1
May 30, 2018
K.P.R. Mill Ltd
India Research - Stock Broking
HOLD
Recommendation (Rs.)
CMP (as on May 29, 2018) 620
Target Price 659
Previous Target Price 803
Upside (%) 6
Stock Information
Mkt Cap (Rs.mn/US$ mn) 45823 / 675
52-wk High/Low (Rs.) 884 / 601
3M Avg. daily value (Rs. mn)
24.4
Beta (x) 0.9
Sensex/Nifty 34949 / 10633
O/S Shares(mn) 73.9
Face Value (Rs.) 5.0
Shareholding Pattern (%)
Promoters 74.9
FIIs 2.8
DIIs 13.1
Others 10.0
Stock Performance (%)
1M 3M 6M 12M
Absolute (11) (14) (13) (18)
Relative to Sensex (11) (16) (16) (27)
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Thomas V Abraham
040 - 3321 6323
thomas.abraham@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18P FY19E FY20E
Net Sales 26005 28166 30244 32394 33611
EBITDA 4696 5633 5752 6215 6549
EBITDA Margin (%) 18.1 20.0 19.0 19.2 19.5
Net Prot 2107 2868 2904 3447 3743
EPS (Rs.) 28.0 38.1 39.3 46.6 50.7
RoE (%) 17.1 17.7 20.1 17.2 17.7
PE (x) 29.7 17.2 15.8 13.3 12.2
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18P are based on historic market price
Slow to Respond, but Now on the Right Track
While ramping up of the garmenting division seemed like a signicant positive
catalyst for long term growth, it hit hurdles as orders accepted were for lower value
added garment manufacturing. This is the result of sti competition from lower
cost nations such as Bangladesh. LDC countries like Bangladesh also possess
duty benets for exports to Europe, thus making these countries more lucrative for
exports. As a result, while volumes for the division improved 32% in FY18, revenue
growth was signicantly lower at 25% over the same period. KPR is looking into the
possibility of diversifying geographically – tap the US market further, via manufacture
in Ethiopia (which oers signicant cost benets similar to that of LDC nations).
While realizations may not improve signicantly, this will help in improving margins.
Similar routes have been taken in recent times by companies like Raymond Ltd.,
which set up its garmenting division in Ethiopia, primarily focussing on the US
market, and has helped them bolster operating eciencies.
FY18 results and future growth expectations: FY18 saw an increased share
of garment in the revenue mix but PAT improvement was marginal as a result
of lower value addition in garments and lower realization in Yarn. First phase of
capacity addition at the Ethiopian plant is ~10% of the existing capacity, and the
commencement of the same could still be a few quarters down the line. Our revenue
growth expectations for FY19E is ~7% while our EBITDA margin improvement is
only to the tune of 20bps, as we do not expect signicant improvement in realization
(particularly in 1HFY19E). However, we expect the garment facility in Ethiopia to
come on stream in the latter half of the scal and could help improve protability.
We factor PAT growth of ~14% CAGR growth over FY18-20E.
Valuation and Risks
The stock has corrected ~25% and over ~40% from its peak owing to the
aforementioned reasons. However, given the good balance sheet position and the
measures being taken to become more competitive in the global market, we expect
KPR to deliver better numbers from H2FY19E. We value the stock at 13x (near 4
year avg 1 year forward P/E) on FY20E EPS of Rs. 50.7 and recommend “HOLD”,
with a target price of Rs. 659. Key risks are a further decline in realizations for Yarn
and Garments, delay in setting up the plant in Ethiopia, and longer period in tapping
the US market.
Earnings Revision (%)
YE Mar FY19E FY20E
Sales (%) 0.1 (0.8)
EBITDA (%) (6.8) (8.8)
PAT (%) (5.2) (5.4)
Source: Karvy Research
L
L
L
L
L
L
Company Update
Apparel & Textile Products
K.P.R. Mill Ltd
Bloomberg Code: KPR IN
70
90
110
130
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Mar -18
Apr-18
May-18
Jun-18
K.P.R. Mill Ltd
Sensex
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May 30, 2018
K.P.R. Mill Ltd
Key takeaways from quarterly earnings:
Volatility in cotton prices, particularly in the second half of FY18, led to at growth
in realization for the Yarn and Fabric segment for the full year FY18. (Rs. 0.2 Mn /
metric ton).
Ethiopia plant :
Garment division in Ethiopia is expected to have a capex of $5Mn, with a capacity
of 10Mn units pa. Scale up for the same will be done over coming scals in tune
with the expected growth in demand in the new geographies.
The backward integration will support the fabric requirement for the Ethiopian
garment, thus aiding the company to utilize its value chain signicantly.
Management stated that the existing duty benets agreements from Ethiopia
are valid for the next 5 years.
Also exploring marketing setup in South East Asia & Middle East for more
opportunities.
