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Turns ex-bonus; stock still offers valuation comfort…

About the stock: KKCL is a branded apparel player with a strong bouquet of brands (owned brands ‘Killer’, ‘Lawman Pg 3’, ‘Integriti’ and ‘Easies‘) across various price points. The company’s product portfolio is primarily focused on men’s casual wear while KKCL has also entered women’s and kids wear segment. On the financial front, it has exhibited consistent double digit margins with a healthy balance sheet and strong return ratios though revenue growth has been constrained owing to the company’s policy of not resorting to excessive discounting like many of its peers.

* KKCL has exhibited a strong margin profile over the last decade with average margin in excess of 20%, which is better than most of its peers in the branded apparel space

Event: Bonus issue

* The Board recommended the issue of bonus shares in proportion of four bonus share (face value of | 10 each) for every equity share held. The record date for the same is December 17, 2021 while ex-date for the same is today, December 16, 2021

* Hence, KKCL’s share price has dropped to | 275/ share from | 1375/share

What should investors do? KKCL’s stock price has underperformed broader indices over the last five years, mainly on account of subdued revenue growth. However, we believe the company is well placed to benefit from a demand revival owing to strong brand portfolio and pan-India store and distribution network. It aspires to achieve double digit topline growth through accelerated store addition and increasing share of online space.

* KKCL is trading at reasonable valuations of 18x, 15x EPS of FY23, FY24E, respectively. Also, balance sheet comfort warrants we maintain our BUY rating on the stock

Target Price and Valuation: We value KKCL at | 325 i.e. 18x FY24E earnings

Key triggers for future price performance:

* KKCL is well placed to benefit from robust demand owing to its diversified product portfolio and established distribution network. Many regional brands and unorganised apparel players are financially stressed owing to impact of pandemic, which is beneficial for organised players like KKCL

* The company has a virtually debt free status (D/E: 0.1x) with cash & investments worth | 298 crore

* We model revenue, earnings CAGR of 32%, 79%, respectively, in FY21-24E

Alternate Stock Idea: Apart from KKCL, we like Siyaram Silk Mills.

* Siyaram’s strong brand portfolio and presence in tier II/tier III towns would enable it to benefit from a shift from unorganised to organised players

* We have a BUY rating on the stock with a target price of | 590

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