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

After it was mentioned that textiles is a good sector, someone was also kind enough to mention Kitex Garments.

Since then I have studied their numbers and business model and details on management integrity.

They look to be a great firm with a clear vision and track record of execution. But it is quoting at 40xEPS.

What is a good entry point? Or does the planned growth justify this multiple?

 

I am unable to understand kitex high valuations along with page industry. There is no rocket science behind child wear or underwear.I have fear that investers finaly will prove to be ignorant child or left with underwear only once music stops.If you are already in party pl keep your ears to music and be the first to jump out when it stops.

 

In these type of stocks we need to check what permoters are doing with their stocks ,there is rumour but I don't know that permoters of page keep on selling in Open market slowly. Can you check and confirm it,if yes than why they don't want to ride their own story further.Do we know more than them.

 

@ menakshi, quite clinical and to the point. And there is no reason why such stocks should not command premiums. Jockey one of the brands in question here is still mid segment, largely affordable, decent brand (and not like the many other produced which find their place on the roadside).

Surely accross the datapoints of the 'innerwear/lingerie' range, there is only an upward move. Everbody is becoming brand conscious and wanting quality and name - and even willing to pay a price for what he/she buys. And in India, the potential of premium/luxury lingere is just beinging to unfold. This isnt going unnoticed by the leading international brands and its just a few years away ..that this market will explode. Page's credentials with jockey, will stand in goodstead then too.

Sure stock could correct. Growth will surely slow down (given the base effect)... But it will rise again from an adjust baseline and adjusted future growth expectation. But growth in future is largely a given for Page.....unless the 'concentration risk' materialises in that they screw up vis a vis jockey inc

 

100% Agreed. Stock has done so well for several years now. No need to worry as no big competitor is there in market. Also, customer ability to pay + desire for branded product is growing! JOCKEY is very powerful brand.

 

@menakshi, any educative article that you can share on what it takes to build a global brand and what value does a global brand carry.... Even though it doesnt take rocket science to make the product whether its innerwears and clothes or any other

Maybe many in here will then understand why a Peter England shirt costs 500/- but a Hugo Boss ( maybe same quality, fit, colour etc) will possibly will not be less than 5000/- ( even though its Made in Bangladesh).

 

Dear Srouta Mukherjee,Happy to see large support for stock and good logics but a textile company even in hay days growing at less than 30% in sales and profit and still commanding PE of around 75,permoters selling at every rise ,all such type of stocks at 25% correction already,this also corrected from 17000 plus to 13000 plus ,distrub me a lot.I am a chicken hearted person and can not sleep if I have this stock in my portfolio purchased at 13000 plus rs. Even at the cost of proving wrong, I will still bet aginst this stock .In such stocks people will buy only one correction,that has already happened. In next correction,counter will be empty with every one wondering except me,where the buyers have gone.Deep respect to all of you and your views but I would like to stick to my view just for experience sake.This is my view and in no way recommendation against buying this stock.I am neither invested in this stock nor has any intention to buy in future at such high price.I had advised against this stock on this site earlier also.

 

100% AGREED SIR. If you are not confident about sky high valuations you should not invest because if growth goes then valuation will tumble down. BETTER SAFE THAN SORRY!!

 

In these cases the PEG Ratio plays a key role, I suppose. If [P/E] / Growth in EPS is close to 1 it is optimally priced; if this ratio is less than 1 it is still undervalued and the more it is away from 1 the more it is overvalued. This is one of the quantitative keys to evaluating high PE stocks.

 

Going by that, the five year CAGR of EPS growth is 36%; the earnings multiple is 40. 40/36 comes to 1.11. But what is not clear to me is this : should one be looking at future growth CAGR or trailing CAGR? If it is trailing CAGR then how is future volatility factored in? If it is future CAGR, that is just a number which comes from management so not always terribly objective. Question is : how does one effectively use this ratio?

 

There is management guidance stating they plan to double capacity in three years. If I use this as proxy for revenue growth ( not very accurate but anyway) forward looking CAGR is 30%. The ratio then is 1.33; meaning the stock could stumble by around 30 % if guidance is under delivered over the future quarters. Not a great point to enter.

 

I think we must use the trailing P/E even though that ignores the future volatility. If the PEG ratio is 1.11, it suggests the stock is not terribly overvalued, which is quite comforting in itself.

 

I stumbled upon an old note written by Prof. Bakshi on Kitex Garments. This was a class note meant for discussion with his students. Made for interesting reading.

 

Dear Fun_Da_Mentalist

Kitex valuations are very high ...PE Ratio is at 40
face value is Rs. 1
and it is a textile company other wise company showing good results

 

Kitex is already down from 1070 to 830 and south journey continues. Page is down from 17000 to 13800.These stocks are not listening any Lecture of Prof Bakshi ,students have no choice to bunk the class. In ligheter mode ,I am just afraid that investers of Page may start protesting and demand to Modi govt to make it compulsory to wear two under wears.If not so, stock can not continue its dream run.

 

I don't recommend a fresh buy in this counter. As the valuations are high and if the expectations are not met there is every chance of a big fall (as also others indicated above). If you are already invested (like I have did @500 levels), I would say to hold on as Its a good company

 

Ha ha ha ... good joke kharb ji
In Stock Market all are same no prof or Vice chancellor , so many textile industries are there and more over they are depend on exports
...

 

Let me restate my question : is the problem with Kitex garments that it is an ordinary business with extraordinary valuation or is it that it is a good business but with very high valuations? If the former then the implications are different from if it is the latter.