Kitex Garmets: Management Q&A

We have briefly discussed about Kitex Garments a few times over the last 1 year. What primarily attracted us to the stock was its low valuation. The stock was trading at 5-6 times its earning. The clarity about the company’s business, however, was insufficient. At that time Crisil had suspended the company’s rating, the annual reports were not very detailed and the few available articles mostly mentioned about the political problems the company had been facing.

The fabulous March 14 quarter, coupled with the increase in the gross block of the company got us more excited about the company. When we watched a few videos about of the company’s facilities ( https://www.youtube.com/watch?v=GEFzq8CIhm0 ), we ensured that we attend the company’s AGM. At the AGM, we were fascinated by the passion and track record of the company’s management . We were able to understand company’s focus on quality and timely delivery. The value proposition for the company is huge volumes and the inherent employee efficiencies, both of which take years if not a decade to replicate (more discussed here). Our seniors also highlighted about the huge positive impact the company is making in the lives of thousands of women by providing them a good work environment (including fooding and stay).

Donald Francis, of ValuePickr, pursued the story after the AGM to cover the company in even more detail. Using his scuttlebutt approach, he interviewed various vendors, suppliers and customers across the textile and infant garment industry to understand the nuts and bolts of the infant garment industry. Donald then followed up all the doubts and missing pieces in his Q&A. The Q&A is available on the ValuePickr website and we recommend you to go through the same. We have shared a few extracts from it:


You have set up a high-quality infrastructure on par with the best in the world with state-of-the-art advanced machinery. Who were the early influencers?

Well I guess the credit for it goes to my dad and the early training he put me through. He was a strict disciplinarian and he ensured I learnt to respect every aspect of the work ongoing in our factory. As a 13 year old, I was started out from cleaning the lavatories, to the shop-floor, to becoming a machinist, technician, bleaching and processing to garmenting operator.

I grew up with the ethos and the confidence of trying to do something different from the run-of-the-mill. We were not afraid to take risks.

We make it a point to publish results immediately after the year-end – even that is a creative first!

How do you see KCL and KGL growing individually in the next 2-3 years?

Both will double the capacities. Both should keep growing at 20-25% annually.

What about the Employee Base? ~4000 are direct employees at KGL. What is the total KGL+KCL direct employee strength? How many are contracted?

Total employee strength is ~8000. There are no contract labourers.

While capacities are being enhanced what about the Labour situation? will that also need to be doubled ~16000 employees in 2-3 years? And, if you continue to double volume capacities every 2-3 years – realistically, where do we see Labour counts growing to in the next 3-6-9 years?

Actually we will need only incremental 10% more additional Labour to reach 1.1Mn/pieces per day.

That’s something difficult to grasp and will take some doing. Kindly share how will this be achieved?

Firstly productivity improvements through use of advanced technology, backed up by productivity improvements through increasing efficiencies. Thirdly automation is being brought in new areas. For example we are installing a shaving machine that will bring in 4:1 savings in manpower. That itself will free up 300 people. We are bringing in lot of automation in Kitchen that will free up another 100 people. Automatic Roti-Maker (just need to put the Maida) producing 60 Chapaties every minute. Automatic Idly-Maker producing 2000 idlies per hour. 30 kg onions will get peeled in 1 hour. 2000 plates will be cleaned every hour. All imported fully automatic machines being introduced. Imported German machines for Vaccuum Cleaning that will bring in 75% labour saving.

It’s not one single thing that will do the trick, but a whole host of new initiatives in every area that we can identify where we can improve productivity and/or increase efficiency. Together we are confident these will deliver double the capacity at low incremental labour addition.

Read the complete Management Q&A on ValuePickr

Recent conference call of investors with MD

Annual Reports of the company since 1996

  • Manish

    I believe it is not a buy at CMP. What levels could be accumulation levels ?

    • Ayush

      We can’t advise on the buy/sell. Please take your own call.

  • rahul

    Going by the Q&A the company still looks cheap .. Is it a buy on every dip ??

  • rahul

    any idea on PONDY OXIDES ? u had mentioned this stock —q1 is good ..how u view the demerger news ?

