Accumulate KPR Mill Ltd. For Target Rs.905 - Elara Capital
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Lower margin drags performance
Sugar and textiles segments lead to underperformance
KPR Mill (KPR IN) Q4 results were weaker than our sales estimates of 10.9%, EBITDA estimates of 7.0% and APAT estimates of 9.6%. This was led by underperformance from both sugar and textiles segments. In Q4, revenue declined 13% YoY, led by a drop in sales from the sugar segment. Although revenue from textiles came in line with our estimates, margin was below expectations, due to weak profitability in the yarn business. Revenue rose 2.9% YoY, led by higher garment volume while realization across products declined given the correction in the cotton prices. The sugar segment fell 50.1% YoY, due to lower raw sugar sales as KPR did not meet sales quota in one of the factories. Garment sales volume was up 34.5% YoY to 49.5mn pieces in Q4.
Higher EBITDA margin on favorable product mix and input cost
EBITDA margin rose 332bp YoY to 19.7% in Q4FY24 vs 16.4% in Q4FY23, led by gross margin expansion by 541bp YoY. EBIT margin from textiles improved 236bp YoY and contracted by 144bp QoQ to 15.5%. Sugar posted an EBIT of INR 687mn vs INR 951mn in Q4FY23. EBIT margin stood at 24.6%, well ahead of our estimates of 13.5%, led by higher ethanol sales.
Valuation: revise to Accumulate with a lower TP of INR 905
Higher garment sales volume is a key positive. Management will announce a Greenfield garment expansion plan, which may drive growth. We believe KPR is a long-term play on India’s textiles exports theme. Well-integrated manufacturing facilities, focus on capital allocation to higher profitability businesses and robust balance sheet lend comfort. We revise down our estimates to factor in Q4 performance and pressure in the yarn business. We pare down our EPS estimates by 5.1% for FY25 and 5.5% for FY26. We cut our TP to INR 905 from INR 949 on 18.0x (unchanged) FY26E EV/EBITDA. We revise to Accumulate from Buy, given limited upside in the near term. We that long-term triggers such as garment export opportunity and ‘China plus One’ remain intact for the company.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
