01-01-1970 12:00 AM | Source: HDFC Securities Ltd
Buy KPR Mill Ltd For Target Rs.1186 - HDFC Securities
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Our Take:

KPR is a leading business conglomerate in India, which is engaged in textiles, sugar, ethanol, and power generation. Textiles is its core business, wherein it is vertically integrated, with a presence across the entire value chain from the manufacturing of cotton yarn to processed fabric and ready garments. KPR is one of the largest exporters (in volume terms) of knitted garments from India with a capacity of 115mn pcs/annum. Going forward, it plans to augment its capacity by another 42mn pcs/annum. In order to leverage its knitting manufacturing expertise and expand its B2C business, it has recently launched a new innerwear and athleisure brand FASO.

The company has a focus on the export market, which has led to export revenue growing from 33% of sales in FY15 to 42% in FY20. The company's major export destinations are the United Kingdom, China, Australia and the US. Additionally, it has invested in a captive power plant which has helped it reduce power costs.

The newly announced capex plan will increase borrowing on the balance sheet but would cover garmenting under TUFS and attract 50% interest subsidy for ethanol capacity. Also, the new capacities will come up under a new subsidiary, which will be eligible for the lower tax rate of ~15%.

 

View & Valuation:

We expect the company to benefit from its (1) strong balance sheet, (2) longstanding relationship with marquee Indian and global clients, (3) fully integrated presence from manufacturing yarn to garments, and (4) investment in captive power plants. Also, the company’s new venture in B2C branded innerwear segment, the recent commissioning of its ethanol facility, and the expansion of garmenting capacity by 42mn pcs/annum lend it strong growth visibility. While the COVID-led lockdown had adversely impacted H1FY21,the company has witnessed a strong recovery Q3 onwards. Going forward, we expect a 10% CAGR in top-line and 13% EPS CAGR over FY20-23E.

KPR is one the key long term stories to play the Indian garment export theme. Its competitive advantages, integrated operations, focus on value added products, and strong balance sheet remain the key triggers.

We believe the base case fair value of the stock is Rs 1090 (14.2x FY23E EPS), while the bull case fair value is Rs 1186 (15.5x FY23E EPS). Investors willing to take some risk can look to buy the stock on dips to Rs 994 (13.0x of FY23E EPS) and add more at Rs 880 (11.5x of FY23E EPS).

 

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