Sunday, May 16, 2010

KKCL - Domestic Retail Consumption play - 2x upside in one year



KKCL  - at least 2x multi-bagger in 1 year.
KKCL -Kewal Kiran Clothing Ltd

Summary - good 2x upside potential as results at life time high but stock still 50% below lifetime high.
Business
– Apparels  -with  4 key Brands – Killer, Lawman , Integriti, Easies. Denim ( Killer & Lawman) would comprise at least 70% of Revenues.
Great FY10 results
  • FY10 Mar`10 ending - lifetime high Results – lifetime high Sales,Profits and Margins
  • Sales at all time high of 175 crs. up 21%
  • PAT at 32 crs* ( Cash PAT = PAT + Depreciation of 38 crs.) up 130%
  • Net margins of 18% to 21%
  • * PAT includes other income of Rs 10 crores ,earned from its cash investments in liquid Mutual Funds
  • Cash holding of 80 crores ( vs last year 65 crs).
  • Debt reduced to 15 crs from 24 crs last year
  • So net cash of 65 crores. Or 65 Rs per share.
  • at cmp of 275 or market cap of 339 crores , at FY10 PE of 7 ( based on FY10 Cash PAT and adjusted for 65 crores net cash)
  • Dividend up 100% to Rs. 6 per share ( or at 7.5 crores or 20% payout based  on  Cash PAT)
  • Promoters hiked its stake to 74% ( from 73.8% last year)
Technicals - 50 DMA at 250 and 200 DMA at 222. Its up ~ 3x from Mar`09 low but 50% lower from peak of ~600 in 2007. see chart here

Reasons to buy
  1. Rock solid balance sheet and best financial ratios in the retail sector with cheap valuations. Net cash of 65 crores with zero debt and RoE of 20% plus, with very cheap valuations of 7-8 trailing /historic FY 10 PE vs Sector avg. PE of 30 plus. Some might not agree to comparing KKCL with Pantaloon / Shoppers Stop / Trent but fact is 50% of all Revenues of these retailers comes from Apparels.
  2. Good sector macro story - Modern Retail and a domestic consumption play. Safe from exports risk and other risks such as govt. regulation intervention in pricing.
  3. Management conservative track record - does not see leverage exceeding above 0.5x at the max. see interview here  . Even post IPO in 2006,promoter holding is still at 74%.
Background - had come with an IPO at 260 in 2006 and reached high of 600
Public shareholding
  • ICICI & HDFC Fund that were holding in total holding 8% as on Mar 2009 ( when price was at 95) have exited their positions entirely. ( most probably they entered at 300 plus levels 2 years ago)
  • PE Nalanda Capital is still holding its 10% stake entered at  180 last year.
  • New entrant- Ashish Dhawan holding 1.9% stake or 2.3 lac shares. Most likely he is the same guy, who is the co-founder of Chrysalis Capital that is managing $ 2.2 billion India Fund
Risk - only risk is slowdown in economy as seen in 2008.
Disclosure - Long KKCL since 95. Looking to add more

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