    • Ayush

      Not tracking it closely now.

      • rahul b

        PONDY 45CR MCAP …470cr SALES june bumper q1 !!
        recycler of lead —A GOOD BUY for panasonic batteries kind of companies ?
        demerger and stake sale ..is being talked i suppose

        dog of a stock but worth seeing –isnt it ? closely?

  • chaitu

    Hi Aysuh,
    We are missing your ideas recently..Considering the market mood it will be good if you share some interesting stories to explore further..

    • Ayush

      Hi,

      Given the mood of markets, its not easy to find new good ideas and then have all the time to research and discuss. Stocks move up very quickly. Also, the existing ideas we have had have been performing really well….so it has been better to hold on rather than keep shuffling.

      • jan

        Sir i am waiting for your diwali recommendations……hope wait will be over………….soon

  • sta

    hey ayush i see that u have exited quite a few recommendations. these have turned out to be multi baggers. eg wimplast. could u please tell us about your cagr of your portfolio. would help us to determine which would have been better strategy. to exit or to hold for long. its a request from novice. sorry if it sounds intrusive

  • rahul

    tasty bites eatables –rte rtc sector —RS 365 —how do u see this sector panning out –q1 bumper 2.6cr vs loss 0.73cr ..eps rs 10 q1
    (erstwhile HUL baby)

    can it become a takeover target by someone say heinz ( which is also in same sector RTE RTC ) P/E 12 –can it be termed as fmcg stock ?

    • rahul

      Rising Indian working class presents opportunity for ready-to-eat food
      fnbnews.com-22-Aug-2014
      http://www.thehindubusinessline.com/features/blink/work/the-cookedup-story/article6341582.ece —GOOOD ARTICLE on this sector

      ayush ur views ?

      • rahul

        stock goes up 401 up10% …I seee HEINZ can come in here and pick up stake –warren buffet may like it he has liked HEINZ :))

        • rahul

          115cr mcap as of now —a company like HEINZ with operations in INDIA will anytime shuld be interested in TASTY BITES -PEANUTS takeover for heinz —views ayushji on this sector and company as it has its own farming in PUNE

  • Jagadish

    Hi Ayush,

    What is your opinion on PTC Indian Financials with regards to the below news:
    http://economictimes.indiatimes.com/industry/energy/power/supreme-court-verdict-on-coal-block-allocation-may-plunge-future-of-power-firms-into-darkness/articleshow/40874460.cms

    Will it impact PTC India Financials NPA and revenues?

    • Ayush

      Hi Jagadish,

      I feel its too early to comment.

  • Krishna

    Hi Ayush,
    Please let us know your feedback on RUBY mills and is there any hope for turnaround in BILCARE after these quarterly results

    • Ayush

      Hi,

      Don’t track BILCARE. We do hold some RUBY Mills but don’t have much clarity on the progress of their real estate project.

  • Jay

    Hi Ayush, How did you find results of Anuh Pharma? Reasonable growth prospects?

    • Ayush

      Hi Jay,

      If you look at the past of Anuh Pharma, it has always grown at a steady pace. The problem over last few years was that the margins were declining and hence the profits were not rising. Offlate the margins have got better and the co is doing well. It was a positive surprise to see the coming declaring an interim dividend in Q1FY15.

      • Jay

        Thanks Ayush.

  • Shaket

    Hi Ayush, What your opinion on Kaya ( marico) after Q1, could this be next Page or Jubiliant Food, your advice after recent run up would be thankful, thanks

    • Ayush

      Sorry, haven’t been able to study the same.

  • ramesh

    Hi Ayush, what is ur take on Shilpa after disappointing Q1

    • Ayush

      I don’t think the results are disappointing. I feel they are normal.

  • Vivek Gautam

    What’s your take on Sonata Software and the old contingent liabilities against it?

  • Vivek Gautam

    Any view on micro cap Cupid ltd heard it has received good orders from UN for its product condoms? It’s a 20 year Mumbai based co being run by Mr Garg who is based in US?

