Buy This Multibagger Small Cap Parent Stock Of Leading Clothing Brands For 18% Gains: ICICI Direct

ICICI Direct has given a buy call to Kewal Kiran Clothing Limited (KKCL) with a target price of Rs 580 per share. According to the given target price, the brokerage claims a potential upside of up to 18%. With a market cap of Rs 3,041.51 crore, KKCL is a small-cap clothing 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 and it has also entered the women's and kids wear.

On the financial front, KKCL 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%, better than most peers in the branded apparel space.

Stock Outlook & Returns

The stock's last traded share price is Rs 493.55 per share. In terms of returns on investment, the stock has performed well over the past 5 years. In the past 1 week, it has given 2.72% positive return. In the past 1 month, it has given 18.23% positive returns. In the past 3 and 6 months, the stock has given 49% and 124.65%, respectively.

It has given 128.88% positive returns over a year, whereas, in 3 years, the stock has given a multibagger return of 152.38%. In the past 5 years, the stock has given 30.7% positive returns on investments.

The stock's 52-week low was recorded on 11 May 2022, at Rs 180.20, and its 52-week high was recorded on 14 December 2022, at Rs 1447.60, respectively.

Q2FY23 Result

• Reported a strong revenue performance and registered its highest-ever quarterly revenues in Q2.
• Standalone revenue for Q2FY23 increased 29% YoY to Rs 226 crore (up 46% QoQ). Gross margin improved 40 bps YoY to 41.4% but still continued to be lower than pre-Covid average of ~ 50%
• EBITDA margin was a positive surprise and improved 370 bps YoY to 22.1% (Q2FY22: 18.4%, Q1FY23: 19%). EBITDA was at Rs 50 crore vs. Rs 32.3 crore in Q2FY22 (Q1FY23: Rs 29 crore).
• Consequently, PAT was at Rs 39.1 crore vs. Rs 27.1 crore in Q2FY22 (Q1FY23: Rs 21.6 crore).

Buy for a target price of Rs 580 per share

KKCL's stock price has appreciated by 120% in the last one year (three year CAGR of 30%). It has one of the best margin profiles among branded apparel players with a healthy b/s. We believe KKCL is well placed to benefit from demand revival owing to strong brand portfolio and pan-India store and distribution network. We have a BUY rating on the stock. We value KKCL at Rs 580 i.e. 26x FY24E earnings.

Key triggers for future price performance

According to the brokerage, the key triggers for future price performance are:

• 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: 0.2x) with cash & investments worth Rs 338 crore.
• We model revenue, earnings CAGR of 22%, 29% in FY22-24E, respectively.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.