Midcap Mantra: Kewal Kiran dresses up for rapid growth
"We are in the garmenting business not to sell it to a foreign company or a private equity player merely for valuations," says Kewalchand P Jain.
By Rajesh Naidu, ET Bureau |
At a time when most indigenous garment retail stories are struggling to make a mark for themselves, Kewal Kiran Clothing, with its tight financial management and strong distribution network, has been recording consistent average return on capital employed (RoCE) of 30% in the last three years.
Interestingly, the company, known chiefly for its denim jeans brands such as Killer and Lawman, has achieved the growth with a meagre debt-to-equity ratio of 0.05 and average operating profit margin of close to 30%.
"We are in the garmenting business not to sell it to a foreign company or a private equity player merely for valuations," says Kewalchand P Jain, chairman and managing director, Kewal Kiran Clothing. "We believe in following three principles: stability, sustainability and scalability. These principles form the backbone of our company's strategy and we feel we will be able to develop customer preferences for our brands in the coming years."
Going by the financial performance of the company in recent years, it seems that these principles have paid off. In the last three years, despite net excise duty hike of 3.5% on branded apparels, the company's net sales have grown at a compounded annual growth rate (CAGR) of close 13% to 300 crore in FY13, while its net profits have grown at a CAGR of 7.3% to 53.4 crore.
There has been a marked improvement in the company's financial performance after the removal of excise duty on branded apparels last February. For the first half of the current fiscal, the company's net sales jumped 27% to 115 crore, while its net profit increased by 33% to 23.5 crore on a year-on-year comparison.
Interestingly, the company, known chiefly for its denim jeans brands such as Killer and Lawman, has achieved the growth with a meagre debt-to-equity ratio of 0.05 and average operating profit margin of close to 30%.
"We are in the garmenting business not to sell it to a foreign company or a private equity player merely for valuations," says Kewalchand P Jain, chairman and managing director, Kewal Kiran Clothing. "We believe in following three principles: stability, sustainability and scalability. These principles form the backbone of our company's strategy and we feel we will be able to develop customer preferences for our brands in the coming years."
Going by the financial performance of the company in recent years, it seems that these principles have paid off. In the last three years, despite net excise duty hike of 3.5% on branded apparels, the company's net sales have grown at a compounded annual growth rate (CAGR) of close 13% to 300 crore in FY13, while its net profits have grown at a CAGR of 7.3% to 53.4 crore.
There has been a marked improvement in the company's financial performance after the removal of excise duty on branded apparels last February. For the first half of the current fiscal, the company's net sales jumped 27% to 115 crore, while its net profit increased by 33% to 23.5 crore on a year-on-year comparison.
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The genesis of this growth can be attributed to the company's strong distribution network and conservative approach to the business. The company has four apparel brands: Killer, Lawman, Integriti, and Easies. Killer and Lawman are primarily denim jeans brands, while Intergriti and Easies are casual wear brands.
At present, the company derives 61% of its net sales from the denim jeans brands. In casual wear, its shirts brand is doing well.ADVERTISEMENT
According to a study by Technopak Advisors, the denim market in India is expected to grow to 13,000 crore in 2017 from 6,700 crore in 2012.Thanks to the increasing acceptance of denim jeans and improved purchasing power in tier-II and tier-III cities, companies like Kewal Kiran, which have high penetration in these cities would benefit amply.
The company has a large network of 97 distributors and presence through 313 stores, of which it owns only 14; the remaining 299 are franchisees.
Says analyst Tejash Shah of Spark Capital, who has had a long-term buy recommendation on Kewal Kiran Clothing: "The focus of Kewal Kiran has been clear from the beginning: to diversify risks in all layers of the business. In metros, due to consolidation of business in malls, the retail space owners would negotiate pricing with brand owners providing little market share for brand owners.
Kewal Kiran is focussed on its terms of trade, which meant that it concentrated on tier-II and tier-III cities. This strategy has paid off." He adds, "The company has done calibrated expansion with franchise-owned and franchise-operated model. The company believes retail expansion as a brand-building vehicle rather than just a growth driver."
The benefits of this strategy can be seen in its average realisation (wholesale), which grew by 10.3% to 873 in the September 2013 quarter on a year-on-year basis.
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In the coming quarters, the company plans to focus more on advertising of its flagship brand Killer in upcoming cities.
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