ICICI Direct has given Buy recommendation for KPR Mill with a target price of Rs. 1200 in its research report issued on Feb 07, 2021

ICICI Direct’s research report on KPR Mill

KPR Mill reported yet another robust quarter driven by strong demand for textile products. Revenue in Q3FY21 grew 21% YoY to Rs 929.6 crore, with textile division (87% of sales) posting 19% YoY growth and sales from sugar division inching up 67% YoY. On the back of healthy order book & sustained demand for casualwear products (where KPR’s expertise lies), garment volumes jumped 12% YoY to 22.6 million pieces. Average realisation/piece also firmed up 9% to 163/piece, translating to value growth of 22% YoY to Rs 369 crore (40% of sales). The export order book at the end of Q3FY21 was healthy at Rs 600 crore. Demand for cotton yarn and fabrics globally over the past few months has been strong. Revenue from yarn & fabric division (44% of sales) grew 16% YoY to Rs 412 crore. Gross margins expanded significantly by 707 bps YoY to ~50% on account of favourable spreads and advantage of being vertically integrated. Furthermore, owing to positive operating leverage, EBITDA margins came in at an all-time high of 27% (up 920 bps YoY/ 690 bps QoQ) in Q3FY21. On the back of robust operational performance, PBT grew 1.2x YoY to Rs 218.2 crore. Owing to higher tax rate (28% vs. 6% YoY), PAT growth was restricted to 66% YoY to Rs 156.3 crore (up 87% QoQ). KPR has two major capex projects in the pipeline worth Rs 750 crore towards garmenting facility (Rs 250 crore) and ethanol facility (Rs 500 crore). Both projects are expected to come on stream by FY22E.

Outlook

We maintain BUY rating on the stock with a revised target price of Rs 1200 (13x FY23E EPS, previous TP: Rs 1100).

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