| Kewal Kiran Clothing Limited | ||||
| Rating reaffirmed at 'CRISIL AA-/Stable'; Rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable’ rating on the long-term bank facilities of Kewal Kiran Clothing Limited (KKCL).
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.
After muted performance during quarter one of last fiscal owing to second wave of the pandemic, revenues bounced back sharply from second quarter onwards to record Rs. 608 crore for the full fiscal; a year on year growth of 101%. Revenues for fiscal 2022 were ~15% higher than the pre-pandemic levels. The growth was majorly attributable to sharp increase in E-Commerce sales from ~Rs 37 crores (7% of sales) in fiscal 2020 to ~Rs 91 crores (19% of sales) in fiscal 2022. Growth from in-store channel remained flattish at Rs. 492 crores in fiscal 2022 as against Rs. 500 crores in fiscal 2020. In-store sales suffered a major impact during quarter one of last fiscal owing to the second wave of COVID and subsequently a milder impact during quarter four owing to the third wave. For quarter one of fiscal 2023 (non-peak quarter), the company recorded revenues of Rs 155 crores, which was ~40% higher than the pre-pandemic period of Q1FY20
KKCL’s operating margin for fiscal 2022 stood at 15.5%, supported by higher operating leverage from quarter two onwards, even as prices of key raw material i.e cotton increased sharply during the year. Margins for quarter one of fiscal 2023 improved to 18.7% and are expected to sustain at healthy levels over the medium-term benefitting cash generation,
The financial risk profile continues to remain strong with a healthy networth of Rs. 478 Crore (as on March 31, 2022) a net debt free balance sheet and strong debt protection metrics. Interest coverage and Net Cash Accruals to Total Debt (NCATD) stood at 22.9 and 0.68 times for fiscal 2022. KKCL’s liquidity position also remained strong with liquid surplus of over Rs 306 crore as on June 30, 2022. |
Key Rating Drivers & Detailed Description Strengths:
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.
Weaknesses:
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 342 crore as on March 31, 2022; 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 unutilized bank lines of Rs 120 crore as on March 31, 2022, which coupled with annual accruals of over Rs. 60-80 crore per annum, 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
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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. The company designs, manufactures and markets branded jeans, and a wide range of apparel products for men and women. Key brands include “Killer”, “Integritti”, “Lawman” and “Easies” for men and “Desi Belle” for women.
KKCL has 4 manufacturing units located across 3 states with a total area of ~2.5 lakh sq. ft., it has two garment stitching units in Mumbai, a washing unit at Vapi (Gujarat), and a finishing and packaging facility at Daman (Union Territory of Daman and Diu). The company has 356 retail stores, of which 331 are owned and operated by franchisees. |
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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