| Kewal Kiran Clothing Limited | ||||
| Rating outlook revised to 'Stable'; Rating Reaffirmed | ||||
| Rating Action | ||||
| ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Kewal Kiran Clothing Limited (KKCL) to ‘Stable‘ from ‘Negative’ while reaffirming the rating at ‘CRISIL AA-’.
The revision in outlook reflects strong recovery in the operating performance in fiscal 2022 and expectations of continued healthy performance over the medium term. The operating income is expected to grow by more than 75-80% in the current fiscal, though on a low base of last fiscal, but also higher than the pre-pandemic revenue level. This is driven by strong demand recovery witnessed in second and third quarter due to better footfalls amidst increased inoculations against Covid-19 and recovery in discretionary spending. Besides, KKCL’s operating margin, supported by higher operating leverage, is expected to recover to ~15-16% in the near to medium term, compared to 6% in fiscal 2021, resulting in higher cash generation. That said, operating margins would be lower than the pre-pandemic range of 18-22%, on account of higher proportion of discounting.
For the first nine months of fiscal 2022, KKCL reported revenue of Rs 437 crore (year-on-year growth of 129% and 9% growth over pre-pandemic 9 months period ending December 31, 2019. Operating margin was healthy at 16% (4% for the same period in the corresponding fiscal).
The financial risk profile is expected to remain healthy, backed by a long-term debt free balance sheet and strong debt metrics (gearing at 0.1 time as on December 31, 2021) and liquidity. KKCL continues to have liquidity of over Rs 330 crore as on December 31, 2021 (Rs.296 crore as on March 31, 2021), in the form of cash and liquid investments.
Earlier, in fiscal 2021, revenue de-grew 43% year-on-year with operating margin at 6%, compared to 18% in fiscal 2020; mainly due to impact of the pandemic.
The rating continues to reflect KKCL’s established position in the domestic menswear segment, with recognized brands and diversified geographic and channel presence and healthy financial risk profile. These strengths are partially offset by revenue concentration with high contribution from ‘Killer’ brand, vulnerability of performance to changing fashion trends and exposure to intense competition in the apparel segment. |
Key Rating Drivers & Detailed Description Strengths Established position in the domestic menswear segment, with recognised brands and diversified geographic and channel presence The company’s flagship brand, Killer (contributing 55-60% to the revenue), is among the leading brands in the branded men’s denim segment. The brand has shown steady performance through several economic cycles and changing customer preferences over the past two decades. The brand portfolio of KKCL also includes Lawman, Integriti, Easies and Desi Belle. Revenue contribution from Integriti has remained around 20% and that from Easies has shown stable growth over the years.
Revenue is well diversified across India, with the highest proportion derived from the eastern region. Furthermore, the company sells its products through multi-brand outlets, national chain stores, own retail outlets and via e-commerce.
Healthy financial risk profile The financial risk profile is expected to remain healthy, with strong debt metrics and healthy liquidity over the medium term. The company has minimal short-term debt on its books and networth of Rs 479 crore as on March 31, 2021, supporting strong debt metrics; gearing stood at 0.1 time on the said date and is expected to remain comfortable in the absence of sizeable debt addition for capital expenditure (capex). Interest coverage is expected to remain comfortable over 12 times and 15 times in fiscals 2022 and 2023, respectively. Liquidity is strong, supported by unencumbered cash and marketable securities of around Rs 330 crore.
Weaknesses Revenue concentration, with high contribution from the Killer brand The revenue of KKCL is concentrated in terms of brand as well as product, with Killer contributing about 60% to the revenue; consequently, the share of jeans remained over 55%. While other brands, such as Integriti and Éasies, have also grown over the years and the company is focusing on increasing contribution from these brands, Killer will remain a significant revenue contributor over the medium term.
Exposure to intense competition in the apparel segment and vulnerability to changes in fashion trends in the domestic market The Indian market, with its burgeoning youth segment, has attracted prominent global brands in the apparel segment. These range from mass-appeal to premium brands, across age groups, and pose significant competition to KKCL's brands. Furthermore, the emergence of e-commerce has intensified competition. For KKCL, revenue contribution from the e-commerce channel has increased to 16% in fiscal 2021 and was 19% for the nine months ended December 31, 2021, and is expected to remain around similar levels over the medium term.
Business is driven by fashion trends, and the target segment's aspirations are significantly influenced by peers, role models and the media. Therefore, their association with brands may change based on their perception of the value offered by the brands. Thus, manufacturers of branded apparel need to constantly innovate and adapt to the changing preferences of the target segment. KKCL, with its team of in-house designers who work on the upcoming season's collections, is likely to have the ability to adapt to changing trends. |
Liquidity: Strong The company had liquid investments (including cash and cash equivalents) of Rs 332 crore as on December 31, 2021; these are expected to remain at similar levels over the medium term in the absence of any long-term debt obligation or major capex. Furthermore, the company had unutilised bank lines of Rs 70 crore as on December 31, 2021, and is expected to generate cash accrual of Rs 30-40 crore per annum, which will sufficiently cover the modest capex and incremental working capital requirement. |
Outlook: Stable CRISIL Ratings expects KKCL to sustain its credit risk profile, supported by its established brands and distribution network in the domestic apparel business, and its prudent financial risk profile. |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Company KKCL was established in 1980 as a partnership firm named Kewal Kiran and Co by Mr Kewalchand P Jain and Mr Hemant P Jain and was reconstituted as a public limited company with the present name in fiscal 2006. KKCL is a reputed branded apparel manufacturer in the menswear and women’s western wear segments. It has two garment stitching units in Mumbai, a washing unit at Vapi in Gujarat and a finishing and packaging facility in Daman. The company has 322 retail stores, of which 302 are owned and operated by franchisees.
For the nine months ended December 31, 2021, revenue was Rs 437 crore with profit after tax (PAT) of Rs 57 crore compared with Rs 192 crore and Rs 11 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators*
*CRISIL adjusted numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
@@Interchangeable with Rs 45 crore of bank overdraft facility, Rs 45 crore of export bill discounting, Rs 45 crore of export invoice financing and Rs 45 crore of pre-shipment financing under export orders |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
|
#Interchangeable with Rs 25 crore of bank overdraft facility, Rs 5 crore of import letter of credit, Rs 5 crore of bonds and guarantees, Rs 5 crore of import invoice financing, Rs 25 crore of export bill discounting, Rs 25 crore of pre-shipment financing under export letter of credit, Rs 25 crore of export invoice financing, Rs 5 crore of import letter of credit and Rs 25 crore of pre-shipment financing under export orders
Criteria Details
|