Detailed Rationale

Crisil Ratings has reaffirmed its rating on the long-term bank facilities of Kewal Kiran Clothing Limited (KKCL) at ‘Crisil AA-/Stable’.  

 
The rating continues to reflect KKCL’s established position in the domestic menswear segment, with recognized brands, diversified geographic, channel presence and healthy financial risk profile. These strengths are partially offset by revenue concentration with high contribution from ‘Killer’ brand, vulnerability of performance to changing fashion trends and exposure to intense competition in the apparel segment.

 

KKCL’s revenue for the first nine months of fiscal 25 at consolidated level was Rs.715 crore with YoY growth of ~11%. The growth was driven by acquiring stake in Kraus Casuals Pvt Ltd (KCPL) in June’2024, which contributed Rs.109 crore (Rs.53 crore in Q3) during the nine months of the current fiscal. Total volumes grew by ~23% to 1.2 crore units as against 98 lacs units during the corresponding period for the previous fiscal. KKCL acquired 50% stake in KCPL in Jun 2024 for Rs.160 crore funded through internal accruals. The standalone growth however remained muted on account of slower consumer discretionary spending and revenue loss from Lawman brand’s discontinuation from MBO channel. The brand will focus on retail channel going ahead. Revenue growth was also impacted, especially during the first half of the ongoing fiscal owing to limited availability of stock as the company temporarily shifted to just in time inventory model. Revenue for fiscal 2024 stood at Rs. 902 crores; y-oy growth of ~9% driven by volume growth of ~21% which was partly offset by a decline in realizations with change in mix. In the current fiscal, standalone revenue is expected to remain in the range of Rs.800-830 crore. At consolidated level, company is expected to report revenue of Rs.1000-1050 crore in current fiscal, and the growth shall remain in high single digit going forward. While the gross margins remained largely stable the company benefitted from better operating leverage with increase in volumes and cost controls which has resulted in improvement of operating margins from 18.4% in fiscal 23 to 19.1% in fiscal 24 and further to ~19.4% as of 9MFY25. Going forward, margins are expected to sustain at healthy levels of 18-20% aided by stable gross margins and higher operating leverage. 

 

The financial risk profile continues to remain strong with a healthy networth of over Rs. 700 Crore (as on Dec 31, 2024), a net debt free balance sheet and strong debt protection metrics. As company is moving towards own stores (lease-based model) for rapid expansion, the total debt (including lease liabilities) will rise and shall remain in the range of Rs.150-160 crore in the current fiscal. Despite increase in debt levels, the gearing shall remain comfortable at below 0.25x over near to medium term. Interest coverage remains strong and stood at over 25 times for 9MFY25. KKCL’s liquidity position also remained strong with unencumbered liquid surplus of over Rs 320 crores as on December 31, 2024.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of KKCL and its subsidiaries. This is because all these companies are in the same business and have strong financial and operational linkages. Goodwill arising from acquisition of Kraus Casuals P Ltd (KCPL) for Rs 118 crore and Other Intangible assets of Rs.136 crore as of Dec 31, 2024, has been written off from Networth during the current year.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established position in the domestic menswear segment, with recognized brands and diversified geographic and channel presence: Well diversified apparel product base with 5 brands across different segments like casual wear, formal wear, clubwear, semiformal and ethnic wear. KKCL has pan India diversified presence with the highest proportion derived from the eastern region. Furthermore, the company sells its products through different channels like EBOs, e-commerce, MBOs, national chain stores and LFS stores. The brand portfolio of KKCL includes flagship brand Killer (accounting for over 65% of revenues) and other brands namely Lawman, Integriti, Easies and Desi Belle. Lawman and Integriti which cater to mid-range Men’s formals and clubwear bring in about 15-20% revenue combined. The balance is from Easies, Desi belle, and other smaller brands. In Jun 2024, KKCL acquired 50% stake in a women denim wear company Kraus Casuals P Ltd which contributed to ~5-7% to total revenues in 9MFY25.

