Buy KPR Mill; target of Rs 1100: ICICI Direct

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ICICI Direct's research report on KPR Mill

KPR Mill is India’s leading garment manufacturer & exporter of knitted apparels, boasting capacity to produce 115 million (mn) pieces per annum. KPR, given its vertically integrated business model seems well placed to benefit from China plus one strategy. Its export order book at the end of Q2FY21 was healthy at Rs 540 crore. To cater to the growing market demand and tapping new potential markets (like US), KPR had embarked upon a greenfield expansion of its garmenting facility with annual capacity of 42 mn pieces. With the capacity addition, KPR will be India’s largest knitted garment manufacturer in India with total capacity of 157 mn pieces. The new capacity is expected to come on stream from H1FY22E onwards. Over the years, Europe has been the key market for KPR contributing ~54% of overall garment export revenues, whereas US remains underpenetrated with share of ~22%. Robust opportunities in US market (total imports: ~US$85 billion, India’s share: ~5%) gives strong visibility for sustained growth in exports.

Outlook

We continue to remain positive on KPR due to its competitive advantages due to lower power & labour cost, vertically integrated operations, focus on value-added products and robust balance sheet. Higher proportion of garmenting enhances the overall margin profile as the segment yields margins in the range of 22-23% while high asset turnover would translate into RoCE improvement by 370 bps to 23% in FY20-23E. The new textile policy is expected to aid in improving global competitiveness of Indian exporters. We like KPR as a structural long term story to play the apparel export space. We maintain BUY recommendation on the stock with a revised target price of Rs 1100 (13x FY23E EPS, previous target price: Rs 850).

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