KG Denim Ltd BSE Scrip Code: 500239 Textiles September 24, 2012 Equity Statistics Current Market Price Rs. 52 Week High / Low Rs. Market Capitalisation Rs. crores Free Float Rs. crores Dividend Yield % One Year Regression Beta Times BSE Volumes Trend - Average = 7.75 Thousand 60 40 20 0 in '000s 9.7 13.36 / 8.02 24.9 9.4 7.7 0.4 Business Summary KG Denim Ltd (KGDL) is into the business of manufacturing denim apparels and garments, wherein the company manufactures and exports denim fabrics, cotton woven fabrics, home textiles and apparels. From FY07 onwards, KGDL is also engaged in the non-denim business of processing cotton based fabric and home textiles. As at the end of March 2012, KGDL had an installed capacity of 160 looms which can process upto 21 mn meters of denim fabric per annum at Coimbatore, Tamil Nadu. KGDL also has a cogeneration plant with a capacity to generate 3 megawatt (MW) of power p.a. The denim business continues to be the major revenue earner for the company. In FY12, KGDL reported net sales of Rs.434.6 crore and net profit of Rs.7.5 crore. KGDL is currently trading at 3.3 times FY12 EPS. 150 125 100 75 Relative Returns Sensex K G Denim Returns (%) 1M 3M 6M 1Yr Absolute 8% -12% 4% -3% Relative to Sensex 2% -21% -5% -17% Shareholding Pattern 100% 50% 0% Sep '11 Dec '11 Mar '12 Jun '12 Promoter DII FII Others Board of Directors Person Role Qualification KG Baalakrishnan Executive B.Com., B.L. Chairman B Sriramulu MD B.E., M.S. B Srihari MD B.E., M.E, M.Tech G V S Desikan NED, B.Sc. G P Muniappan NED, M.A., C.A.I.I.B., P.G.D.B.M. K N V Ramani NED, B.L., M.A. V Jagadisan NED, B.Com, F.C.A. T Anandhi NED - M J Vijayaraaghavan NED F.C.A. Surinder Chhibber M.Sc, P.G.D.B.M ED M.Sc A Velusamy WTD B.Sc., B.L. S Muthuswamy Company Secretary B.Com, F.C.A., A.I.C.W.A, A.C.S. Source: AR and CARE Research Note: MD: Managing Director, WTD: Whole time Director ED: Executive Director, NED: Non Executive Director, 1 Initiative of the BSE Investors Protection Fund
Background KGDL was incorporated in the year 1992 by Mr K. Govindaswamy Naidu. The company is now managed by his son Mr K. G. Baalakrishnan, Chairman, and grandsons Mr B. Sriramulu and Mr B. Srihari, the Managing Directors of the company. KGDL has a wholly-owned subsidiary, namely, Trigger Apparels Ltd. (TAL), the retailing arm of the group which concentrates on denim apparel manufacturing and retailing in domestic market. The company s products include denim, home textiles, apparels and apparel fabric. Another subsidiary KG Denim (USA) Inc. did not have any operations during FY11. KGDL is certified with ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007, Oeko-Tex Standard 100 Class I certification & ISO 14001 certifications, GOTS Certification for Organic production, EKO Sustainable Textile Standards-Standards for the processing of fibers from certified Organic agriculture etc. The laboratory is certified by NABL. Business overview KGDL derives much of the revenue from sale of denim fabric which contributed nearly 90% of net sales in FY11. The sale of garments contributed 8% of net sales in FY11. KGDL has export operations also, wherein the income from exports was Rs.107 crore, representing almost one-third of the revenue of the company. During FY11, domestic sales registered a y-o-y growth rate of 27% as against growth rate of 24% achieved in export sales. Cotton, yarn, chemicals and dyes are the major raw material for the company and formed approximately 69% of the total cost to the company during FY12. Strengths and growth drivers KGDL, one of the early entrants and leading denim manufacturers in the country, has an integrated presence in the textile value chain and is backed by a team of well-experienced promoters and management team. Established and longstanding relationships with clients in domestic as well as export markets. Risk and concerns Working capital intensive and cyclical nature of business. Raw material price volatility and fluctuation in foreign exchange rates. Future strategy and expansion plans Plans to concentrate and increase sales in home textiles division. Increasing visibility, especially in overseas market through participation in international trade fairs. Industry outlook Denim industry is cyclical in nature. The industry witnessed a downturn globally in FY09 and part of FY10 on account of excess supply, over demand. The denim industry is characterized by fragmented players and high level of competition. Adding to this, capacity additions are noted in the denim industry since recovery in FY10, which will add to the existing competition levels. The industry is also impacted