1

SYNOPSIS

KKCL is amongst the few large branded apparel manufacturers in India and with sales in Asia, Middle East and CIS, designs, manufactures and markets branded jeans, semi-formal and casual wear.

The company has chalked out plans for growth in manufacturing capacities to meet the growing markets for its brands internationally.

Net Sales and PAT of the company are expected to grow at a CAGR of 27% and 59% over 2009 to 2012E respectively.

The Company is planning to add 50 new stores by the end of FY11, especially in smaller cities and towns where it already has built a presence through MBOs.

The company has state of the art manufacturing facilities that ensure quality and timely deliveries.

During the quarter, the company has reported Net Profit increased to Rs.112.70 million from Rs.63.60 million in previous year same quarter.

Years Net sales EBITDA Net Profit EPS P/E

FY 10 1760.50 569.10 325.10 26.37 18.66

FY 11E 2543.61 810.62 487.94 39.57 12.43

FY 12E 3001.46 944.11 573.65 46.52 10.58

Stock Data:

Sector: Retail

Face Value Rs. Rs.10.00

52 wk. High/Low (Rs.) 649.00/231.45

Volume (2 wk. Avg.) 921.00

BSE Code 532732

Market Cap (Rs.In mn) 6066.36

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX Kewal Kiran Clothing

Ltd

C.M.P: Rs.492.00 Target Price: Rs.561.00 Date: 26th Feb 2011 BUY

KEWAL KIRAN CLOTHING LTD

Result Update: Q3 FY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Kewal Kiran 492.00 6066.36 26.37 18.66 3.46 60.00

Rajesh Exports 108.65 31480.2 10.21 10.64 2.75 100.00

Kitex Garments 35.75 1698.1 2.77 12.91 3.08 30.00

Liberty Shoes 90.05 1534.5 7.08 12.72 1.17 0.00

Investment Highlights

Q3 FY11 Results Update

Kewal Kiran Clothing Ltd disclosed results for the quarter ended December 2010.

Net sales for the quarter moved up 63% to Rs.633.40million as compared to

Rs.389.00million during the corresponding quarter last year. During the quarter,

the company has reported Net Profit increased to Rs.112.70 million from

Rs.63.60 million in previous year same quarter. The Basic EPS of the company

stood at Rs.9.14 for the quarter ended December 2010.

Quarterly Results - Standalone (Rs in mn)

As At Dec-10 Dec-09 %change

Net sales 633.40 389.00 63

PAT 112.70 63.60 77

Basic EPS 9.14 5.16 77

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Basic EPS of the company stood at Rs. 9.14

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Break up of Expenditure

Expenditure for the quarter stood at Rs.461.70mn, which is around 55% higher

than the corresponding period of the previous year. Raw material cost of the

company for the quarter accounts for 34% of the sales of the company and stood

at Rs.215.60mn from Rs.139.70mn of the corresponding period of the previous

year. Selling & Distribution Expenses cost increased 61%YoY to Rs.86.7mn from

Rs.53.90mn and accounts for 14% of the revenue of the company for the quarter.

OPM and NPM for the quarter stood at 30% and 18% respectively from 29% and

16% respectively of the same period of the last year.

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Segment Revenue

Company Profile

Incorporated in 1981, Kewal Kiran Clothing Limited today is amongst the few large

branded apparel manufacturers in India. The company with sales in Asia, Middle East

and CIS, designs, manufactures and markets branded jeans; semi-formal and casual

wear for men. The company is exposed to global standards in quality, technology,

marketing and branding. The company’s strong fashion forecasting and trendsetting

abilities have created brands which are vibrant, trendy and with an attitude. Each

brand has been carefully crafted keeping in mind desires and attitudes of specific

market segments. Each brand is an expression of its customer.

The trendiest collections are backed by a strong retail and distribution network. The

company’s extensive reach has been built in a strategic and planned manner over the

years. The success of Kewal Kiran Clothing Limited can be attributed to a great extent

to its manufacturing capacity. The company has inherent core competency in

manufacturing. From sourcing to finishing every aspect of the company’s

manufacturing has added to its success.

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With 5 units, an annual capacity of 25 lakh pieces, over 800 employees, the latest

technologies in jeans manufacturing, the company’s ability to innovate in

manufacturing enables it to quickly go from design to market. The company has

chalked out plans for growth in manufacturing capacities to meet the growing markets

for its brands internationally.

