Kitex initiates ‘big business plans’ to rescue its US associate

Kitex USA hopes to achieve about $35m in turnover in three years

KOCHI: Kitex Garments Ltd (KGL) is pulling out all the stops to rescue its 50 per cent associate company, Kitex USA LLC, based in the United States.

Kitex USA has been going through a rough patch ever since COVID made its ugly entry in 2020, impoverishing and debilitating millions around the world.

The net worth of Kitex USA has already eroded due to the continuous losses it has been incurring in the past few years, and this has prompted the auditors of KGL, the parent of Kitex USA, to ‘qualify’ its 2023-24 financial report.

Financials qualified

Qualifying a financial report is viewed as serious, as it amounts to raising a red flag about the financial strength of the company.

However, while explaining the future course of action to businessbenchmark.news, the chief financial officer (CFO) of the parent company, Boby Michael, said KGL is going all out to lift its US unit from the financial pit it has fallen into.

Kitex Garments has investments amounting to Rs27.76 crore in its US associate, Kitex USA, which has developed serious financial weaknesses during the year ended March 31, 2024, mainly due to continuous losses in the past years.

However, the company maintained that the carrying value of the investment is recoverable, based on management assessment and internal valuation performed.

Auditors stated that rescuing the company is dependent on various input data and other external factors contributing to the associate’s ability to turn around.

“In the absence of corroborative audit evidence to substantiate the reasonableness of the above-mentioned unobservable inputs, we are unable to comment on the recoverability of the carrying value of an investment in Kitex USA, LLC,” auditors explained as the basis for making a ‘qualified opinion’ about the company’s FY24 accounts.

Q4-FY 24 performance

Kitex group’s consolidated net profit for the fourth quarter (Q4) was Rs19.75 crore, whereas on a standalone basis, KGL reported a net profit of Rs25.99 crore for the same period.

Explaining the rescue plans chalked out for Kitex USA, Michael said, the company has tied up with big names such as Lat Apparel and Sam’s Club.

Moreover, a direct placement deal has already been signed with Walmart, which is expected to not only lift sales but even profitability.

“We hope to close the current financial year 2024-25 (FY25) for Kitex USA with a sales turnover of $30 million to $35 million, the trend if sustained for the next two to three years will help the group pull out Kitex USA from all its financial ailments,” added Michael.

Kitex Apparel Parks

The Kitex CFO said that the Warangal unit of the prestigious Kitex Apparel Parks (KAP) in Telangana will commence its production, hopefully, by September this year.

The Telangana-based KAP has made enough headlines and has even irked the LDF government for taking a heavily human resource-intensive project outside Kerala.

KAP is being established at Rs3,000 crore and for this, the management has tied up Rs2,000 crore project finance from a consortium of six banks, led by Axis Bank.