Kewal Kiran Clothing - EBITDA Margin pressure on subdued consumer demand - Karvy

Kewal Kiran Clothing's (KKCL) sales, EBITDA and net income grew by 20%, 40% and 37% YoY respectively however it declined by 4%, 7% & 7% YoY to Rs. 2,260 mn, Rs. 518 mn & Rs. 369 mn for 9MFY13

The Company's top-line grew 19.9% YoY to Rs. 774.5 mn (our expectations Rs. 1,010 mn) during Q3FY13, however declined sequentially by 15.5%. The Company witnessed volume growth of 14.4% YoY and average realization were up by 5.9% to Rs. 843 for Q3FY13. EBITDA margin for the quarter expanded by 310 bps YoY at 21.7% and consequently EBITDA grew by 39.8% YoY to Rs. 168.3 mn (our expectations Rs. 270 mn) during Q3FY13.

Net income of the Company grew 37.1% YoY to Rs. 120.0 mn (our expectations Rs. 180 mn) while it declined sequentially at 32.0%. Net Income Margin improved by 195 bps YoY to 19.2%.

Product & Brand wise Revenue Analysis: During Q3FY13, Jeans and Shirts grew 40% & 29% YoY to Rs. 453.9 mn and Rs. 109.5 mn respectively while Trousers and T-Shirts declined 13% & 27% to Rs. 60.0 mn and Rs. 19.4 mn. Looking at individual brands, revenue from Killer, Lawman, Integriti & Easies grew 27%, 20%, 8% & 36% YoY to Rs. 397.7 mn, Rs. 156.5 mn, Rs. 171.1 mn & Rs. 16.7 mn respectively. Killer maintains its flagship status with brand share of 49% from 52% a year ago while Integriti, the second largest brand has increased its revenue contribution to 25% from 22% YoY.

Distribution channel on focus: During the quarter, the Company opened 17 stores, i.e. 6 K-Lounges, 7 Killer EBO and 4 Integriti EBOs. It has also closed down 4 stores during the quarter.

Outlook & Valuation: At the CMP of Rs. 730, the stock is trading at a 17.8x and 14.8x of FY13E and FY14E EPS, respectively. We value KKCL at 14x FY14E EPS, and add Rs. 101 per share of cash & equivalent of FY13E. We downgrade our recommendation to "HOLD" with revised target price of Rs. 792 per share, which represents an upside potential of 9%.

Source : Equity Bulls

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