  • Puneet Tandon

    Hi Ayush,
    What are your views on Orbit Exports and CCL products ? Pls provide your insights on the above counters.

    thanks,
    puneet

    • Ayush

      Hi,

      Not tracking CCL. We do hold Orbit as it seems to be a differentiated business model and the mgmt has done extraordinarily well over last 10 years. However, there is not too many in-depth details available. We had entered quite sometime back.

  • rahul b

    APCOTEX INDS —-views after q1 results rs 300 –q1 was bumper ….
    near monopoly ? asian paints pedigree ?

    q2 can be equally good ayushji ?

    have they completed the expansion or stil left ?

    • rahul b

      RS 313 apcotex inds … plz review this stock
      a goood close today above 310
      an asian paints pedigree shuld command p/e of 30 in time to come

      ALL TYRE STOCKS are up up and away > y not look at CONTENT PROVIDER FOR TYRE STOCKS -APCOTEX ?

      ayushi plz review

      • rahul b

        up13% rs 374 —apcotex –TYRE BOOM apcotex boom

        super management super pedigree nothing else –p/e expansion
        –even basf would like to buy apcotex !! the best in sector

    • Ayush

      We had covered Apcotex sometime back – http://dalal-street.in/apcotex-industries-ltd-nse-bse-523694/. We quite liked the co but given the consistently flat nos till a qtr back, we got out.

      This qtr nos have been quite good and reflects what the co had been talking about since sometime. I feel the co is in a sweet spot now as the expansion was done earlier at a very nominal cost. However, the price has moved up quite a lot….I would like to have better prices to participate for long term.

  • rahul b

    no reply still …stk flying ….tomorrow for Rs 511 ?

    sunrise sector ?? eps 15 rs 30-40 p/e 30 can it command ?

    plz discuss this sector !!

    • rahul b

      yesterday RIDHAM DESAI of morgan said HE likes packaged food ..”his daughter would not enter kitchen to prepare food in years to come ” :)) ….and explaining that p/e is not the question but the sales and brand matter !!
      TBEL brand and sunrise sector …p/e expansion shuld kick in may be p/e 20-30and 43 like HUL ? (ERSTWHILE HUL BABY afterall )

      • rahul b

        rs 621.45 –doubler in 2 weeks !!
        READY TO EAT ?

        more to go ??
        sky is the limit the first mover small equity and a super brand ( best part own farming )!!!

        • rahul b

          marico kaya from 270 to 730 and tasty bites 320to 621 —

          ridham desai of morgan did buy MAKE at 310
          ridham desai has mentioned packaged foods !!
          —i would still go with TASTY BITES ( a man cannot live without food )
          disclousre -i hold TBEL !!

  • Ramesh Shah

    What do you think about Hester Biosciences? – Gave fantastic results

    • Ayush

      Hi, We like the co and are invested in it. However, there has been quite a sharp run up recently….so plz be cautious of that.

  • Puneet Tandon

    Hey Ayush
    What are your long term views on Oriental carbon and Nesco ? Pls advice.
    Thanks.

  • Chaitu

    Hi Aysuh,
    Seeing the recent run up in relaxo,bata,mayur ..i found Lawreshwar polymers is an interesting bet with capacity expansion. Promoter stake is continually increased. Let me know if it is an interesting bet.

  • Muthukumar

    Hi Ayush,

    Please share your views on Repco Housing, Kwality Dairy (india) and Pennar industries at current valuation and future aspects (2 years horizon). Thanks.

    -Muthu

  • Pratik

    What is your view on Ifgl refractories @ current price for long term ?please advice

  • Pratik

    What is your view on Archies ??

  • Pratik

    Hi ayush Ji very busy these days ???

  • Deepen

    Hi Ayush, whats your view on Anuh Pharma ?
    Thanks. 🙂

  • Deepak

    Hi Ayush,
    Kindly share your views on Coromandel International. It is agro space.

  • madhu sudan acharya

    I would like to invest Rs. 30,000 for one year. Which stock is the best choice at present?

  • Hsahi

    Hi ayush,

    Whats your take on dhfl…….and can anyone here suggest me a low cost and secure brokerage company’s name currently i am using icici dmat a/c and i think it charges too much fee