The Hindu Business Line : Kewal Kiran Clothing: Avoid

While the product portfolio does enjoy brand recall, KKC will find the going tough over the next couple of years to break away from being just another brand.

Stiffly priced Clutter of brands in the mid-priced segment Stores to create more visibility But multi-brand outlets to be the preferred channel

WHILE KKC'S offerings are attractive at the entry level, brand-conscious customers are sure to upgrade, to higher price points.

Investors can avoid the public offer of Kewal Kiran Clothing (KKC). At Rs 275, the upper end of the price band, the offer is valued at about 33 times its annualised per-share earnings for FY-06, on an expanded equity.

With capacities likely to double by November and a larger distribution network through retail expansion, KKC may be able to ramp up its earnings over the next three years.

The valuation for this business does, however, appear stiff. KKC operates in the branded jeans wear market and owns the Killer, Lawman, Easies and Integriti brands.

In the mid-price segment that these brands cater to, competition is stiff and consumer loyalties are fickle. Killer, its flagship brand that has been in the market since 1989, remains a small brand.

Players in the premium segment also have an eye on the mid-price segment. While the product portfolio does enjoy brand recall, KKC will find the going tough over the next couple of years to break away from being just another brand.

KKC proposes to enter men's formal wear, women's wear and children's wear. Several established players have found the latter two segments tough nuts to crack.

KKC has indicated that it may grow inorganically . It is comfortably placed to tap debt to fund acquisitions. But this may not figure in the company's immediate plans. It might be a couple of years before other segments make a strong contribution to financials.

Catering to value-conscious

KKC derives about 50 per cent of its revenues from Killer, which sells at prices between Rs 500 and Rs 1900. Although the brand is meant to cater to the premium segment, it is yet to establish itself as a strong brand, pitted as it is against the likes of Levi's and Lee. Lawman and Easies are priced Rs 800 upwards. While these brands are attractive at the entry level, brand conscious customers are quick to upgrade to brands such as Levi's at higher price points.

KKC's brands do appeal to the price-conscious. There are, however, several brands that offer stiff competition, such as Trigger, Flying Machine, Newport and at even lower price points, Ruf n' Tuf. Styles, colours and washes are easily replicated and it boils down to the fit.

What's more, premium brands such as Levi's are entering this segment. Levi's is shortly to introduce the Signature brand in India and will roll out 150 stores for the same. To fight competition, KKC will have to deploy a considerable portion of its resources on advertising and distribution, as will other brands.

Rolling out K-Lounge

The company hopes to create more visibility for its brands through retail expansion. Its brands are now widely distributed through multi-brand outlets and a few chain stores. KKC does not have much experience in retailing and most of its proposed stores are to be franchisee operated. It plans to roll out more than a 100 stores called K-Lounge, predominantly in smaller cities in the North and the West.

The strategy to focus on smaller cities may pay off, given their limited exposure to brands. This might, however, be a vicious cycle. Until the brands gain strength, customers will prefer multi-brand outlets offering more choice.

Offer details

Kewal Kiran will raise Rs 85 crore from the offer. The price band is Rs 250-275. The offer opens on March 20 and closes March 23. The lead manager is Enam.

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