Alpha | KPR Mill Ltd.

April 15, 2024

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KPR Mill Ltd. – Key participant within the textiles business.

Integrated in 2003 and headquartered in Coimbatore, KPR Mill Ltd. is without doubt one of the largest vertically built-in attire manufacturing firms in India. With state-of-the-art manufacturing amenities in Tamil Nadu and a world footprint spanning 60 nations, the corporate’s diversified enterprise is unfold majorly throughout yarn, cloth, clothes, and white crystal sugar. As of 31 March 2023, KPR has a capability to supply 1,00,000 MTPA of Cotton yarn & 4,000 MTPA Viscose vortex yarn, 40,000 MTPA materials and 157 million readymade knitted attire each year. The corporate has additionally ventured into branded retail phase through the launch of its in-house model FASO.

Merchandise and Providers

KPR has a various vary of product portfolio comprising readymade knitted attire, materials, compact, melange, carded, polyester, combed yarn and many others. Moreover, the corporate can be within the enterprise of manufacturing white crystal sugar, ethanol and energy era.

Subsidiaries: As of FY23, the corporate has 7 subsidiaries.

Key Rationale

Sturdy observe report with stable shopper base – The corporate has export relationship with varied main worldwide manufacturers resembling Primark, Marks & Spencers, H&M and many others. Additional, cementing its confirmed observe report of catering to main gamers, the corporate just lately added Walmart as buyer for US exports, and GAP to the US and Europe buyer listing. The brand new shopper additions are anticipated to offer robust quantity traction to the corporate. Throughout Q3FY24, KPR pulled off an all-time excessive garment order e-book of Rs.1,100 crore.

Constant capex expansions – The corporate is increasing its processing capability with an outlay of Rs.250 crore together with solar energy plant at a Rs.100 crore capex spend (capability of 25MW) taking the photo voltaic and wind capability to 100 MW. It just lately accomplished establishing of vortex spinning mill at a capital outlay of Rs.100 crores, roof prime solar energy plant with an funding of Rs.50 crore and ethanol capability growth at present sugar mills at a capital outlay of Rs.150 crores. With this the capability of present sugar mill ethanol capability has elevated from 120 KLPD to 250 KLPD. It additionally accomplished the greenfield processing & printing growth at Rs.50 crores to match the processing capability to fulfill the present garment capability.

Sugar/Ethanol phase – The ethanol manufacturing is predicted to take successful given the government-imposed restrictions on utilizing sugarcane juice to supply ethanol. Despite the fact that ethanol manufacturing from B-Heavy molasses and C-Heavy molasses will proceed as normal, the corporate has estimated a 40% discount in ethanol manufacturing changing right into a Rs.200 crore income dip through the season. It’s aiming to compensate this loss from the marginally improved sugar costs from final 12 months. Moreover, greater than anticipated sugar yield would possibly lead to authorities stress-free the restrictions presently imposed. The corporate has given a manufacturing steering of seven – 8 crore litres of ethanol and a pair of lakhs tonnes for sugar for the present 12 months.

Q3FY24 – In the course of the quarter, income declined by 12% from Rs.1,445 crore of Q3FY23 to Rs.1,269 crore of Q3FY24. Working revenue improved marginally by 1% to Rs.272 crore from the Rs.269 crore of Q3FY23. Web revenue improved by 7% to Rs.187 crore. In the course of the quarter, the corporate needed to take the influence of fall in sugar worth and consequent fall in worth of yarn, margin lower in yarn resulting from subdued demand in worldwide markets, garment cargo delay resulting from cyclone in Tamil Nadu and the federal government ban on utilizing sugar cane juice for ethanol manufacturing. Phase-wise margin achieved by the corporate is as follows – Yarn & Cloth margin – 15%, Garment – 27%, Sugar – 27%.

Monetary efficiency – KPR has generated a income and PAT CAGR of 23% and 30% over the interval of three years (FY20-23). Common 3-year ROE & ROCE is round 26% and 27% for FY20-23 interval. The corporate has robust steadiness sheet with a strong debt-to-equity ratio of 0.21.

Business

The elemental energy of the textile business in India is its robust manufacturing base of a variety of fibre/yarns from pure fibres like cotton, jute, silk and wool, to artificial/man-made fibres like polyester, viscose, nylon and acrylic. India is without doubt one of the largest producers of cotton and jute on this planet. With 4.6% share of the worldwide commerce, India is the world’s largest producer and third largest exporter of textiles and attire on this planet. India ranks among the many prime 5 international exporters in a number of textile classes, with exports anticipated to succeed in US$ 65 billion by FY26. Cotton manufacturing in India is projected to succeed in 7.2 million tonnes by 2030, pushed by growing demand from customers. India enjoys a comparative benefit by way of expert manpower and in value of manufacturing, relative to main textile producers. Rising demand for on-line purchasing can be anticipated to assist the expansion of textile manufacturing market.

Progress Drivers

100% FDI is allowed beneath automated route in textile business.

Rs.4,389.24 crore (US$ 536.4 million) complete allocation for textile sector in Union Finances for FY23-24.

Numerous authorities schemes such because the Scheme for Built-in Textile Parks (SITP), Expertise Upgradation Fund Scheme (TUFS) and Mega Built-in Textile Area and Attire (MITRA) Park scheme.

Opponents: Web page Industries Ltd, Gokaldas Exports Ltd and many others.

Peer Evaluation

Compared to the above rivals, KPR Mill is probably the most undervalued mid-cap inventory with higher returns on the capital employed and secure progress in gross sales.

Outlook

The way forward for the Indian textiles business appears promising, buoyed by robust home consumption in addition to export demand. The corporate expects to attain enhance in gross sales volumes by advantage of enhance in capability throughout clothes, spinning, sugar and ethanol divisions. It’s eyeing a progress of 10% to 12% progress in clothes phase. In addition to constant capability additions within the core textiles enterprise, strategic investments within the sugar/ethanol enterprise will assist maintain the expansion momentum. The corporate is anticipating a scale as much as a variety of Rs.10 crore per thirty days run charge from FASO.

Valuation

We count on a gradual choose up in volumes and realisations for KPR Mill Ltd given the corporate’s important market share within the demand pushed business and capability expansions. Nevertheless, we count on the sugar/ethanol division to stay beneath strain resulting from head winds. We advocate a BUY ranking within the inventory with the goal worth (TP) of Rs.974 34x FY25E EPS.

Dangers

Centralised manufacturing amenities – The entire firm’s manufacturing amenities are situated in Tamil Nadu. Any unprecedented actions or unanticipated local weather situations on this area would possibly pose a hindrance for the continuation of operations.

Foreign exchange Danger – The corporate has important operations in overseas markets and therefore is uncovered to foreign exchange threat. Any unexpected motion within the foreign exchange market can adversely have an effect on the corporate.

Recap of our earlier suggestions (As on 12 Apr 2024)