
15.7
14.0
14.7
2.0
776
29581
Source: Bloomberg, Karvy Research
FY16E
RoE (%)
17.3
147789
KPR Mills
FY17E
CAGR (FY15E-17E)
38523
13250
263
P/E (x)
35.8
6.5
25.9
5.3
54.5
38.8
13.2
36.0
10.4
12.8
33.4
34.4
15.2
31.1
55.1
53.7
23.2
24.3
(13.0)
28.0
6m
12m
59.0
66.0
(12.0)
(29.0)
(7.0)
69.0
69.0
177.0
Exhibit 26: 1-Yr Forward P/E Band

60
40
20
P/E
Mean
~-1SD
~2SD
Sep-15
Jul-15
Aug-15
Jun-15
May-15
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Jan-14
~1SD
Feb-14
Dec-13
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
Apr-13
May-13
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
-20
Sep-12
~-2SD
10
Sep 28, 2015
Kitex Garments Ltd

At CMP of Rs. 811 per share, the stock is valued at 29.8x and 22.1 x FY16E and FY17E EPS respectively. The management
has plans to do an overall capex of Rs.300mn-Rs.400mn for the entire group (KCL+KGL). Capex for KGL is around Rs. 150mn200mn, which would be for the expansion in the garments segment. The company plans to expand its existing capacity of 0.5mn
pcs/day to 1.1mn pcs/day, which would make KITEX a leader in the infant wear category. It also plans a capex of Rs.100mnRs.150mn for technology up-gradation, going forward. With increasing demand and growth, improving return ratios and increase
in dividend payout, we reiterate a BUY recommendation with a target price of Rs. 954 per share valuing at 26x FY17E P/E,
representing an upside potential of 18%.
During FY10-14, Kitexs revenues grew at 15.6% CAGR due to its strong positioning in the kids wear segment. Going forward,
we expect KTG to post 25% revenue CAGR coupled with 34% EBITDA margin expansion yielding to a better product mix and
product pipeline. We believe PAT to post 33% CAGR over FY15E-17E. The company currently has capacity utilization of ~62%65% & planning to double their capacities in the next two years.
It has a strong and healthy balance sheet with significant free cash flows. RoE is expected to grow by 38.0% by FY17E from
26.7% in FY13. We expect the dividend payout to improve further by 15%-18% by FY17E, given significant free cash generation
over the next two to three years.
In the domestic markets, we believe KTG is in a better position with 70% market share in a good position in the export market to
capture the infant wear boom on back of its strong clientele, better operating efficiencies, launch of its own brand Little Stars,
strong return ratios, high entry barriers and increasing cash flows.
11
Sep 28, 2015
Kitex Garments Ltd
Peer Comparison
Kitex operates in the infant-wear category. It is the largest supplier of kids garments from India and third largest exporter globally.
Peers include Page Industries, KPR Mills, and Lovable Lingerie. With strong product pipeline, capacity expansion in the garments
segment and management confidence, we remain positive on Kitex in the long term.
Exhibit 27: Revenue Growth (%)
Exhibit 28: EBITDA Margin (%)

25%
50%
40%
39.5%
35.7%
20%
30%
20%
10%
0%
10%
3.5%
FY10
FY11
KPR Miils
Page
9.3%
1.6%
FY12
FY13
Lovable
Kitex
FY14
19.0%
17.7%
15%
21.8%
5%
FY10
FY11
KPR Miils
Page
FY12
Source: Respective companies, Bloomberg, Karvy Research
Exhibit 29: RoCE (%)
Exhibit 30: EPS
40%
30%
20%
36.2%
30.4%
25.7%
23.1%
FY11
KPR Miils
Page
FY12
FY13
Lovable
Kitex
FY14
4.3
3.9
FY10
FY11
KPR Miils
Page
5.7
6.2
FY12
FY13
Exhibit 31: RoE (%)
Exhibit 32: RoA (%)
80%
40%
60%
30%
39.6%
32.0%
38.7%
31.7%
26.7%
FY10
FY11
KPR Miils
Page
FY12
FY13
Lovable
Kitex
FY14
12.1
Lovable
Kitex
FY14
21.0%
20%
10%
20%
0%
FY14
70
40%
Lovable
Kitex
140
35
FY10
FY13
105
24.3%
10%
0%
21.5%
18.7%
0%
10.0%
FY10
11.5%
FY11
KPR Miils
Page
14.3%
FY12
13.6%
FY13
Lovable
Kitex
FY14
Key Risks
Volatile Raw material Prices: Cotton is the largest consumable for Kitex. As cotton prices due to erratic weather patterns
and government policies remain a tricky and generic issue for the textiles sector, any adverse price movements could pose
margin pressure for the company. If there is an increase in the raw material prices going forward, it could impact the margins
of the company.
Forex Risk: Kitex exports contribute around 95% to the top line. We believe sharp appreciation in INR could affect its overall
revenue.
Competition Risk: Kitex is exposed to competition risks from Asian countries such as Sri-Lanka, Taiwan, China and other
African countries. The increase in competition risks can create pressure on margins, market share etc.
12
Sep 28, 2015
Kitex Garments Ltd
Financials
Exhibit 33: Income Statement
YE Mar (Rs. Million)
FY13
FY14
FY15
FY16E
FY17E
Revenues
3170
4422
5111
6466
8008
Operating Expenses
2569
3471
3424
4333
5293
3.2
58.3
77.4
26.5
27.2
40
133
115
106
Growth (%)
EBITDA
Growth (%)
Depreciation & Amortization

