CRISIL’s ratings on Kewal Kiran Clothing Ltd (KKCL) reflects the established position of KKCL’s flagship brand, Killer, in the men’s apparel segment in India and the company’s favourable financial risk profile. The rating also factors in competitive pressures faced by KKCL in the apparel market, its organic expansion plans in retail segment and the company’s vulnerability to changes in fashion trends.

KKCL’s Killer brand has a strong presence in the domestic menswear segment and constitutes about 50% of the revenues of the company. KKCL also has a favourable financial risk profile marked by low gearing, and comfortable debt protection indicators. KKCL’s interest coverage and net cash accrual to total debt ratio of over 10 times and 0.70 times, respectively lends comfort to the rating. The company also enjoys sufficient liquidity as it had utilized about Rs.330 million as on December 31st, 2007 out of Rs. 800 million raised through an initial public offering made in 2005-06 (refers to financial year, April 1 to March 31).

However, competition from both global and domestic players continues to restrict improvement in KKCL’s operating margins over the medium term. Also, the company has plans of utilizing proceeds of its public offer as well as assuming debt for expanding its presence in retail distribution which would suppress improvement in its Return on Capital Employed (RoCE) over the medium term. Also, KKCL’s business of selling branded apparels is vulnerable to frequent changes in fashion trends and preferences of its target segment.

Outlook: Stable
CRISIL expects KKCL’s business risk profile to remain comfortable on account of its established position in the men’s apparel segment. The company’s low gearing and healthy debt coverage indicators enhance its favourable financial risk profile. The rating may have a negative bias incase of higher than anticipated debt funding for the company’s retail expansion plans/inorganic expansion plans leading to a significant weakening in the capital structure over the medium term. The rating may have a positive bias in case of higher than anticipated cash accruals in business enhancing the financial risk profile of the company over the medium term.

About the Company
KKCL is in the business of manufacturing apparels and caters to the youth segment in the age bracket of 16 to 40 years through its product offerings under multiple brands. Its product line includes jeans, shirts, t-shirts, jackets, and trousers marketed under brands Killer, Lawman, Easies, and Integriti. Its manufacturing operations are based at Mumbai (stitching), Vapi (processing) and Daman (stitching & finishing).

KKCL reported a profit after tax (PAT) of Rs.122 million (after adjustment made for share issue expenses of Rs. 78 million) on net sales of Rs.1.33 billion in 2006-07 as against a PAT of Rs.117million on net sales of Rs.860 million in 2005-06. For the nine month period ended December 31st 2007, the company recorded PAT of Rs. 183 million on net sales of Rs. 1.2 billion as against Rs. 154 million and Rs. 1 billion respectively for corresponding period in the previous year.