Kitex Garments Limited

Market :
The US infant wear category is a niche market with a market size of about USD20b
with high entry barriers. As compared to India, consumption wise it is 10-15 times more in US. People will manage with the same dress for longer period in India, but in US they change once in two weeks or so. Global Market is much more . Kitex caters to 90% US and 10% ROW.

Major Clients are Carters ( commands 20% of US Mkt), Gerber, Mothercare,Jockey and Toys R US. Revenue distribution among these people is more or less the same. In addition, they are approved by NASA which speaks about the quality and safety of the infant wear. Here , one mistake the whole market is wiped out for KITEX.

Birthrate in US: http://www.npr.org/sections/thetwo-way/2015/06/17/415227138/baby-bump-u-s-birth-rate-rises

Production :
80 lines @ 5500 produces 4.4 lacs per day or 13.2 mln per month. Adding another 64 lines by 2018 which will make 24 mln per month. ( Mgmt claims 33 mln per month). Fabric proceessed will rise from present 48 tons per day to 1440 tons per day.

Now about Gimmill or Ramatex ( everywhere it is said Gimmell). Start from Raw Cotton unlike Kitex which I think start from fabric or knitting. Please somebody help me in getting this right for KITEX from fabric stage or whatever stage , the entire process. I think they don’t do any spinning ( no mention of spinning mills anywhere). What is there capability in every stage from Knitting. I have read robots but we need to see the use of technology and software at every stage as it is very labour intensive.
Gimmell have two spinning and fabric facilities under the Ramatex name. These mills are located in Malaysia and China. The combined production of both facilities produces 5 million kgs of fabric per month. From these facilities the fabric is sent to the apparel manufacturing facilities located in Cambodia, China, Indonesia, Malaysia and also Singapore. The combined production of these facilities is 10.5 millions units per month.
Gimmill have factories in Malaysia, Indonesia, Cambodia and China.
3 factories in China:
Kiwi China – 3 million units per month
Ramatex Industrial China – 800,000 units per month
Ramatex Apparel China – 800,000 units per month
Ramatex / Gimmill Malaysia (Yarn, knit fabrics prod 1.3 mil. units/month)
Tai Wah (Gimmill) Malaysia (Knitwear – 800,000 units per month)
Tai Wah Gimmill Indonesia (Knit apparel – 500,000 units / month)
Berry Cambodia (Knit apparel – 2 million units / month)
Violet Cambodia (Knit apparel – 2.6 millions units / month)
Gimmell Singapore could not get as it looks confidential.

Customers:
US & Canada: Carters, Osh Kosh, Nike, Target, Aeropostlale, Gap, Old Navy, Macys, Under Armour, Sears, K-Mart .In the EU: Fruit of the Loom, H&M, Next, Nike, Matalan, Under Armour, B&C.In Japan: Nike, H&M & Uniqlo
Gimmill is not specialized in infant wear like Kitex . They are also into Mens , Womens and Children. Infant wear is how much , we don’t kow.
Compare the capacities and draw conclusion whether KITEX has a clear game plan. If KITEX can displace Gimmil, it is easy to displace Wingloo as the space between Wingloo and Gimmill is not much. I think it is about 1 lac pieces per day.
For 2004, Gimmill total turnover is USD 300 mln, 30000 people for the entire operation starting from raw cotton.
Other strong points:
1. In 2007 d/e ratio 5:1. What is the d/e now. Lets also see what is the d/e for both KGL and KCL put together.
2. Labour is about 8000 and more than 50% are women. Such a labour intensive unit, no issues on account of labour or trade union till today. That too in Kerala which is not a business friendly state.
3. Kitex is now trying to eliminate middle men and sell directly to Walmart/e-com thereby improving margins. It is also starting a new brand which we can ignore as it is a long drawn process. This is also a risk as the clients are well known and established ( I think Carter is more than 100 years old). I hope it does not upset the apple cart. Only time can tell this. Whereas Gimmell is just tagging along with Nike, Carter’s, etc. Management should have thought about this.
4. P/e 5 year average is about 7 and 10 year average is about 5 until 2014 where it was re rated . Hence, guys who have re rated and bought the stock should have done enough home work.

In terms valuation, if I take 25 times EPS FY 16 24.89, it comes to 625 and this ignores the future plans like listing KCL, brand, capacity expansion. Technically, it has a strong support around Rs 700/- which I said in earlier post (study the price action after this post).

Rgds,