 

• Healthy financial risk profile: The financial risk profile is expected to remain healthy, with strong debt protection metrics and healthy liquidity over the medium term. The company has minimal short-term debt on its books and networth of over Rs. 700 crore as on December 31, 2024, supporting strong debt metrics; gearing stood at 0.03 time on 31st March’2024 and is expected to remain comfortable below 0.25x despite increase in lease liabilities expected in the coming fiscals. Interest coverage is expected to remain comfortable over 10 times over the medium term. Liquidity is strong, supported by unencumbered cash and marketable securities of around Rs 325 crores as on 31st December 2024.

 

Weaknesses:

• Revenue concentration, with high contribution from the Killer brand: The revenue of KKCL is concentrated in terms of brand as well as product, with Killer contributing more than 60% to the revenue; consequently, the share of jeans remained over 50%. While other brands, such as Integriti and Éasies, have also grown over the years and the company is focusing on increasing contribution from these brands. The company has also forayed into new brands namely Junior Killer, Desi Belle and Kraus. However, Killer will remain a significant revenue contributor over the medium term due to its strong brand recall. With the acquisition of KCPL, while revenue proportion of Killer has come down, it continues to remain the major revenue contributor.

 

• Exposure to intense competition in the apparel segment and vulnerability to changes in fashion trends in the domestic market.: The Indian market, with its burgeoning youth segment, has attracted prominent global brands in the apparel segment. These range from mass-appeal to premium brands, across age groups, and pose significant competition to KKCL's brands. Furthermore, the emergence of e-commerce has intensified competition. Business is driven by fashion trends, and the target segment's aspirations are significantly influenced by peers, role models and the media. Therefore, their association with brands may change based on their perception of the value offered by the brands. Thus, manufacturers of branded apparel need to constantly innovate and adapt to the changing preferences of the target segment. KKCL, with its team of in-house designers who work on the upcoming season's collections, is likely to have the ability to adapt to changing trends.

Liquidity: Strong

The company had liquid investments (including cash and cash equivalents) of Rs 325 crore as on December 31, 2024. Liquidity position is expected to remain strong over the medium term owing to healthy accruals and absence of any major capex plans. Furthermore, bank lines of Rs 145 crore are utilized at an average of ~42% for the past 12 months ending January’2025, which coupled with annual accruals of over Rs. 120-140 crore per annum will sufficiently cover the modest capex and incremental working capital requirement.

Outlook: Stable

Crisil Ratings expects KKCL to sustain its credit risk profile, supported by its established brands and distribution network in the domestic apparel business, and its prudent financial risk profile.

Rating sensitivity factors

Upward Factors

• Significant increase in revenue while operating margins remaining at current levels of 18-20% doubling the cash accrual from current levels.
• Maintenance of strong financial risk profile, through prudent funding of capex, and efficient working capital management.

 

Downward Factors

• Sluggish revenue growth impacting operating profitability (below 10-12%) and cash generation on sustained basis
• Moderation in the financial risk profile because of large, debt-funded capex, higher-than-expected store expansion or stretched working capital cycle impacting debt metrics
• Substantial reduction in cash surpluses, due to material dividend payout, share buy-back or capital reduction

About the Company

KKCL was established in 1980 as a partnership firm named Kewal Kiran and Co by Mr Kewalchand P Jain and Mr Hemant P Jain and was reconstituted as a public limited company with the present name in fiscal 2006. The company designs, manufactures and markets branded jeans, and a wide range of apparel products for men and women. Key brands include “Killer”, “Integritti”, “Lawman” and “Easies” for men and “Desi Belle” and “Kraus” for women.

 

KKCL has 4 manufacturing units located across 3 states with a total area of ~2.87 lakh sq. ft., it has two garment stitching units in Mumbai, a washing unit at Vapi (Gujarat), and a finishing and packaging facility at Daman (Union Territory of Daman and Diu). As on Dec 31, 2024, the company has 591 retail stores, of which 505 are owned and operated by franchisees.

Key Financial Indicators*

As on/for the period ended March 31	Units	2024	2023
Operating Income	Rs.Crore	902	827
Profit After Tax (PAT)	Rs.Crore	154	119
PAT Margin	%	17.08	14.4
Adjusted debt/adjusted networth	Times	0.03	0.12
Interest coverage	Times	39.43	23.84

*Crisil Ratings Adjusted Numbers

Any other information: Not Applicable