Other Income
1.6
601
86
EBIT
515
PBT
440
Interest Expenses
Tax
Adjusted PAT
Growth (%)
147
294
8.3
39.5
951
97
15.6
1687
213
134
26.5
23.8
2134
2715
209
239
97
120
855
1474
1925
2475
882
1417
1874
2526
985
1293
1743
308
574
95.3
192
432
71.7
147
69
581
783
31.3
34.8
Exhibit 34: Balance Sheet

FY13
FY14
FY15
FY16E
FY17E
Cash & Inventories
412
1036
2033
2480
2987
Inventory
459
108
112
171
196
Sundry Debtors
Loans & Advances

Gross Block
Net Block
CWIP
Other Assets
Total Assets
506
217
531
342
627
462
795
595
993
721
1609
2343
2592
2992
3392
23
1172
55
1812
157
1882
179
2069
2230
2303
3152
4272
4901
5780
918
1194
1408
858
208
Total Liabilities
1726
2296
2714
2355
1842
Reserves & Surplus
1176
1694
2591
3770
5299
Current Liabilities & Provisions

Debt
Other Liabilities
Shareholders' Equity
Total Networth
Total Networth & Liabilities

647
161
48
1224
2303
885
216
48
1742
3152
1081
226
48
2639
4272
1272
226
48
3818
4901
1409
226
48
5346
5780
13
Sep 28, 2015
Kitex Garments Ltd
Exhibit 35: Cash Flow Statement

EBIT
(Inc.)/Dec in working capital

Other income
Depreciation
Interest paid
Tax paid
Others
FY13
FY14
FY15
FY16E
515
855
1474
1925
40
133
134
97
(204)
86
213
209
(106)
(192)
(147)
(2)
55
10
(147)
(44)
Inc/dec in capital expenditure
(42)
Cash flow from investing activities
97
(47)
(115)
Dividends paid
Cash flow from operations
338
130
(308)
(56)
1007
(718)
(432)
FY17E
2475
(211)
120
239
(69)
(581)
(783)
(72)
(114)
(114)
(245)
(400)
(400)
1090
1397
1657
(42)
(718)
(245)
(400)
(400)
34
276
213
(550)
(650)
(41)
335
152
(550)
(750)
YE Mar (%)
FY13
FY14
FY15
FY16E
FY17E
EBITDA Margin (%)
19.0
21.5
33.0
33.0
33.9
Net Profit Margin (%)
9.3
13.0
19.3
20.0
21.8
Issuance of equity
(In)/dec in borrowings
Others
Cash flow from financing activities

Net change in cash
(75)
47
58
(62)
624
996
0
0
447
(100)
507
Exhibit 36: Key Ratios
EBIT Margin (%)
16.2
Dividend Payout Ratio (%)
12.9
RoE (%)
26.7
Net Debt/Equity
RoCE (%)
0.4
25.7
19.3
8.3
28.8
6.0
29.8
7.3
30.9
5.4
0.1
(0.2)
(0.4)
(0.5)
36.2
43.3
44.1
48.6
38.7
45.0
40.1
38.0
Exhibit 37: Valuation Parameters

YE Mar
EPS (Rs.)
DPS (Rs.)
BV (Rs.)
PE (x)
P/BV (x)
EV/EBITDA (x)
EV/Sales (x)
FY13
FY14
FY15
FY16E
FY17E
6.2
12.1
20.7
27.2
36.7
25.8
36.7
55.6
80.4
112.6
31.5
22.1
14.6
10.1
7.2
0.8
131.1
64.9
12.3
1.0
67.1
40.7
8.7
1.3
39.1
22.5
7.4
2.0
29.8
17.3
5.7
2.0
22.1
13.2
4.5
14
Sep 28, 2015
Kitex Garments Ltd

Stock Ratings
Buy
Sell
Hold
Absolute Returns
> 15%
5-15%
<5%
Connect & Discuss More at

1800 425 8283 (Toll Free)
research@karvy.com
Live Chat
Disclaimer
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that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
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Consumer Discretionary - Apparel & Textile Products