Other Apparels & Accessories September 3, 2012 CMP Rs. 123.5 BSE Code 532054 BSE ID KDDL High/Low 1Y (Rs.) 150 / 106.3 Average Volume (3M) 2,188 Market Cap (Rs. Cr.) 109 Shareholding % Jun-12 Mar-12 Promoters 52.84 52.9 DIIs # 0.03 0.04 FIIs # 1.12 1.14 Public & Others 46.01 45.92 Stock Chart ( Relative to Sensex) 110 100 90 80 70 03-Sep-11 03-Jan-12 03-May-12 03-Sep-12 KDDL Sensex Stock Performance (%) 1M 6M 1Yr KDDL -4.8-14.6-13.3 Sensex 1.1-1.4 3.3 Financials FY10 FY11 FY12 Revenue 123.5 175.6 233.3 Y-o-Y 5.9% 42.2% 32.9% EBITDA 0.7 21.2 28.2 Y-o-Y -83.9% 2880.1% 33.1% Net Profit -7.2 5.3 6.0 Y-o-Y 41.1% LP 12.5% EPS (Dil.) -9.85 7.22 7.45 EBITDA Margin 0.6% 12.1% 12.1% Net Profit Margin - 3.0% 2.6% P/E(x) - 17.1x 16.6x Financial year ends at March 31 on consolidated basis. All figures in Rs. crore except for per share data # FIIs- Foreign Institutional Investors # DIIs- Domestic Institutional Investors KDDL Ltd. Company Overview KDDL, formerly known as Kamla Dials and Devices Limited, was incorporated in 1983 in technical collaboration with Leschot SA of Switzerland. The company is one of the leading manufacturers of watch components in India. The company also manages a precision stamping division, EIGEN, which manufactures high precision press tools and precision stamped components for products in the electrical, electronics, telecommunications, automobile, medical equipments, auto and aeronautics industries. The company also manages the largest retail chain of luxury Swiss watches in India through its subsidiary company, Ethos Ltd. Its revenues come mainly from manufacturing of watch components and precision engineering tools. Company Fundamentals Robust growth in sales The company s business is vulnerable to changes in consumer sentiment. In the face of a global economic slowdown, which has adversely impacted consumer spending, KDDL has managed to grow its topline by 42.2% and 32.9% during FY11 and FY12, respectively. The bulk of this growth came from the export market as the company s exports increased by 51% in FY12. After registering a turnaround in operating profit in FY11, the company has kept the momentum of growth steady in FY12 also. Focus on high end segment The company s focus is on moving up the value chain to capture high-end export customers. The company has set up a new facility in Bangalore for supply of high quality premium hands to Swiss customers. Moreover, through its retail chain, the company will be focusing on catering to the high-end requirements of the domestic market. At the same time, the company s precision components unit, EIGEN Engineering, aims to enter into automotive sectors and assembling of electrical parts. Growth through same store increase in sales The watch retail and distribution business of the group, managed through its subsidiary, Ethos, registered a growth of 41%, of which nearly 29% came from same store growth, which is a vital indicator in retailing and points to operational improvements. The company opened 11 new stores in FY12, taking the total number of stores to 36 as of March 2012. The company has started expansion in 20 more locations and is expected to open 8-10 stores in FY13. The company has exclusive arrangements with brands such as Carl F. Bucherer, Edox and Louis Erard. Key Strengths - Focus on expanding market reach - Market leader in its segment - Strategy to integrate to de-risk business Initiative of the BSE Investors Protection Fund -1-
Company Business KDDL, formerly known as Kamla Dials and Devices Limited, was incorporated in 1983 in technical collaboration with Leschot SA of Switzerland. The company is one of the leading manufacturers of watch components in India. The company also manages a precision stamping division, EIGEN, which was established in 2004. EIGEN Engineering manufactures high precision press tools and precision stamped components for products in electrical, electronics, telecommunications, automobile, medical equipments, auto and aeronautics industries. The company also manages the largest retail chain of luxury Swiss watches in India through its subsidiary company, Ethos Ltd, formerly known as Kamla Retail. The retail chain was launched in 2003. While the company is engaged in various businesses, the majority of the company's revenues are derived from the manufacturing of watch components and precision engineering tools. KDDL Subsidiary Companies Subsidiary Name Ethos Ltd. Pylania S.A. Nature of business India s largest retailer of Swiss watches Manufacture of Dials for premium segment Revenue FY12 PAT FY12 Country of Incorporation Percentage Ownership 125.94 0.29 India 79.52% 9.34-1.85 Switzerland 65.50% Himachal Fine Blank Ltd. Manufacture of indexes 3.22-0.54 India 100.00% Kamla International Holding S.A. Overseas investments 0.13-0.02 Switzerland 100.00% Mahen Distribution Merged with Ethos in FY11-0.09-0.47 India 100.00% Source: Company. Revenue and PAT in Rs Cr. The company commenced operations from its new facility at Barwala