Kitex Garments

Cash Reserves and Debt

The Kitex Garments has been performing very well over the last few years though has delivered a
profit of 15.35% in the last financial year which is lower than 20%, the company earned in previous
financial year. The company has a unique case where it stores majority of its reserves in cash form in
current accounts and has not been dissolving its loan or distributing significant dividends to its
shareholders. The company has an outstanding liability (long term + short term) of Rs. 3.1 Crores which
is decreased from Rs. 91.8 Crores. The company was carrying a total borrowing of this level for past
few years without paying off the debts even when it has sufficient reserves in its current account.

Considering that the company can raise debt at ~12% from the market and is losing out on interest on
the majority reserves of the order of 8% if invested in deposits, the company is foregoing a total of
~20% on its capital. This is a unique case but as the company is holding the cash in foreign exchange,
it is able to earn due to foreign exchange variations which is the major contributor to the income from
other sources till last year. Now that the company has paid most of its debt the income from exchange
rate variations have reduced to nil. The income has been contributing to a higher pay-out and hence
it was in favour of the company to earn through foreign exchange variations, though it was illegal to
keep money in foreign exchange reserves beyond 1 month of transaction, if not hedging.

Related Party transactions

The related party transactions indicates that the company is majorly outsourcing its work to Kitex
Childrenswear and getting its inventory of fabric through Kitex Limited.

It seems new contracts have been designed as the processing charges wee reduced in the year 2015
but again increased in the year 2016 and 2017. The fabric sale through Kitex Childrenswaer is declining
and increasing through Kitex KLimited, showing the changing scenario of inventories.

Also, the inventory of yarn is rotated between Litex Garments and Kitex Limited and the company has
been selling and purchasing yarn in the year 2015-2016.

New investments were made in Kitex USA for the business of readymade garments and it has resulted
in revenue of 20 crore in 2016-2017. New investments of the order of 7 crore were further made into
this business.