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Vertical integration driving sustainable growth

* KPR Mill (KPR) is one of India’s largest vertically integrated textile players, with a strong leadership position in garment manufacturing. The company also has a presence in the sugar and ethanol businesses. Revenue mix comprises yarn (~31%), garments (~48%), sugar (~9%), ethanol (~7%), and others (~5%).

* Over the last decade, the company has doubled its capacity to 204m pieces (8% CAGR), reflecting a revenue CAGR of 18% over the same period for the garmenting division. Further, we expect management to invest ~INR 5b in the Odisha facility, which is expected to add 50m pieces of capacity by FY28. We expect the garment segment to clock 16% CAGR over FY26-28, supported by ongoing capex and EU & UK FTAs.

* KPR’s yarn and fabric segment provides upstream stability through captive consumption, while its integrated sugar and ethanol business acts as a stable cash flow, supported by ethanol blending opportunities and improving industry dynamics, reducing overall earnings cyclicality. We expect 6% revenue CAGR on yarn & fabric, while sugar & ethanol are expected to post 10%/16% revenue CAGR over FY26-28.

* We model a revenue, EBITDA, and PAT CAGR of 13%, 20%, and 20%, respectively, over FY26-28, fueled by growth in the garment portfolio.

* We initiate coverage on KPR with a Neutral rating and an EV/EBITDA-based TP of INR1,200, valuing the stock at 22x FY28E EV/EBITDA (55% premium to the 10-year mean led by higher EU business).

Largest garmenting supplier in the listed space

KPR continues to maintain one of the largest garmenting capacities among Indian apparel players, with an installed capacity of 204m pieces as of FY26, significantly ahead of peers such as Shahi Exports (~170m pieces), Pearl Global (~101m pieces), Gokaldas Exports (~92m pieces), and Arvind (55m pieces). Over the last decade, the company has doubled its capacity to 204m pieces (8% CAGR), reflecting a revenue CAGR of 18% over the same period for the garmenting division. Its strong presence in knitwear products results in lower realizations (INR170-180/piece) compared to peers (~INR 500-600/piece); however, the segment delivers superior margins, supporting better profitability. Additionally, higher employee efficiency drives stronger asset turnover, leading to superior RoE within the sector. Further, we expect management to invest ~INR 5b in Phase I of the Odisha facility, which is expected to add 50m pieces of capacity by FY28. Garments delivered 17% CAGR over FY22-26, and we expect the segment to post 16% CAGR over FY26–28, supported by ongoing capex and lower tariffs in the US.

Vertical integrated player: Yarn segment provides stability

The competitive position of KPR is built on its vertically integrated operating model, where the company sources raw cotton and converts it into finished, packaged garments supplied directly to global buyers. This structure allows the company to manage the entire production chain internally, from spinning yarn to fabric processing and garment manufacturing, without relying on external vendors for core stages of production. The yarn & fabric segment reported revenue of INR20.5b in FY26, contributing ~31% of consolidated revenue

Valuation & view: Initiate coverage with a Neutral rating

We initiate coverage on KPR with a Neutral rating and an EV/EBITDA-based TP of INR1,200, valuing the stock at 22x FY28E EV/EBITDA (55% premium to the 10-year mean). We believe the company is well-positioned to benefit from its leadership in the Indian textile and apparel industry, supported by the largest garmenting capacity among listed peers. In addition, KPR’s sugar and ethanol business acts as a stable cash flow generator, supported by integrated operations, strong ethanol blending opportunities, and cogeneration benefits, thereby reducing cyclicality and strengthening overall earnings visibility. We believe the current valuation already factors in low- to mid-teens growth, leaving limited upside at the CMP.

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