in FY12 for manufacturing dials for the domestic customers. The company also increased the capacity and capability of the dial manufacturing units at Parwanoo and Derabassi. At the same time, to derisk the business operations, the company added capability to manufacture indexes within the dial unit. The company has ventured into jewellery setting through Satva Jewellery and Design Ltd., a 50:50 joint venture with Pascal Vaucher Holding, SA of Switzerland. In the face of a global economic slowdown, KDDL has managed to grow its topline by 42% and 33% during FY11 and FY12, respectively. The bulk of this growth came from the Swiss export market. KDDL Plant Locations Nature of Production Dial Units Assembly Unit Hands Unit EIGEN (Precision Stamping) Packaging Unit E-commerce Division Location Parwanoo, Himachal Pradesh Barwala, Haryana Derabassi, Punjab Parwanoo, Himachal Pradesh Solan, Himachal Pradesh Peenya, Bangalore Peenya, Bangalore Industrial Area, Chandigarh Gurgaon, Haryana Source: Company Initiative of the BSE Investors Protection Fund -2-
USD Million KDDL Ltd Industry Overview In 2011, the global wrist watch market remianed stagnant primarily on account of economic stress in developed markets like Japan and Europe. However, Asia countinued to be the main consumption market. The global luxury watch market is dominated by Switzerland. In 2011, the Swiss watch market industry grew from strength to strength. According to estimates by the Federation of Swiss Watch Industry (FSWI), Switzerland exported $21.8 billion worth of watches in 2011, clocking a 19% growth. Apart from Switzerland, other leading exporters of watches include Hong Kong, which saw watch exports increasing by 19.5% in 2011 compared to last year. China also contributed significantly to the growth of world trade in the watch segment as it recorded a growth of 15.5%. German watch exports rose sharply in 2011, growing by 16.6%, while France achieved the highest growth in watch exports and registered an increase of 24.6%. The Indian watch market grew by 14% in 2011. According to an Assocham report, the Indian watch industry is expected to soar to Rs 15,000 crore by 2020 from the current estimated size of Rs 5,000 crore. This huge growth will be possible on the back of growing consumerism in the country. A large proportion of the Indian watch market is occupied by the unorganized sector, which sells about 30 million watches each year, primarily at the low-end of the market. Titan continues to dominate the Indian market with an estimated market share of 65%. The Indian watch market is expected to grow by 10-15% every year, driven by the youth and premium segment of customers. Rise in Consumer Expenditure 1,550,000.00 1,350,000.00 1,150,000.00 950,000.00 Consumer Expenditure Annual Disposable Income Annual Gross Income 750,000.00 2008 2009 2010 2011 2012 Source: Euromonitor In the last five years, between 2008 and 2012, Indian consumption expenditure has grown at a faster pace than the growth of disposable income. Also, over these past five years, the share of non-food items in the expenses has been growing at a fast pace. These trends are encouraging for consumer-driven industries as the low penetration level of goods such as watches are likely to increase with the evolution of consumer preferences of Indians. Competitor Analysis The comparison with competitors reveals that KDDL commands better valuations. Company Year End CMP M Cap Revenue EBIT Margin EPS P/E KDDL Mar-12 124 109 233 9.1% 7.45 16.6x Timex Group Mar-12 19 195 184 3.9% 0.13 148.5x IST Mar-11 162 95 25 29.1% 7.69 21.1x Source: BSE, Market cap and Revenue in Rs. crore. CMP and M Cap as of 3Sep 12 Initiative of the BSE Investors Protection Fund -3-
Summary Financials Particulars (Rs. Crore) FY10 FY11 FY12 Net Sales 121.1 171.6 227.4 Other Op. Revenue 2.4 4.0 5.9 Total Income 123.5 175.6 233.3 Growth (%) 5.9% 42.2% 32.9% Cost of Goods Sold -75.4-94.3-125.2 Gross Profit 48.1 81.3 108.1 Employee Cost -28.4-34.8-43.9 Other Expenditure -19.0-25.4-36.1 EBITDA 0.7 21.2 28.2 Growth (%) -83.9% 2880.1% 33.1% Depreciation -5.8-5.9-7.0 EBIT Profit -5.1 15.3 21.2 Finance Cost -7.7 LP -11.4 Other Income 3.3 0.5 2.0 Exceptional Items 0.0 0.0 0.0 PBT -9.5 6.5 11.8 Income Tax 0.6-2.2-4.6 Profit after Tax -8.9 4.3 7.2 Growth (%) 71.8% LP 67.6% Extra Ordinary Items 0.0 0.0 0.0 Share in Profit or Loss of Associates 0.0 0.1-0.3 Minority Interest 1.6 0.9-0.9 Net Profit -7.2 5.3 6.0 Growth (%) 0.4 LP 0.1 Rep. Basic EPS -9.85 7.22 7.45 Rep. Diluted EPS -9.85 7.22 7.45 Equity Capital 7.4 7.9 8.9 Face value 10.0 10.0 10.0 Ratio Analysis FY10 FY11 FY12 Margins EBITDA Margin (%) 0.6% 12.1% 12.1% Net Profit Margin (%) - 3.0% 2.6% Valuation P/E (x) - 17.1 16.6 P/BV (x) 2.9 2.4 2.3 Profitability ROCE (%) - 14.5% 15.7% ROE (%) -22.8% 13.1% 12.5% Solvency Ratio Deb/ Equity Ratio (x) 2.07 1.61 1.85 Interest Cover (x) - 1.7 1.9 Initiative of the BSE Investors Protection Fund -4-
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