KPR Mill Ltd is a mid-cap company in the textile industry with a market valuation of ₹19,309.07 Cr. The company’s diverse business spotlight includes White Crystal Sugar, Yarn, Fabrics, and Garments. The firm also produces a wide variety of textile products, including Compact, Melange, Carded, Polyster, and Combed Yarn, Readymade Knitted Apparel, Fabrics, and Readymade Knitted Apparel. KPR Mill Ltd. shares ended trading on the NSE on Friday at ₹564.50 per share, up 0.0089 per cent from the previous close. At the present price, the stock is trading 26.59 per cent below its 52-week high and 70.94 per cent above its 52-week low on the NSE, where it reached a 52-week high of ₹769.00 on 14-January-2022 and a 52-week low of ₹330.23 on 23-August-2021. Edelweiss Broking Limited has set a buy call on KPR Mill’s stock with a target price of INR 860, which would be a new or all-time high. From the stock’s present market price, the stock has a potential upside of 52.34 per cent to achieve its target price.
The brokerage firm has said in a note that “KPR Mill’s revenue increased 75.4% YoY (on a low base) and 9% QoQ to INR1,585cr (11% above our estimates), led by strong growth across segments. Textile segment grew ~63% to INR1,276cr while sugar segment revenue grew ~2.5x to INR284cr. Within textile, garments grew 83% YoY (16% QoQ) to INR692cr, led by commissioning of new garment facility and higher realization whereas yarn & fabric segment grew relatively slower by 42% YoY (-6% QoQ) to INR541cr due to higher captive utilisation. Gross margins contracted 40 bps QoQ at 40.5% due to higher cotton prices and freight costs. However, tight control over operating costs led to 15% beat in EBITDA (INR368cr vs our estimates of INR321cr). Thus, EBITDA margins were flat sequentially at 23.2%. On account of higher depreciation, interest costs and taxes, PAT was just 5% above our estimates to INR227cr (up 35% YoY and 4% QoQ).”
“Garment segment’s volume stood at 36.7mn pieces, up 28% YoY on account of: (a) commissioning of new garment facility with capacity of 42mn pieces in Nov’21 (total capacity 157mn pieces) and (b) strong demand for apparel in export markets with the opening up of the economy. With 3x rise in cotton prices and 4x rise in freight costs, KPR has taken price hikes, resulting in 39% YoY (20% QoQ) increase in realization to INR190/piece. Over the last two years, KPR’s average garment realization has risen ~50%, driven by aggressive price hikes and better product mix. We expect the garment segment to continue its outperformance and deliver 14% growth over FY22–24, led by 12% volume growth, despite the expected slowdown in export markets in H2FY22,” said Edelweiss Broking Limited.
“KPR commissioned 10,000 TCD sugar and 230 KLPD ethanol capacity during the quarter, taking the total capacity to 20,000 TCD sugar and 360 KLPD ethanol. Usually Q1 is a seasonally weak quarter for sugar companies, however, with this capacity addition, sugar/ethanol revenue grew more than 1.5x YoY and 27% QoQ to INR284cr. At maximum utilisation, the sugar/ethanol plant would generate ~INR1,400cr of annual revenue (50:50 sugar/ethanol mix). KPR expects the new sugar/ethanol facility to reach significant capacity by the end of FY23. As ethanol is a high-margin segment, we expect the company’s operating margins to improve 260 bps to 25.5% over FY22– 24. Supported by robust sugar exports and more ethanol contracts from the government, we forecast revenue from the sugar/ethanol facility to deliver ~50% revenue CAGR to INR1,430cr over FY22–24,” added the brokerage.
“Though we expect KPR Mill to post strong numbers in Q2FY23 as well, considering profit warnings by global retailers amid US recession concerns towards the end of the year, we believe garment exporters may see contraction in their order books in H2FY23. Moreover, contraction in textile segment realization to pass on the recent decline (and expected further decline) in cotton prices, would hinder revenue growth in textile in H2FY23. Nonetheless, we remain confident that the textile export theme is here to stay driven by (a) adoption of the China Plus 1 strategy by global retailers, (b) high likelihood of India signing FTA agreements with Europe and the UK, (c) India’s market share gain from other competitive nations (Sri Lanka and Pakistan) and (d) addition of new geographies (Australia, Dubai, Japan and Latin America). To factor in the expected slowdown in H2FY23, we have reduced our earnings estimates for FY23E and FY24E by 6% and 5%, respectively. We maintain ‘BUY’ rating on KPR Mill with a revised target price of INR860/share (previous TP: INR900/share), valuing it at 26x FY24E earnings,” said the research analysts of Edelweiss Broking Limited.
The stock has produced a multibagger return of 421 per cent over the past three years, and a multibagger return of 268.71 per cent over the past five years. The stock has dropped 19.90 per cent YTD so far in 2022, but it has gained 47.04 per cent over the past 12 months. At the current market price of ₹564.50 the stock is trading below 5 days, 10 days, and 100 days EMA and higher than 20 days, 50 days and 200 days Exponential Moving Average (EMA).
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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