Buy Kusumgar Ltd for the Target Rs 750 by Emkay Global Financial Services Ltd
Kusumgar (KSL) posted ~2x revenue growth yoy in 1QFY27 to Rs2.5bn, on a weak base, albeit down ~21% qoq from an elevated 4QFY26, which included a one-off release of US shipments held back during the tariff standoff. Gross margins declined 90bps yoy, likely, due to higher nylon prices. EBITDA stood at ~Rs750mn, with EBITDAM at ~31% (1QFY26/4QFY26: ~19%/~37%) on a richer parachute-led mix; PAT came in at Rs426mn vs Rs66mn yoy. Further, the balance of the contracted parachute order (received in 4QFY26) is set to be executed evenly through FY27, while utilization at 55-60% leaves headroom for growth without major capex. We retain our positive stance, led by 1) headroom in A&D Fabrics—KSL's best-paying segment—with ~3-4% domestic share in a market seeing ~20% CAGR; 2) rising defense budgets, asymmetric warfare, and UK/EU FTAs; and 3) a wide moat sustaining a best-in-class margin profile. However, we cut FY27E/28E/29E PAT by ~14/14/22% on a ~130- 270bps EBITDAM reset toward the FY25-26 band, keeping revenue largely unchanged. We continue to value KSL at 40x 1QFY29E PER, trimming our TP by ~6% to Rs750 (Rs800 earlier); maintain BUY.
Revenue doubles off a low base; margin normalizes from 4QFY26 peak
Revenue doubled yoy to ~Rs2.5bn on parachute-order execution, although down ~21% qoq from an elevated 4QFY26 base. EBITDA came in at Rs754mn, with EBITDAM at ~31% vs ~19%/~37% in 1QFY26/4QFY26, aided by a richer A&D Solutions mix. PAT stood at Rs426mn vs Rs66mn in 1QFY26.
Earnings call KTAs
1) 1Q revenue was led by execution of carry-forward parachute contracts, with the balance phasing evenly through FY27.
2) Utilization stood at 55-60% in 1QFY27, after the recent capacity build-up.
3) The management guided that 1Q is broadly representative of an average quarter, with 4Q structurally the strongest.
4) Outdoor and lifestyle saw no capacity constraints during the quarter, as growth in the segment is gated by brand-by-brand approvals, with volumes scaling season over season on strong brand projections.
5) The management sees FY27 as a year of steady growth, with limited volatility.
6) On margins, the management indicated FY25-26 as the fair reference for FY27, with a few percentage points of movement under normal conditions.
7) With the capex cycle complete, KSL plans to optimize utilization, with no major capex planned in FY27-28 in the existing A&D Fabrics and Solutions business and spends largely maintenance-led.
8) The US contributed 10-15% of 1QFY27 revenue; shipments blocked through much of FY26 were released in 4QFY26 once tariffs were lifted, inflating that quarter.
9) Over the longer run, the company sees growth driven by A&D indigenization, rising global defense budgets, and China+1 supply-chain shifts.
10) Receivables have normalized from the 4QFY26 spike, with operating cash flow positive in 1QFY27.
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