by volatility in cotton and yarn prices and foreign exchange fluctuation. On the back of change in fashion trends and higher level of urbanization, the industry recorded a recovery since January 2010. The denim industry is growing at a CAGR of 10% and is expected to reach about 530 million meters by 2015. The denim industry in India is expected to grow, capitalizing on a favourable demographic profile as shown by the median age of Indian population (around 28 years) and demand arising from women. Increasing urbanization, rising disposable income and preference for ready-to-wear apparels are expected to drive the growth in the near term. However, continued weak demand in global demand scenario is a serious cause of concern for the industry. 2 Initiative of the BSE Investors Protection Fund
Peer comparison Year ended March 31, 2012 Income statement (Rs. crore) KG Denim Aarvee *Ashima Total income 434.6 691.1 245.7 Net sales 431.3 661.4 245.0 EBITDA 45.2 83.6 2.3 Ordinary PAT 7.5 14.0 (12.0) Adjusted PAT 7.5 14.2 (10.7) Per share data (Rs.) Adjusted BVPS 20.9 91.8 NA Diluted EPS 2.9 6.0 (4.3) Growth (Y-o-Y) (%) Growth in total income 12.1 38.1 (8.4) Growth in net sales 15.5 33.7 (5.5) Growth in EBITDA 33.8 2.4 NM Growth in adjusted PAT 73.0 NM NM Growth in EPS* 95.3 (57.8) NM Profitability ratio (%) EBITDA margin 10.5 12.6 0.9 Adjusted PAT margin 1.7 2.1 (4.4) Valuation ratios (Times) Price/EPS (P/E) 3.3 6.4 NM Price/Book value (P/BV) 0.5 0.4 NA Enterprise value (EV)/EBITDA 2.7 2.1 9.3 Note: Aarvee: Aarvee Denim & Exports Ltd., Ashima: Ashima Ltd. *based on working results (standalone numbers) Quarterly financials Quarter ended June 30, 2012 Income statement (Rs. crore) Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Total income 114.8 103.6 97.3 107.1 93.1 Net sales 114.7 102.8 97.3 107.0 93.0 EBITDA 12.9 9.4 10.4 14.1 11.2 Ordinary PAT 2.1 0.0 1.1 4.0 2.3 Adjusted PAT 2.1 0.0 1.1 4.0 2.3 Growth (Q-o-Q) (%) Growth in net sales 11.6 5.7 NM 15.0 Profitability ratio (%) EBITDA margin 11.2 9.1 10.7 13.2 12.0 Adjusted PAT margin 1.8 0.0 1.1 3.7 2.5 Quarterly financials are based on standalone numbers. 3 Initiative of the BSE Investors Protection Fund
Financial analysis The company has registered 12% y-o-y in FY12, reporting revenue from the operations of Rs.434.6 crore. During the period FY08-FY12, the revenue from the operations has grown at a CAGR of 15.88%. EBITDA margin has improved from 9.0% in FY11 to 10.5% in FY12. The profitability has improved since FY11 owing to increase in realization for denim fabric manufactured by the company. The capital structure is leveraged with a total debt of Rs.103.40 crore as on March 31, 2012, as against a net worth of Rs.45.30 crore on March 31, 2012. The company has incurred losses till FY10 due to weak demand scenario and high interest cost. The company has paid a dividend of Rs.0.75 per share for FY12, resulting in a dividend yield of 7.7% at the current market price of Rs.9.7 per share. Annual financial statistics FY08 FY09 FY10 FY11 *FY12 Income statement (Rs. crore) Total income 241.0 263.6 296.0 387.5 434.6 Net sales 233.9 242.6 295.4 373.5 431.3 EBITDA 6.8 0.5 27.2 33.8 45.2 Depreciation and amortisation 12.8 13.1 13.0 13.0 13.2 EBIT (6.0) (12.6) 14.2 20.8 32.1 Interest 18.5 20.7 20.5 19.9 24.2 PBT (11.8) (19.0) (1.0) 5.9 11.2 Ordinary PAT (8.2) (13.5) (1.3) 3.8 7.5 Adjusted PAT (8.1) (13.3) (1.1) 4.3 7.5 Balance sheet (Rs. crore) Adjusted networth 53.4 39.9 38.6 42.4 45.3 Total debt 134.5 132.3 122.8 118.6 103.4 Cash and bank 6.9 7.9 6.9 6.6 6.9 Investments 3.3 3.3 3.3 3.3 3.7 Net fixed assets (incl. CWIP) 133.2 125.0 113.0 102.2 100.9 Net current assets (excl. cash, cash equivalents) 57.5 43.5 45.0 57.7 48.3 Per share data (Rs.) Adjusted BVPS 20.9 15.6 15.1 16.6 20.9 Diluted EPS* (3.2) (5.3) (0.5) 1.5 2.9 DPS - - - - 0.8 Growth (Y-o-Y) (%) Growth in total income 9.4 12.3 30.9 12.1 Growth in net sales 3.7 21.8 26.4 15.5 Growth in EBITDA NM NM 24.3 33.8 Growth in adjusted PAT 63.4 NM NM 73.0 Growth in EPS* 63.9 NM NM 95.3 Key financial ratio EBITDA margin (%) 2.9 0.2 9.2 9.0 10.5 Adjusted PAT margin (%) NM NM NM 1.1 1.7 RoCE (%) NM 8.0 11.1 17.2 RoE (%) NM NM 9.4 17.1 Gross debt - equity (times) 2.5 3.3 3.2 2.8 2.3 Net debt - equity (times) 2.4 3.1 3.0 2.6 2.1 Interest coverage (times) NM NM 0.7 1.0 1.3 Current ratio (times) 2.1 1.7 1.7 1.7 1.5 Inventory days 118.2 109.4 94.5 103.5 Receivable days 39.3 30.4 28.0 23.2 *based on working results (standalone). Financial year (FY) refers to the period between April 1 and March 31. 4 Initiative of the BSE Investors Protection Fund
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