Buy KPR Mill; target of Rs 850: ICICI Direct

ICICI Direct's research report on KPR Mill

Amid a challenging scenario, KPR exhibited a smart recovery with 20%+ growth in textile division. Revenue from textile division grew 21.3% YoY to Rs 852.3 crore while sales from sugar division de-grew 11% YoY to Rs 76.1 crore. Overall revenue grew 17% YoY (74% QoQ) to Rs 941.9 crore. On the segmental front, garmenting division bounced back sharply with revenue growth of 23% YoY to Rs 403 crore. The growth was on the back of 15% volume growth to 25.0 million (mn) pieces, 7% rise in average realisation to Rs 160/piece. Also, yarn & fabric division saw strong demand (29% volume growth in Q2FY21). KPR expects it to sustain over H2FY21. Gross margins fell 355 bps YoY to 37.6%. However, due to positive operating leverage, EBITDA margins fell 110 bps YoY to 20.1%. On the back of a steady operational performance, PBT grew 12% YoY to Rs 153.2 crore. Operating cashflows in H1FY21 were at Rs 545 crore vs. Rs 474 crore in H1FY20. Capex incurred was substantially lower in H1FY21 (Rs 46.6 crore vs. Rs 187.1 crore YoY), leading to debt reduction by Rs 385 crore to Rs 356 crore (D/E: 0.2x). Inherent strength of business model, long standing relationship with marque clients has enabled KPR to tide over the situation better than small peers.

Outlook

We like KPR as a structural long term story to play the apparel export space. We maintain BUY rating on the stock with a revised target price of Rs 850 (10x FY23E EPS, previous TP: Rs 735).

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