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Research House : CRISIL Research
Fair value : Rs 765
Current market price : Rs 815
Fundamental Grading : 4/5 (indicating “superior fundamentals” relative to all listed securities)
Valuation Grading : 3/5
CRISIL Research reiterates its fundamental grade of 4/5 on Kewal Kiran Clothing Ltd (Kewal Kiran). The company has a strong position in the mid-segment of the denim jeans market led by its flagship “Killer” brand.
The denim jeans market is estimated to grow at 10-12 per cent and Kewal Kiran is expected to be one of the key beneficiaries. The company’s other brands - Lawman Pg3, Integriti and Easies – help it diversify.
Its distribution network of around 95 distributors/ over 3,000 dealers and ~300 franchise-owned stores helps it to reach to more than 800 cities/towns and gives it a wider reach than its peers.
However, increasing competition from overseas and domestic players in smaller cities is a major long-term challenge for the company.
Revenues are expected to grow at a two-year CAGR of 17 per cent to Rs 420 crore in FY15 and EBITDA margin is expected to improve by 160 bps to 26 per cent in FY15. PAT is expected to grow at a two-year CAGR of 18 per cent to Rs 75.3 crore in FY14.
CRISIL Research continues to use the discounted cash flow method to value Kewal Kiran and revises its fair value estimate from Rs 690 per share to Rs 765 per share. The fair value implies a one-year forward P/E of 14.9x FY14E and 12.5x FY15E EPS.
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