Kitex Garments - Does stated future growth justify its high valuations?

Dear Experts,
Comparing to KITEX, Vardhman Text's valuation is better .....? Please respond!

 

Dear kris ,

In my view your selection is good , but those companies are in textile business
in future they grow or not is the main issue ...and only valuations cheep is not sufficient

 

First question to answer is - Is it a good sector to be investing in. In my view, with the decline of china in terms of its labour cost going up and some good govt policy action in India which is happening and the fact that cotton prices will remain stable for the next few years, and given interest rates will come down in india, there will be an inbuilt incentive for exporters on the forex side , this is a good sector to look at.

But inside any sector, there will be generic players and niche players who have built strong barriers to entry. You need to know if the stock you own has that.

Given a good sector, next question is - which company in this sector has solid fundamentals. I will re emphasise that a firm with a low PE multiple does not necessarily mean it is a good firm. You need to be sure there is no fundamental reason for this low multiple.

On the flip side, just because a firms multiple is high does not make it expensive. It is important to develop a good sense of value vs price. ( Price is what you pay, value is what you get ) If there is a high PE stock, it is important to understand the business model deeply to get some conviction on sustainability of earnings.

 

Kris, I am no expert by any stretch of imagination; but here goes :

Have you compared the ROE, ROCE or even Net Margins of these two firms ? You will see a strark difference. While Kitex will have values north of 20% it will not be more than 12% on any parameter for Vardhaman textiles. The net margin is 6%. This should tell you that Kitex is in a better business and is better managed.

The bummer for Kitex is the valuation of 40 times eps. Can they sustain a rate of 35% yoy for the next few years ? That is the key question.

But as a business I have no doubt which is the better one and which is better managed. Kitex.

 

Disagree

 

Karb. I know your views on Kitex. What is not clear is why you dislike it? Purely on valuations or other reasons. I agree that the high valuations are inhibiting. But from that to say it is not a good company is a leap I am not able to follow. On every parameter this is an excellent company fundamentally; except we can sit around and argue about the PE multiple, where my position is I would buy it but around 25 times earnings.

 

Just my personal opinion,better you go in history of company and look into reported historical performance for better judgement.

 

Karb, please help me to understand which parameters you are using to evaluate. When I look at the financials the story is completely different. But since you have the opposite view would be happy to learn if you could point out specifics with numbers. Else, I am happy to just accept it as your opinion and move on as well.

 

PE of 25 - if that happens maybe its then not worth investing in anymore...

 

Just expressed my individual opinion, you pl go in history of company and look into reported performance for better judgement.

 

Good stocks dont go unnoticed for long... And if vardhaman is such a super stock then why isnt it 'hot' amongst a the people who matter - MF, FII etc...

Not to forget - India competes with China on textiles : this sector is in the top two. Now the world currencies will remain volatile with even a currency war happening. Now if yuan depreciates more than InR we have a huge disadvantage. The possibility of this happening is reasonable..... We wouldnt want INR to depreciate a lot given our imports, our economic growth will also act a buffer. China on the other hand has real complusions to depreciate its currency.

 

Interesting feedback @kharb.

Maybe i should look into vardhaman. I remember once listing it from amongst the textiles. But honestly for the sector i have never moved beyond arvind and some forbes gokak which i bought donkey years ago.

 

Just a very quick numerical analysis of Vardman and Kitex in the attached PDF File.

 

Dear Fun_Da_Mentalist ,
Class one Analysis ...Great ....

 

Dear Fun_Da_Mentalist ,

This data are you downloaded from any website or own making in word document ?
if any website please give that details if you dont mind ...

 

Sure Rama Murthy. The data is collated from Money Control.

 

where please send link brother

 

www.moneycontrol.com. then key in the name of stock for quote. then you can explore along the toolbar on the left hand side.

 

after enter name of the company ...left side Click " PEER " am i correct ?
where is ratio comparison ? please give link brother

 

https://www.moneycontrol.com/financials/kitexgarments/ratios/KG01#KG01