Kitex Garments Results Update By Motilal Oswal

With foray into the brands business, we expect strong 23% revenue CAGR along with 400bp margin expansion, driving 37% PAT CAGR over FY15-17. Further, capital expenditure over the next three years will be limited to INR0.4-0.5b, thus resulting in significant free cash generation. We upgrade FY16E/17E earnings by 2%/7% each to factor stronger margins. With huge scalability, strong return ratios and free cash generation, we believe KTG deserves a multiple of 22x one-year forward. We maintain Buy with a target price of INR850, valuing the stock at 22x FY17E earnings.

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