KPR Mill Ltd. (KPR) is one of the largest vertically-integrated player with presence across entire value chain i.e., form fibre to fashion. The company has 12 manufacturing units equipped with an annual capacity to produce 1,00,000 MT of yarn, 40,000 MT of fabrics and 115 million ready-made knitted apparels. In addition, the company also had set up garment unit with capacity of 10 million pieces per annum in Ethiopia. It also owns and operates a co-generation cum sugar plant with capacity of 40 MW & 10,000 TCD and ethanol plant capacity of 130 KLPD. KPR has also invested in captive power plants and has total green power capacity of 61.92 MW as of June 2021.
Prompted by the growth prospects, KPR is expanding its garment and sugar-based ethanol capacities, which are in progress. KPR has strong presence in domestic as well in international markets. It has relationships with more than 1,200 regular domestic clients for yarn and fabric and around 60 leading international brands for garments.
|Rs. in Crores||Net Sales||EBITDA||EBITDAM||PAT||EPS||ROE||P/E||EV/EBITDA|
Integrated Nature of Operations Supports Operating Margin
The company is India’s largest integrated player with presence across textile value chain from yarn to apparels. The integrated structure and large-scale operations of the company has aided in maintaining the consistency in product quality and control over raw material prices. The operating margins are expected to improve due to on-going capacity expansion and benefits from RoSCTL scheme, which the central government has extended recently in its meeting held on July 14, 2021. The ten-year average EBITDA margins of the company stands at 19.2%, which is admirable, given the volatile nature of the textile industry. The control over its value chain has enabled the company to reduce the lead time and provide on-time delivery to domestic and international clients, which in turn has positioned the company as a preferred vendor.
Capacity Expansion to aid Revenue Growth and Profitability
The company has announced the capacity expansion of its garments segment. With the new capacity of 42 million pieces of garments per year, the total garment production capacity of the company will be increased to 157 million pieces per year. As per the management, the 42 million project is expected to be commissioned in October 2021. Further, the company has decided to set up a new plant with capacity to produce 10,000 TCD sugar, 220 KLPD ethanol, and 50 MW co-gen. With this, the overall sugar business capacity will increase to 20,000 of TCD of sugar, 90 MW of power, and 340 KLPD of ethanol and as per the management, the project will be commissioned by end of November 2021.
Recent changes in sugar industry such as increase in ethanol blending in petrol and higher prices of sugar in international markets, etc. could help the company to improve its operating revenues and profitability. The management expects Rs. 1,100 – Rs. 1,200 crores of revenue from new sugar plant at full capacity.
China Plus One Strategy to Boost Exports
Due to the diversification of supply chain triggered by the Covid-19 induced disruptions and trade tensions between US and China, manufacturers are avoiding to rely on one geography and looking for replacements. In South-East Aisa region, India is emerging as the most preferred alternative as the country has abundant raw material, cheap labour, and manufacturing infrastructure. Indian cotton is less costly and labour is cheaper than China. Global manufacturers, therefore, no longer regard China as an affordable haven.
India is also the world's largest cotton producer and has about 41% of the world area under cultivation between 12.5-13 million hectares (Source: Company Annual Report, 2021) promoted by the raise in MSP for cotton by central government. Further, China is facing the hurdle as the US has banned the cotton imports from China’s Xinjiang region (contributing +80% of Chinese cotton production) which results into loss of market share in all cotton segments. We believe that the diversification strategy by global players would create a huge opportunity for India along with other countries such as Pakistan, Vietnam, etc. Global brands show higher preference for vertically integrated players for their higher control on quality and timely deliveries. KPR Mill, being one of India’s largest vertically-integrated player, is expected to reap benefits from this shift.
Restoration of RoSCTL Scheme Could Aid Margins
The Union Cabinet meeting on 14th July 2021 has given its approval for the continuation of the RoSCTL (Rebate of State and Central Taxes and Levies) with the same rates for Made ups and Garments till March 31, 2024. The extension of the RoSCTL scheme is a positive development which is expected to improve the competitiveness of Made ups articles in the export markets and lead to a jump in overall exports. This is expected to restore profit margins of players in the industry. The company has not realised the benefits of scheme in Q1FY22 since the official notification has not been published, only press release is available. As of June 30, the company is eligible for ~Rs. 15 – Rs. 16 crores of income and once the final notification is out, the company will realize the eligible amount and this is expected to aid margins in coming quarters.
