KOCHI: Kitex Garments' (KGL) ambitious Telangana expansion is facing mounting headwinds just as the financial burden of the project is beginning to show up sharply in the group's credit profile.
At about Rs3,500 crore, the Telangana project is more than five times the group's FY26 consolidated revenue of Rs719.28 crore.. The scale of the investment becomes more striking when seen against the group's sharply weakened profitability in FY26.
The project is being implemented through Kitex Apparel Parks Ltd (KAPL), jointly owned by Kitex Garments Ltd and Kitex Childrenswear Ltd in a 70:30 ratio.
According to the latest credit assessment, EBITDA margin collapsed to 0.21 per cent from 20.34 per cent, while interest coverage fell to just 0.03 times from 14.07 times. Net adjusted leverage, meanwhile, shot up from 4.23 times to 638.85 times - a surprisingly big leverage ratio..
Against this backdrop, India Ratings has downgraded Kitex's long-term bank-loan rating from IND A to IND BBB+, with a Negative Outlook.
Too big a project?
The project was originally conceived at Rs2,406 crore in 2021, but the planned investment subsequently expanded to about Rs3,500 crore as the scale of the Telangana expansion increased.
The question now is not simply why the project became larger, but whether the enlarged investment is facing more headwinds than the group can comfortably absorb.
The pressures are coming from several directions. The new facility has taken time to reach scale; the group has had to absorb part of the US tariff impact; order execution has been slower; and the debt-funded expansion has sharply increased the financial burden.
The Telangana expansion is being funded largely through debt, with the project structured on a 70:30 debt-equity basis. KGL has also provided a corporate guarantee for KAPL's bank borrowing.
"What assumptions about revenue, margins, utilisation and debt servicing underpinned the original financing?" a corporate analyst quipped.