Awards/ Achievements

1996 Killer - Brand of the year - The Arvind Mills Limited 2001-02 (National

Garment Fair) - CMAI AWARDS• Golden Scale Trophy Advertising Campaign of

the year• Golden Scale Trophy Denim Brand of the year• Silver Salver Most

Innovative Display.

2003 (National Garment Fair) CMAI AWARDS• Silver Salver Presented to

'Lawman'• First Prize Most Innovative Display (Brand Wagon)IFA 1st Inside

Fashion Award (IFA)• “Power Brand – For Excellence in Retail performance

‘Award Category – Men’s Wear Jeans - ‘Killer’.

2001 IFA • HALL of FAME Jeans wear brand of the year - ‘Killer’ IFA -3rd Inside

Fashion Award • Campaign of the year – ‘Killer’.

2005 • CNBC TV 18 – ICICI Bank Award for best SME Company in Textile/

Apparel Sector• Golden Trophy by CMAI for casual wear brand of the year

(small & medium) INTEGRITI.

Milestones of the company:

1980- Kewal Kiran & Co. was incorporated.

1989- Launch of Killer

1994- Exporting of Killer brand to UAE

1998- Launch of Easies -Launch of Lawman

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2000- Move towards corporate structure

2002- Launch of Integrity

2004- Launch of first K- Lounge

2005- Consolidation of business under one entity

2006- IPO of 31 lakh shares

2007- Killer Women wear launched -Killer & Integrity exclusive brand outlets

launched

2008- Over 100 retail stores (Including EBOS).

Company Services

Product range of the company includes:

Jeans

Cotton Shirts

Jackets

Denim Shirts

Non-Cotton Shirts

Knitted T-Shirts

Cotton Trousers

Non-Cotton Trousers

Accessories like bags, belts, caps, etc.

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Brand Variety

Killer- Launched in 1989, Killer is the flagship brand of the company. A power

brand. A brand that is youthful, trendy, vibrant and with an attitude. The focus

of the brand is 16-25 years segment. The power brand enjoys a leadership

position in the premium menswear in this segment. Killer Jeans is the largest

selling denim brand in India. The brand's product line includes jeans, shirts

and jackets.

Brand

Variety

1. Killer

2. Lawman

3. Easies

4. Integrity

5. K-Lounge

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Lawman- The Clubwear range of Shirts, Denims, Cotton Trousers and Denim

Jackets from the Kewal Kiran Clothing Limited stable is Lawman. The range

targets the young age group between 18 to 28 years. A distribution network of

15 distributors and 750 retailers and a price range from Rs 695 to Rs 1,995,

the brand is growing aggressively.

Easies- A brand for the young executives and for the new times- when being

successful is also being cool. A Semi-formal range for men between the age

group of 25 – 40 yrs the brand continues relation of Kewal Kiran Clothing

Limited with its customers through the various phases of life and the various

aspects of life.

Integriti- Launched in 2002, Integriti from the Kewal Kiran Clothing Limited.

Portfolio is a brand for the masses. Unpretentious! Casuals and Formal shirts,

T-shirts, Jeans, Cotton trousers. A brand that is positioned as a FMCG. It is

aiming for a significant share of the Rs 5000 crore branded market. A brand

that promises quality at an economical price and comes from Kewal Kiran

Clothing Limited.

K-Lounge- K-Lounge is a trendsetting Fashion Retail Chain promoted by India's

premiere Fashion House - Kewal Kiran Clothing Limited the Company boasts of

revolutionizing Fashion India Inc. through their 4 brands Killer, Easies,

Lawman and Integriti. All these brands have attained a cult status and are

exclusively available through the K-Lounge Fashion Chain.

