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.
