Will Kewal Kiran Clothing’s stock continue its stellar growth after its 270% rise?

In today’s rapidly changing investment environment, finding multi-bagger companies that can generate significant returns in a short period of time is the goal of every investor. The aspirations of Kewal Kiran apparel investors were realized when the company’s stock price returned a huge amount.

Three years ago, the stock price was ₹170 per share. Today it is trading at ₹677, up 270% from its previous price. If an investor had invested ₹1 lakh in stocks then and continued to invest till today, their wealth would have increased to an astonishing ₹3.7 lakh.

Revenue from operations for the third quarter of fiscal 2024 increased 0.6% to Rs 200.2 billion from Rs 199.91 billion in the third quarter of fiscal 2023. PAT for the third quarter of fiscal 2024 was ₹33.3 billion, up 23.4% from ₹27 million in the third quarter of fiscal 2023. PAT margin in the third quarter of fiscal 2024 increased to 15.9% from 13.1% in the third quarter of fiscal 2023.

Kewal Kiran Clothing posted a good quarter, but its consolidated stock declined 11% from ₹756 to ₹680 in the last month. So does this offer a good investment opportunity? Well, to answer this question, let’s dig a little into the company.

Kewal Kiran Garment Industry Overview

The future looks bright for the Indian textile and apparel industry. The outlook looks brighter, aided by strong domestic consumption, favorable demographics, rising disposable income and low organized retail penetration.

Compared to other major economies, India’s population is among the youngest in the world. Younger consumer segments absorb fashion trends faster, tend to spend more on discretionary spending, and are more technologically connected and exposed than their older counterparts.

For this reason, India’s young population bodes well for the apparel consumption category and is pushing the country into a higher demand tier. Driven by rising consumerism and disposable income, the retail sector has grown rapidly over the past decade and this trend is expected to continue in the future.

With all these favorable aspects, the Indian textile and apparel sector is expected to develop at a CAGR of 10% in 2019-20 to reach US$ 190 billion by 2025-26. India accounts for 4% of global textile and apparel trade.

Company and product overview of Kewal Kiran Clothing

Kewal Kiran Clothing (KKCL) is a famous branded clothing manufacturer. It is one of the few companies in India with a fully integrated value chain that includes design, manufacturing, branding and retail.

We offer men’s clothing in casual and semi-formal styles. In order to grow into women’s clothing, it acquired the women’s clothing brand Desi Belle in 2021, and is currently targeting the kidswear market as well. We have a diverse portfolio of brands including Killer, Lawman Pg3, Integriti and Easies across a variety of price points.

Looking at product sales performance, jeans remained the largest revenue-generating category, accounting for 51.19% of total revenue from apparel and lifestyle accessories sales in fiscal 2023, compared to 56.28% in the previous year.

Shirts became the second most revenue-generating product, accounting for 21.15% of total sales, followed by pants and T-shirts at 8.71% and 4.79%, respectively, in fiscal 2023.

Treasurer of Kewal Kiran Clothing

In FY 2023, KKCL saw significant growth in its revenue, surging 75% to reach ₹779.45 crore compared to ₹607.61 crore in FY 2022. Analyzed over a period of four years from 2020 to 2023, the Compound Annual Growth Rate (CAGR) in Kewal Kiran Clothing’s sales was 13.74%.

At the same time, there has been a notable increase in net profit, with a 46% increase from ₹81.65 crore in fiscal 2022 to ₹119.28 crore in fiscal 2023. Cumulative net profit recorded a CAGR of 18% over the four years from fiscal 2020 to fiscal 2023.

In FY23, KKCL maintained favorable financial metrics with return on equity (ROE) of 23.26% and return on invested capital (ROCE) of 27.86%.

Kewal Kiran Clothing’s Future Plans

Increase in additional stores

Given its strong balance sheet and apparel manufacturing capabilities (8 million units in fiscal 23), management believes the time is right to accelerate growth. Added 70 EBOs at a median revenue CAGR of 7% during FY12-21.

KKCL plans to expand its EBOs and added 131 in FY21-23. This is approximately double the number added in FY12-21. We opened 97 new stores in FY23, our largest number ever. As a result, we have achieved a revenue/PAT CAGR of 14%/18% over the last three years compared to 7%/4% in the previous period. Management aims to have over 700 EBOs by FY26 and plans to add 80 to 100 EBOs annually from now on.

Extensions with Asset Lighting Model

KKCL’s expansion strategy relies on franchise-owned and franchise-operated (FOFO) stores. Of the 453 EBOs, 425 (or about 94% of the total) are FOFO stores. Franchise owners invest and spend capital on EBO operations, resulting in KKCL’s asset-light model. Management plans to continue this concept and create more FOFO-based stores in the future.

Management expects the retail channel (EBO) to be a key growth driver for Kewal Kiran apparel and is rapidly expanding its retail store footprint. Over the past five years, the number of EBOs has increased by more than 1.5 times. Most of the stores are FOFO.

EBO’s revenue contribution increased from 34% in FY18 to 48% in FY23. Management expects to open 80-100 stores per year and increase the contribution of the retail channel by opening more than 700 stores by FY26.

Sell ​​through multiple channels

KKCL works through various channels including Retail (EBOs and National Chain Stores), Non-Retail (MBO) and Other (Factory Stores, E-Commerce and Exports). Sales contribution from retail and e-commerce is steadily increasing, and management expects it to grow faster than other channels.

Historically, more than half of KKCL’s sales came through non-retail channels (MBOs). However, the company is reducing its reliance on MBO and the figure has decreased from 4,000 in FY20 to 3,000 in FY23.

In contrast, the number of EBOs increased from 322 in FY20 to 453 in FY23 (3-year CAGR of 12%). E-commerce currently accounts for about 8% of total revenue. We have partnered exclusively with Flipkart to sell Killer products.

Due to aggressive EBO expansion, the revenue contribution of retail channels continues to increase, while the revenue contribution of non-retail channels (MBO) is decreasing. Expansion through EBO helps strengthen KKCL’s brand image. The company is also enhancing its brand image through advertising.

conclusion

With a strong brand portfolio, integrated operations, aggressive store expansion plans and shift to an asset-light franchise model, Kewal Kiran Clothing appears well-positioned for future growth. Kewal Kiran Clothing is focused on strengthening its retail presence and e-commerce reach and is aligned with evolving consumer preferences.

As an investor, you should evaluate whether KKCL can maintain its growth momentum, profitability, and returns. Can Kewal Kiran Clothing continue to satisfy its customers and compete effectively in the dynamic apparel market? Please share your thoughts in the comments below.

Written by Nalin Surya

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