This smallcap stock hit over 8-yr high in weak market; zooms 237% in 5 mths

The stock price of Kitex Garments is quoting higher for sixth straight days, rallied 27% during the period, as the company's September quarter net profit nearly triple on higher demand.

Shares of Kitex Garments hit over eight-year high of Rs 642.15, locked in upper circuit of 5 per cent on the BSE in Monday’ intra-day trade in otherwise a weak market. Till 11:27 AM; a combined 2.09 million equity shares changed hands with pending buy orders for a combined 26,000 shares on the NSE and BSE. In comparison, the BSE Sensex was down 1.6 per cent or 1,264 points at 78,460. In five months, the stock price of Kitex Garments has zoomed 237 per cent from level of Rs 190.60 on June 4.

 

The stock price of smallcap company is quoting higher for sixth straight day, rallying 27 per cent during the period, as the company’s September quarter (Q2FY25) net profit nearly trippled on higher demand. The stock of garments & apparels maker is trading at its highest level since January 2016.

 

Driven by a surge in demand and favourable global market conditions, Kitex Garments has reported its highest-ever turnover and profitability. The net profit of the Kochi-based company, the world’s second-largest manufacturer of infant garments, has reached Rs 39.94 crore in Q2FY25, nearly tripling from Rs 13.21 crore in the corresponding period of the previous fiscal.

 

Earnings before interest, taxes, depreciation, and amortization (Ebitda) margin improved to 27.68 per cent in Q2FY25, compared to 18.25 per cent in Q2FY24. Total revenue grew 58 per cent year-on-year at Rs 220.91 crore, from Rs 139.48 crore in the same period last year.

 

Kitex Garments Managing Director Sabu Jacob said that the unrest in Bangladesh contributed to the financial growth of not only the company but the entire garment industry in India.

 

The capacity of India’s garment industry, he said, is $20 billion and the sector has so far utilised only $16.5 billion this year. The demand next year for India is going to touch $50 billion and this gives ample space for Kitex to grow. The Telengana Phase I and II will be operational by 2025 and 2026. With this, the total capacity of Kitex will be increased by $0.5 billion.

 

According to India Ratings and Research (Ind-Ra), the improving export demand in the textile industry, especially from the US, backed by the China-plus-one sourcing strategy and political instability in Bangladesh, augers well for the Kitex group. 

 

Also, the group’s scale of operations are likely to improve in the medium term as it has undertaken a large debt-led greenfield capex to set up an integrated textile manufacturing unit, with fair revenue visibility from the group’s existing customers. However, the rating is constrained by the increasing leverage, which shall peak in FY26, due to debt funding for the capex, high customer and geographical concentration, and inherent industry risks, the rating agency said in its rationale.

 

Ind-Ra expects the company's revenue growth to continue in the medium term; with a gradual increase in demand from existing and new customers as the export demand is recovering, which will be supported further by capacity additions. With the China-plus-one sourcing strategy and political instability in Bangladesh, Ind-Ra believes Indian garment exporters are better placed to increase their market share in global exports, subject to the availability of adequate capacities.

 

The export incentives from the government of India also lend support to the margins. The agency expects the Ebitda margin to improve in FY25 on account of a recovery in the textile industry; however, the margin is likely to moderate during FY26 and FY27 due to higher fixed overheads due to the initial stages of operations at Kitex Apparel Parks, with the first phase of project likely to become operational by April 2025 and the second phase by April 2026.