ICICI Direct Bullish On This Clothing Retailer

Small cap stocks have higher risk but also have the potential to deliver high returns. Small cap stocks have the potential to outperform over the long term and amid where small cap stocks are in their journey of an upward trend, the brokerage firm ICICI Direct is also bullish on the shares of Kewal Kiran Clothing. According to the brokerage, the stock will reach a target price of Rs. 325 from its current price of Rs. 269. The stock was trading at a market price of Rs. 275 at the time of the brokerage's buy call, and the brokerage estimated an 18 percent return in 12 months.

The brokerage’s take on Kewal Kiran Clothing

In its research report, the brokerage has analysed that "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 the 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."

ICICI Direct has claimed that "The Board recommended the issue of bonus shares in proportion of four bonus shares (face value of Rs. 10 each) for every equity share held. The record date for the same is December 17, 2021 while the ex-date for the same is today, December 16, 2021. Hence, KKCL's share price has dropped to Rs. 275/ share from Rs. 1375/share."

Key triggers for future price performance of Kewal Kiran Clothing according to ICICI Direct

• 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 the impact of the 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 Rs. 298 crore.
• We model revenue, earnings CAGR of 32%, 79%, respectively, in FY21-24E.

Why ICICI Direct Is Bullish On Kewal Kiran Clothing?

As per the brokerage's research report "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 its 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. We value KKCL at Rs. 325 i.e. 18x FY24E earnings."

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.