Kewal Kiran Clothing (KEKC) fourth quarter FY21 revenue decreased 13% year-on-year to 1.1 billion rupees due to the resurgence of covid cases from mid- March 21 and the probable drop in sales of MBO channels over one year. The EBITDA margin stood at 9.2% (-780 bps yoy) mainly due to lower gross margins (-714 bps yoy) probably due to the evolution of the channel mix ( higher contribution from online and LFS channels). KEKC’s net cash position increased from Rs 1.9 billion to Rs 2.5 billion (23% of mcap) year-on-year as of March 21, thanks to the release of working capital of Rs 739 million at during fiscal year 21. The total dividend declared by the company in FY21 amounted to Rs23 / sh against Rs43 / sh in FY20. Taking into account the impact of the recent blockage due to the resurgence of covid, we reduce our EBITDA estimate for FY22E while keeping it for FY23. Hold ADD with an unchanged target price of Rs970 / sh (13x FY23E P / E). Major risk: slower recovery in discretionary spending.

– Revenue fell 13% year-on-year to Rs 1.1 billion due to the resurgence of covid cases from mid-March 21 and the likely decline in sales from MBO channels. Volumes were 1.3 million units, down 13% year-on-year and achievement fell 9% year-on-year to Rs822 / unit as of Q4FY21. Revenues for “Killer”, “Lawman” and “Integriti” fell 19% / 30% / 29% year-on-year, respectively, while they increased 20% year-on-year with the “Easies” brand. The revenues of others (which include women’s clothing brand Desi Belle) more than doubled year-over-year. In FY21, the sales volume was 3.51 million units compared to 5.3 million units in FY20. Jeans and shirts accounted for 48% and 26% of the quantity sold in FY21 against 50% and 25% in FY20. The other categories constituted 8% of the volumes in FY21 against 3% in FY20. Achievement in FY21 has dropped to Rs756 / unit from Rs917 / unit in FY20.

– EBITDA fell 53% yoy to Rs102mn with a margin down 780 basis points yoy to 9.2%. Gross margin contracted sharply by 714 basis points year-on-year to ~ 40%, likely due to a change in the channel mix with a higher contribution from online and LFS channel sales. Personnel costs fell 8% year-on-year to 165 million rupees. Administrative costs increased 24% year on year to 106 million rupees, including 12.8 million rupees (including interest) against the EPCG scheme due to lack of export obligation. Selling and distribution costs fell sharply by 39% year-on-year to Rs73mn (6.6% of revenue). PAT declined 53% year-on-year to Rs75mn.

– KEKC’s net cash position increased from 1.9 billion rupees to 2.5 billion rupees (23% of mcap) year-on-year as of March 21. OCF production was strong at Rs900mn despite the decline income through the release of working capital of Rs739mn during FY21. Mr. Hemant P. Jain, the full-time director of the company was appointed as Deputy Managing Director on May 26, 2021. KEKC has 322 EBOs and +125 distributors covering ~ 4,500 MBOs spread across 217 cities / towns.

KEWAL KIRAN CLOTHING LTD. was the last BSE trade at Rs.868 from the previous close of Rs. 886.15. The total number of shares traded during the day was 1,878 in over 651 transactions.

The stock hit an intraday high of Rs. 884.75 and an intraday low of 851.65. The net turnover during the day was Rs. 1,630,155.

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