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Monday, March 20, 2006

Kewal Kiran Clothing - IPO - Capitalmarket

Expanding retail chain

To increase the K Lounge stores to 143 from 29 by FY 2008

Kewal Kiran Clothing (KKCL) is a branded apparel player designing, manufacturing, branding and selling ready-made men’s apparels and other accessories under its various brands. Its brands range from the high fashion premium segment such as ‘Killer’ denim wear and ‘Easies’ casual wear to the middle and economy segment brands such as ‘Lawman’ and ‘Integriti’. The company has an in-house design team that keeps abreast emerging fashion trends and category developments. Through the introduction of new brands, KKCL intends to extend its presence from men’s casual wear to other categories such as men’s formal wear, women’s wear and kids wear.

With the proceeds of the issue, KKCL plans to increase its K Lounge stores to 143, from the current 29, by FY 2008. The company will set up a new manufacturing unit, ramping up capacity to four million pieces per annum, from the present two million. The proceeds will also be utilised to furnish its corporate office.

KKCL will spend around Rs 34.67 crore to set up K-Lounge outlets, Rs 32.39 crore on the new manufacturing facility, and Rs 5 crore to furnish the corporate office.


  • Demographic and economic trends currently favour a fast growth of the organized branded garments industry. Moreover, KKCL has four brands positioned to cater to different classes of customers.
  • KKCL plans to diversify its product line by entering other segments like men’s formal wear, women’s wear and kids’ wear and become a one-stop shop for the entire family.


  • The ‘Killer’ denim brand contributes 53% of the revenue. Denim is a highly competitive segment, which will witness intensified competition post-liberalisation of FDI guidelines.
  • Under a franchisee agreement, KKCL allowed a subsidiary to use the trademark `K-Value’. Now the subsidiary has been sold to the promoters at book value.
  • KKCL sells its own brands in the export market (predominantly in the UAE). But the share of exports is just 8% in the revenue. Besides, this share has been declining since FY 2004. The expansion plans are also not focused on the export market.
  • Sales for the nine months ended December 2005 have shown an unnatural growth of over 200% (on an annualised basis), which might be partly attributed to the acquisition of the washing unit of Kewal Kiran Enterprises, a group company. The FY 2005 performance was lakluster.
  • The retailing sector has yet to witness churning. But this could be sooner than later due to the mindless pace of expansion, with big foreign and Indian players tipped to jump into the fray.


KKCL made a net profit of Rs 3.72 crore in FY 2005. EPS on post- issue equity works out to Rs 3.0. The shares are being offered in a band of Rs 250 to Rs 275 at a PE of 83 to 91 times. After factoring in the unnatural growth in the nine months of FY 2006, PE stands at 30 to 33 times the annualised EPS of Rs 8.3. Provogue India, a peer, currently trades at Rs 280, which is at 38 times its nine-month annualised EPS of Rs 7.2. Zodiac Clothing, another peer, trades at Rs 268, giving a PE of 24 times its nine-month annualised EPS of Rs 11.1.

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Sharekhan Investor's Eye - March 20

Reliance Industries
Cluster: Evergreen
Recommendation: Buy
Price target: Rs870
Current market price: Rs775

Price target revised to Rs870
Reliance Petroleum Ltd (RPL) has filed the red herring prospectus for its initial public offering (IPO) of 90 crore shares. The IPO proceeds are to be used to set up a greenfield refinery with a capacity of refining 580,000 barrels a day or 33 million tonne per annum of crude oil. The project is to be funded through a mix of debt and equity.

We believe that the RPL public issue will be value accretive for RIL, as it will add Rs75-110 per share to RIL (based on the issue price of Rs47.5-60 per share). Based on that we are raising our price target to Rs870 per share.

Balmer Lawrie & Company
Cluster: Cannonball
Recommendation: Book Profit
Current market price: Rs641

Book profit
We had initiated coverage on Balmer Lawrie & Company on August 11, 2005 at Rs400. The stock has appreciated by 60.3% since then and achieved our price target of Rs600. We recommend investors to book profit.