Buy Kusumgar Ltd for the Target 800 by Emkay Global Financial Services Ltd
We initiate coverage on Kusumgar (KSL) with BUY and TP of Rs800 (upside: ~91%). KSL is a specialist manufacturer of engineered fabrics, highperformance woven, coated, and laminated synthetics based on polyamide (Nylon) and polyester chemistry, spanning the aerospace and defense, industrial, and outdoor end-markets. With >1,000 difficult-to-replicate fabric SKUs and a fully integrated value chain, KSL is one of the major manufacturers of military parachute fabric, apart from the US and China. Our positive stance is propped by
1) significant headroom to grow in its best-paying segment A&D Fabrics
2) global defense budget coupled with multiple FTAs auguring well for domestic players
3) endeavor to enter high entry barrier products which ensures a best-in-class margin profile
4) diversified growth engines that cushion single-segment shocks. We forecast revenue/EBITDA/PAT CAGR of ~34/~35/~46% over FY26-29E, led by a contracted defense-order recovery from FY27, and value KSL at 40x Jun-28E EPS for our TP of Rs800
Significant headroom to grow in A&D Fabrics (KSL’s best-paying segment)
A&D Fabrics contributes ~45-50% of revenue (5-year average) and earns the highest operating margins in the portfolio (>25%). With only 3-4% domestic market share, we see ample scope for KSL to gain market share, on the back of the global and domestic A&D-fabric markets seeing a rapid ~10% and ~20% CAGR over the next five years, to ~$8.5bn and ~$1.5bn, respectively, along with low capacity utilization (~50% in FY26).
Higher defense budgets and asymmetric warfare augur well
Recent geopolitical conflicts like Russia-Ukraine, India-Pakistan, Israel-Palestine, and the ongoing US-Iran tensions have augmented defense budgets in India and globally. For example, India’s defense capex outlay CAGR was ~4% over FY21-25, but increased ~17% over FY25-27(BE), primarily due to ‘Operation Sindoor’ in May-25. Further, usage of asymmetric warfare techniques like camouflage nets and inflatable decoys (Ind-Pak) as well as cargo parachutes (Russia-Ukraine) is likely to be a precedent and accelerate use of these products in future warfare. EU/UK being one of the major defense spending regions and an ongoing FTA with India augurs well for domestic players
KSL stands out on moat, diversification, and margins
A wide moat (>1,000 SKUs, fine-denier weaving, Nylon 6/66 handling, in-house coating/lamination, full integration, sticky relationship) makes KSL one of the major military-parachute fabric makers, apart from the US and China. Its four diversified engines limit risk; in FY26, defense revenue (~55% of revenue) declined (A&D Fabrics/Solutions were down 42%/30%, respectively), with the fall cushioned by ~46%/120% growth in Industrials/Outdoor, respectively, thereby curbing the revenue decline to ~11%. Further, KSL’s profitability improved, from being below the peer-set’s (pre-Covid) to the highest EBITDA margin among listed peers (in FY26).
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