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Stock split executed; maintain positive stance…

About the stock: KPR Mill is among select vertically integrated textile players in India (from yarn to garments) that has displayed a consistent revenue growth and positive operating margin trajectory with strong return ratios.

* 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.

Event: Stock Split

* Shares of the company were split on September 24, 2021 (ex-date) pursuant to the board and shareholder approval granted for sub-division of shares in its meetings on July 27, 2021 and September 9, 2021, respectively. The record date for the same has been fixed as September 27, 2021. Subsequently, the shares of the company have been split with existing face value of | 5 has been subdivided into five equity shares of | 1 face value each

* Today is the ex-date for the stock split. Thus, the stock price has adjusted to one-fifth.

What should investors do?

Since our initiation report, the stock price has appreciated by ~4x (from | 119 (price adjusted for stock split) in September 2020 to | 480 in September 2021).

* We continue to like KPR as a structural long term story to play the apparel export space. We maintain BUY recommendation on the stock

Target Price and Valuation: We value KPR at | 575 i.e. 26x FY23E EPS

Key triggers for future price performance:

* KPR has two major capex projects in the pipeline worth | 750 crore towards garmenting facility (| 250 crore) and ethanol facility (| 500 crore)

* Capital deployment towards value accretive projects (targeted RoCE: garmenting: 30%, ethanol: 22%) augurs well for KPR

* Robust opportunities in US market gives strong visibility for sustained growth in exports (currently Europe is the key market for garment exports)

* We model revenue, earnings CAGR of 18%, 21%, respectively, in FY21-23E with higher RoCE of 26%.

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