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY09A FY10A FY11E FY12E

12m 12m 12m 12m

Description

Net Sales 1450.90 1760.50 2543.61 3001.46

Other Income 78.40 102.50 75.18 79.69

Total Income 1529.30 1863.00 2618.79 3081.15

Expenditure -1244.70 -1293.90 -1808.17 -2137.04

Operating Profit 284.60 569.10 810.62 944.11

Interest -27.10 -23.30 -22.29 -22.99

Gross Profit 257.50 545.80 788.33 921.12

Depreciation -50.40 -58.40 -55.70 -58.49

Profit before Tax 207.10 487.40 732.63 862.63

Tax -64.60 -162.30 -244.69 -288.98

Profit after Tax 142.50 325.10 487.94 573.65

Equity Capital 123.30 123.30 123.30 123.30

Reserves 1389.70 1628.60 2116.54 2690.19

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 11.56 26.37 39.57 46.52

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Jun-10 30-Sep-10 30-Dec-10 31-Mar-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 454.10 727.70 633.40 728.41

Other Income 21.40 21.30 16.00 16.48

Total Income 475.50 749.00 649.40 744.89

Expenditure -324.40 -504.90 -461.70 -517.17

Operating Profit 151.10 244.10 187.70 227.72

Interest -5.10 -5.50 -5.70 -5.99

Gross Profit 146.00 238.60 182.00 221.73

Depreciation -13.30 -13.70 -14.00 -14.70

Profit before Tax 132.70 224.90 168.00 207.03

Tax -44.20 -74.80 -55.30 -70.39

Profit after Tax 88.50 150.10 112.70 136.64

Equity Capital 123.30 123.30 123.30 123.30

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 7.18 12.17 9.14 11.08

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY09 FY10 FY11E FY12E

EPS (Rs.) 11.56 26.37 39.57 46.52

EBITDA Margin (%) 19.62% 32.33% 31.87% 31.46%

PAT Margin (%) 9.82% 18.47% 19.18% 19.11%

P/E Ratio (x) 21.19 18.66 12.43 10.58

ROE (%) 9.42% 18.56% 21.78% 20.39%

ROCE (%) 13.39% 26.74% 31.38% 29.64%

EV/EBITDA (x) 10.61 10.66 7.48 6.43

Debt-Equity Ratio 0.16 0.09 0.07 0.06

Book Value (Rs.) 122.71 142.08 181.66 228.18

P/BV 2.00 3.46 2.71 2.16

Charts:

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Outlook and Conclusion

At the current market price of Rs.492.00, the stock is trading at 12.43 x FY11E and 10.58 x FY12E respectively.

Price to Book Value of the stock is expected to be at 2.71 x and 2.16 x respectively for FY11E and FY12E.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs.39.57 and Rs.46.52 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 27% and 59% over 2009 to 2012E respectively.

The company has chalked out plans for growth in manufacturing capacities to meet the growing markets for its brands internationally.

The Company is planning to add 50 new stores by the end of FY11, especially in smaller cities and towns where it already has built a presence through MBOs.

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The company has state of the art manufacturing facilities that ensure quality and timely deliveries.

During the quarter, the company has reported Net Profit increased to Rs.112.70 million from Rs.63.60 million in previous year same quarter.

On the basis of EV/EBITDA, the stock trades at 7.48 x for FY11E and 6.43 x for FY12E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.561.00 for Medium to Long term investment.

Industry Overview

The BMI India Retail Report for the third-quarter of 2010, forecasts that the total retail

sales will grow from US$ 353 billion in 2010 to US$ 543.2 billion by 2014. With the

expanding middle and upper class consumer base, there will also be opportunities in

India's tier II and III cities. The greater availability of personal credit and a growing

vehicle population to improve mobility also contribute to a trend towards annual retail

sales growth of 11.4 per cent. Mass grocery retail (MGR) sales in India are forecast to

undergo enormous growth over the forecast period. BMI further predicts that sales

through MGR outlets will increase by 154 per cent to reach US$ 15.29 billion by 2014.

This is a consequence of India's dramatic, rapid shift from small independent retailers

to large, modern outlets.

BMI forecasts consumer electronic sales at US$ 29.86 billion in 2010, with over the

counter (OTC) pharmaceutical sales at US$ 3.28 billion. The latter is predicted to be

the fastest growing retail sub-sector and BMI forecasts that sales will reach US$ 6.18

billion by 2014, an increase of 88.5 per cent.

China and India are predicted to account for almost 91 per cent of regional retail sales

in 2010 and by 2014 their share of the regional market is expected to be more than 92

per cent. Growth in regional retail sales for 2010-2014 is estimated by BMI at 72.2 per

cent, an annual average of 14 per cent. India should experience the most rapid rate of

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growth in the region, followed by China. For India, its forecast market share of 13.9

per cent in 2010 is expected to increase to 14.3 per cent by 2014.

