KPR Mill Ltd. share price target

It is one of India's largest knitted garment manufacturer with total capacity of 157 million pieces (post expansion) Consistently, over the years, it has maintained ~18%+ margins with average RoCE of ~20% and D/E ratio of 0.3x Q1FY 22 Resu lts: Despite pandemic related challenges, KPR Mills has reported yet...

The upcoming garmenting facility (42 mn pieces) is expected to be commissioned by Q2FY22. The same would be fully ramped up in eight to 12 months. Of total incremental capacity, 60-70% is to be utilised for existing customer with balance for new customers. Europe has been the key market for KPR (~54% of garment export revenues) whereas US stays underpenetrated with share of ~22%. Robust opportunities in US market gives strong visibility for sustained export growth. At average realisation of | 150/piece, the new facility would generate incremental revenue of...

The company is planning a capex of | 500 crore by setting up a sugar (10000 TCD) and ethanol plant (230 KLPD). The project is expected to become operational by November 2021. The rationale behind expansion of sugar and ethanol business is owing to the management belief that current government policies (sugar MSP, 50% interest subsidy on term loan for ethanol capacity and enhanced ethanol blending in petrol) are conducive and offer an RoCE opportunity (~22%) in the aforesaid business segments. The already existing sugar ethanol capacity has revenue potential of ~| 550...

Over the last six years, KPR has strategically focused on increasing capacities in the garmenting businesses. In FY14-20, its garment capacity increased at ~20% CAGR, with garmenting revenues increasing 24% in the same period. Subsequently, share of garment revenue has increased from 16% in FY14 to 42% in FY20. KPR, in the previous quarter, announced 40% increase in new garmenting capacity (~47 mn pieces) with full ramp expected up by FY23E. Capex for the same is estimated at | 250 crore with ~75% funding through debt (covered under TUFS). Furthermore, the new...

Volumes Surprise Positively: Yarn, Fabric and garment volumes surprised positively.

Currently, the garmenting division is operating at optimum utilisation levels. To cater to growing market demand and tapping new potential markets such as US (KPR currently has strong presence in EU), the company has embarked on a greenfield expansion of its garmenting facility with annual capacity of 42 mn pieces. With the capacity addition, KPR will be India's largest knitted garment manufacturer in India with total capacity of 157 mn pieces. Capex for the same is estimated at | 250 crore with ~75% funding through debt (covered under TUFS). Furthermore, the new capacity will be...

Global brands in textile, apparel are exploring competitive sourcing alternatives to China. India, owing to its competence due to abundant availability of raw material (cotton, manmade yarn/fabric), strong pool of skilled labour at competitive wages can garner a higher share of global garmenting business. Global brands have shown higher preference for vertically integrated garment manufacturers who have control over quality, delivery timelines. KPR, with a vertically integrated model from yarn to garmenting seems well set to benefit from shift in demand from China to other...

Valuation and Risks: The stock has traded at an average valuation of 14x in the past 5 years, While the results were not impressive, the balance sheet strength (in comparison with peers) and the focus on diversification plans that were already underway (in termsof geography) gives us confidence that the company can weather the period andare better placed to come out of this without having to reinvent itself.

Valuation and Risks: We believe Covid disruptions have put a dampening deny on the fortunes of KPR in the medium term.