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KPR Mill Ltd

Investment Rationale

KPR has 12 Manufacturing units of advanced technology equipped with a capacity to produce 1,00,000 MT of yarn per annum; 40,000 MT fabrics per annum; 115 million ready-made knitted apparel per annum, one of the largest Garment Producers in India. It also has a co-gen Cum Sugar Plant with a capacity of 40 MW & 10,000 TCD and Ethanol Plant with 130 KLPD capacity. Prompted by the growth prospects, KPR is expanding its Garment and Sugar based Ethanol Capacities which are in progress

Planned Capex

The overall capacity will increase to 20,000 of TCD of sugar, 90 megawatt of power and 340 KLPD of ethanol. This will be operational by the end of FY22.Revenue at full capacity is expected to be at Rs 1,100 cr, with targeted margins of 25%+. Capital deployment towards value accretive projects (targeted RoCE: garmenting: 30%, ethanol: 22%) augurs well for KPR.

Robust Order Book

The garment order book, which was around Rs 575 crore in Q4FY21, is now close to Rs 700 crore. Indian yarn prices continue to be lower than international prices. The sustained quality and prompt deliveiy continue to enable KPR to attract more Garment orders from the customers whose activities revived after relaxations

Vertical Integration

KPR strategically has a vertically integrated alignment from yarn to apparels. This has translated into lower RM volatility and steady EBITDA margins over the years. Higher proportion of garmenting enhances overall margin profile as the segment yields margins in the range of 22-23%.

KPR Mill Ltd - CMP - ₹ 436 Target Price - ₹ 570 Implied Upside - 30.7%

Canara Bank

Investment Rationale

Profile Set up in 1906, Canara Bank is a one of the larger PSBs. It made its initial public offering in 2002. As on August 24, 2021, GoI's ownership in the bank stood at 62.93%.

Comfortable Capital Position

The bank had a networth of Rs 60,017 crore as on June 30, 2021, also supported by Rs 2,000 crore equity raised by the bank via QIP during fiscal 2021. Further, the bank has raised Rs 2,500 crore equity in August 2021. CET1, Tier-I capital adequacy ratio (CAR) and overall CAR stood at 8.85%, 10.34% and 13.36%, respectively.

Improvement in credit costs

While the earnings profile of the bank has been impacted over the last few years primarily because of high credit costs, the same has also seen an improvement in since fiscal 2021. The bank reported profit after tax (PAT) of Rs 2,558 crore during fiscal 2021, as compared to substantial losses incurred over the last couple of years (loss of Rs 5839 crore reported for fiscal 2020). For the quarter ended June 30, 2021, the bank reported a PAT of Rs 1,177 crore.

Prudent Provisioning

Excess provisioning has done on a prudent and conservative basis, including that on restructured accounts. Provision of Rs6.7bn towards fraud accounts in Q4FY21 has also helped lower provisioning requirements. Undemanding valuations, improvement in asset quality and healthy expected recoveries make us positive on the bank.

Canara Bank Ltd - CMP - ₹ 201 Target Price - ₹ 237 Implied Upside - 18%

National Aluminium Company Ltd

Investment Rationale

Profile

NALCO operates captive high-quality bauxite mines, which meet 100% of its alumina requirement for manufacturing aluminium. It also operates 1,200MW coal-based captive power plants, which are sufficient for its entire aluminium smelting capacity. For feeding coal, it has a fuel supply agreement with Mahanadi Coalfield Limited for around 85% of its requirements. This integration confers significant cost advantages, making NALCO one of the few low-cost producers of alumina across the world.

Increased refinery capacity

The management has announced a 1mtpa alumina refinery expansion at a capex of ~INR64b, and expects to complete the project in FY23. This increases the refining capacity by 44%.

Integrated operations & high LME aluminium prices

As an integrated player, NALCO has nearly fixed production costs, and any fluctuations in realisations directly affect its revenues and margins.

The average LME aluminum price rose 52% vs. a year earlier in fiscal 2Q on better demand and less supply from China, the largest aluminum-producing country. China's output of aluminum in fiscal 2Q was 9.6 million tons, down 2% from 1Q, as smelters cut production and commissioning of new capacity slowed due to power shortages.

With integrated mining operations, NALCO is the best play on higher LME prices. Alumina prices have not yet reacted to the strength in aluminum and could surprise positively in 2HFY22.

National Aluminium Company Ltd - CMP - ₹ 105 Target Price - ₹ 165 Implied Upside - 57%

NTPC Ltd

Investment Rationale

Profile

Profile NTPC is India’s largest power generation company with a total installed capacity of 66,885 MW. It has 17% of total installed capacity in India with 23% generation share. The company’s vision is to become a 130 GW+ company by 2032 of which 60 GW would be contributed by renewable energy

Aggressive Expansion

NTPC aims to be a 130 GW company by 2032 with diversified fuel mix and a 600 BU company in terms of generation, with a share of RE (including hydro) to be 28%. 17 GW capacity is already under construction.

Captive Coal Production

The company has coal blocks with estimated geological reserves of about 5 BT, which has an ultimate capacity of 71 Million Metric Tonnes of coal per annum when all mines reach their peak capacity.

Building Case for Spin Off of Renewable Portfolio

NTPC has created a wholly owned subsidiary for renewables, which is now operational and all of the new renewable capacity is being put out through this subsidiary only.

New Business Initiatives

* Pilot project with complete value chain of Hydrogen being designed

* Participating in RfP for privatization of discoms of UTs

* Exploring manufacturing of methanol from CO2 in NTPC plants

NTPC Ltd - CMP - ₹ 146 Target Price - ₹ 200 mplied Upside - 37%

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