Moreover, for the 4th time in five years, India has been ranked as the most attractive

nation for retail investment among 30 emerging markets by the US-based global

management consulting firm, A T Kearney in its 8th annual Global Retail Development

Index (GRDI) 2009. India remains among the leaders in the 2010 GRDI and presents

major retail opportunities. India's retail market is expected to be worth about US$ 410

billion, with 5 per cent of sales through organised retail, meaning that the opportunity

in India remains immense. Retail should continue to grow rapidly—up to US$ 535

billion in 2013, with 10 per cent coming from organised retail, reflecting a fast-growing

middle class, demanding higher quality shopping environments and stronger brands,

the report added. Bharti Retail strengthened its position in northern India by opening

59 stores, Bharti Wal-Mart is expected to open 10 to 15 wholesale locations in the next

three years, and Marks & Spencer is considering plans to open additional outlets in

the next few years.

Established retailers are tapping into the growing retail market by introducing

innovative store formats. Spencer's Retail, More (owned by Aditya Birla Group) and

Shoppers Stop (owned by K Raheja Group) already plan to expand.

According to a McKinsey & Company report titled 'The Great Indian Bazaar: Organised

Retail Comes of Age in India', organised retail in India is expected to increase from 5

per cent of the total market in 2008 to 14 - 18 per cent of the total retail market and

reach US$ 450 billion by 2015.

Furthermore, according to a report titled 'India Organised Retail Market 2010',

published by Knight Frank India in May 2010 during 2010-12, around 55 million

square feet (sq ft) of retail space will be ready in Mumbai, national capital region

(NCR), Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Besides, between 2010

and 2012, the organised retail real estate stock will grow from the existing 41 million

sq ft to 95 million sq ft.

India continues to be among the most attractive countries for global retailers. Foreign

direct investment (FDI) inflows between April 2000 and April 2010, in single-brand

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retail trading, stood at US$ 194.69 million, according to the Department of Industrial

Policy and Promotion (DIPP).

• Leading watchmaker Titan Industries Limited plans to invest about US$ 21.83

million for opening 50 premiums watch outlets Helios in next five years to

attain a sales target of US$ 87.31 million. "We are looking to open Helios outlets

in Mumbai, Delhi, Hyderabad, Kolkata, Chennai, Pune, Ahmedabad etc in next

12 months," said Ajoy Chawla, Vice President (Retail), Titan.

• British high street retailer, Marks and Spencer (M&S) plans to significantly

increase its retail presence in India, targetting 50 stores in the next three years.

M&S currently operates 17 stores in India through a joint venture (JV) with

Reliance Retail.

• Chinese retail major, Yishion has entered the Indian market and plans to have

at least 125 points of sales, including exclusive stores and multi-brand outlets,

across India by 2012. It will open its first exclusive store in New Delhi by

September 2010.

• Spain's Inditex, Europe's largest clothing retailer opened the first store of its

flagship Zara brand in India in June 2010. It further plans to open a total of five

Zara outlets in India.

• Bharti Retail, owner of Easy Day store—supermarkets and hypermarts—plans

to invest about US$ 2.5 billion over the next five years to add about 10 million

sq ft of retail space in the country by then, according to a company

spokesperson

• Raymond Weil plans to invest US$ 883,665 in India during 2010, according to

Olivier Bernheim, President and CEO, Raymond Weil.

Policy Initiatives

FDI up to 51 per cent under the Government route is allowed in retail trade of Single

Brand products, according to the Consolidated FDI Policy document.

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Road Ahead

According to industry experts, the next phase of growth is expected to come from rural

markets.

According to a market research report published in June 2008 by RNCOS titled,

'Booming Retail Sector in India', organised retail market in India is expected to reach

US$ 50 billion by 2011. The key findings of the report are:

• Number of shopping malls is expected to increase at a CAGR of more than 18.9

per cent from 2007 to 2015

• Rural market is projected to dominate the retail industry landscape in India by

2012 with total market share of above 50 per cent

• Driven by the expanding retail market, the third party logistics market is

forecasted to reach US$ 20 billion by 2011

• Apparel, along with food and grocery, will lead organised retailing in India

_______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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