Improving Financial Performance
Despite complex economic scenario caused by the Covid-19 pandemic, the company sustained better performance trend and was able to close the year with highest-ever revenue and profits. In FY21, the revenue from operations stood at Rs. 3,530 crores vs. Rs. 3,353 crores in FY20, a growth of 5.3% YoY. Further, due to factors like lower cost of raw material and finance costs coupled with benefits of integrated operations, the company was able to post high operating margins of 23.5% vs. 18.5% in FY20. In Q1F22, margin improved and stood at 24.9% (a sequential improvement of ~100bps). Net profit margin also seen an uptick of 340bps to 14.6% in FY21. The company’s debt/equity ratio has also improved from 0.42x in FY20 to 0.28x in FY21. The capacity addition in textile and sugar segment is expected to further aid in revenue growth as well as profitability.
On the back of huge growth opportunity in exports, capacity expansion, vertically integrated operations, strong balance sheet, ability to maintain cost of power through green power investments, strong client base in domestic and international market, the company is set to reap benefits. Further, change in strategy of the global brands to diversify their supply chains will open a new gate way for the company in international markets. We assigned a multiple of 11.05x to the company’s textile business and 10x to its sugar business to arrive at FY23E EV of Rs. 13,293 crores.
|Segments||FY22 EBITDA||FY23 EBITDA||EV/EBITDA (X)||EV|
|Particulars (FY21)||Sales CAGR (FY16 - FY21)||Operating Margin (%)||PAT Margin (%)||RoCE (%)||RoE (%)||EV/EBITDA (FY23E)|
|Indo Count Industries||4.08%||15.03%||9.95%||23.04%||19.51%||9.1x|
|Year End March (Rs. in Crores)||2019||2020||2021||2022E||2023E|
|Depreciation & Amortization||131.13||137.09||146.70||187.00||203.00|
|EBIT Margin %||14.20%||14.46%||19.34%||19.82%||20.35%|
|Interest & Finance Charges||48.94||49.65||32.84||48.44||51.44|
|Profit Before Tax - Before Exceptional||468.58||471.67||688.86||815.61||1005.90|
|Profit Before Tax||468.58||471.67||688.86||815.61||1005.90|
|Effective Tax rate||28.54%||20.14%||25.20%||25.17%||25.17%|
|Net Profit Margin||9.90%||11.24%||14.60%||14.63%||15.01%|
|Consolidated Net Profit||334.87||376.68||515.26||610.32||752.71|
|Net Profit Margin after MI||9.90%||11.24%||14.60%||14.63%||15.01%|
|As of March (Rs. in Crores)||2019||2020||2021||2022E||2023E|
|Non Current Liabilities|
|Long Term Borrowing||130.49||206.75||179.08||526.37||326.37|
|Deferred Tax Assets / Liabilities||46.83||32.60||29.35||29.35||29.35|
|Short Term Borrowings||690.79||533.82||431.03||431.03||431.03|
|Other Current Liabilities||83.21||101.11||110.55||63.26||63.26|
|Total Equity & Liabilities||2973.74||2882.42||3251.38||4196.32||4746.35|
|Non Current Investments||2.10||2.10||1.50||1.50||1.50|
|Long Term Loans & Advances||53.74||42.39||211.27||211.27||211.27|
|Cash and Bank||74.84||154.22||77.26||183.32||159.96|
|Year End March (Rs. in Crores)||2019||2020||2021||2022E||2023E|
|Profit After Tax||334.87||376.68||515.26||610.32||752.71|
|Changes in Working Capital||-445.21||236.97||-47.33||-122.55||-237.77|
|Cash From Operating Activities||65.94||788.28||658.92||674.78||717.94|
|Purchase of Fixed Assets||-92.46||-296.64||-285.01||-725.00||-200.00|
|Free Cash Flows||-26.52||491.64||373.91||-50.22||517.94|
|Cash Flow from Investing Activities||-69.09||-282.79||-548.34||-825.00||-400.00|
|Increase / (Decrease) in Loan Funds||-22.30||87.83||-27.90||300.00||-200.00|
|Equity Dividend Paid||-5.44||-31.24||-30.96||-34.41||-41.29|
|Cash from Financing Activities||46.72||-417.77||-194.44||265.59||-341.29|
|Net Cash Inflow / Outflow||43.57||87.72||-83.86||115.37||-23.35|
|Opening Cash & Cash Equivalents||20.52||64.09||151.81||67.95||183.32|
|Closing Cash & Cash Equivalent||64.09||151.81||67.95||183.32||159.96|
|Year End March||2019||2020||2021||2022E||2023E|
|Cash EPS (Rs)||64.22||74.65||96.19||115.86||138.87|
|Book value (Rs/share)||246.72||271.12||341.50||425.18||528.55|
|ROCE (%) Post Tax||15.41%||15.96%||19.39%||18.90%||19.12%|
|Dividend Yield (%)||0.04%||0.23%||0.23%||0.26%||0.31%|
|Net Debt/ EBITDA||1.28||1.01||0.42||0.48||0.09|
|Sales/Net FA (x)||2.87||2.73||2.74||2.74||2.78|