Financial highlights for Q4 and full year FY18:
Revenue grew 4.8% YoY to Rs. 8205 Mn and EBITDA by 8.0% to Rs. 1,503 Mn
on the back of increased sale from the garment division.
Garment division production at highest – 78.36 Mn units for the full year FY18,
and revenue for the same crossed Rs. 10,000 Mn.
Signicant operational
eciencies for the non
textile segments aided
margin improvements.
While share of garment
division increased
signicanlty, lower
realization led to muted
growth for the textile
segment.
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 8205 7145 14.8 7827 4.8
Expenditure 6702 5832 14.9 6435 4.1
EBITDA 1503 1313 14.5 1391 8.0
Depreciation 326 338 (3.3) 368 (11.3)
Interest 112 125 (10.2) 138 (18.8)
Other Income 23 41 (44.5) 80 (71.7)
PBT 1087 892 21.9 966 12.6
Ta x 356 185 92.5 247 44.3
Net Prot 731 707 3.4 719 1.7
EBIT Margins (%) 13.3 12.5 77 bps 12.3 92 bps
EBITDA Margin (%) 18.3 18.4 (6) bps 17.8 54 bps
Net Prot Margin (%) 8.9 9.9 (98) bps 9.2 (27) bps
Source: Company, Karvy Research
Exhibit 3: Segmental Financials
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Segment-wise revenues
Textile 7110 6579 8.1 7342 (0.0)
Sugar 913 360 153.3 225 3
Others 182 206 (11.4) 260 (0.3)
Segment-wise EBIT
Textile 1002 921 8.9 1100 (0.1)
Sugar 162 49 228.5 (90) NA
Others 13 6 108.3 13 (0)
Segment-wise EBIT Margin (%)
Textile 14.1 14.0 10 bps 15.0 (89) bps
Sugar 17.8 13.7 408 bps (40.0) 5781 bps
Others 6.9 2.9 394 bps 5.0 185 bps
Source: Company, Karvy Research
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May 30, 2018
K.P.R. Mill Ltd
We value the stock at near
its last 3 year average 1yr
forward P/E.
Exhibit 4: Revenue mix as of FY18
Source: Company, Karvy Research
Exhibit 5: Revenue mix as of FY17
Source: Company, Karvy Research
Exhibit 7: 3yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 6: Change in Earnings Estimates
YE Mar - Standalone (Rs. Mn)
FY19E FY20E
Comments
Old New % Change Old New % Change
Net Sales 32363 32394 0.1 33894 33611 (0.8)
Sale of lower value added
garments and decreasing
realization of Yarn has led
to lowering of our estimates.
EBITDA 6667 6215 (6.8) 7179 6549 (8.8)
EBITDA Margin (%) 20.6 19.2 (142) bps 21.2 19.5 (170) bps
Adj. PAT 3635 3447 (5.2) 3957 3743 (5.4)
EPS (Rs.) 49.2 46.6 (5.2) 53.5 50.7 (5.3)
Source: Karvy Research
Yarn
51.5%
Garments
33.3%
Sugar
8.8%
Yarn
57.5%
Garments
28.5%
Sugar
6.8%
Others
7.1%
The increased sale of garments and the internal consumption of yarm for the same has led to signicant change in the revenue
mix
0
200
400
600
800
1000
0
5
10
15
20
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Avg P/E
1 SD
-1 SD
Price (Rs.)
4
May 30, 2018
K.P.R. Mill Ltd
Financials
Exhibit 8: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18P FY19E FY20E
Revenues 26005 28166 30244 32394 33611
Growth (%) 0.9 8.3 7.4 7.1 3.8
Operating Expenses 21310 22534 24492 26179 27062
EBITDA 4696 5633 5752 6215 6549
Growth (%) 7.4 20.0 2.1 8.0 5.4
Depreciation & Amortization 1521 1494 1399 1403 1446
EBIT 239 275 142 421 437
Other Income 3414 4414 4496 5232 5540
Interest Expenses 576 645 516 444 341
PBT 2838 3769 3980 4788 5199
Tax 731 901 1076 1341 1456
Adjusted PAT 2107 2868 2904 3447 3743
Growth (%) 21.4 36.1 1.2 18.7 8.6
Source: Company, Karvy Research
Exhibit 9: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18P FY19E FY20E
Cash & Cash Equivalents 609 707 643 1128 1807
Sundry Debtors 4194 3407 4196 4272 4528
Inventory 5057 5330 6404 7013 6996
Other assets 2435 1407 2052 2829 3087
Net Block 11521 13062 12226 14034 14455
Total Assets 23816 23914 25522 29276 30874
Current Liabilities & Provisions 2546 1660 2550 2967 2910
Debt 8106 6851 6190 5305 4250
Other Liabilities 2158 2536 1082 2891 2980
Total Liabilities 12810 11047 9822 11163 10140
Shareholders Equity 376 376 370 370 370
Reserves & Surplus 10630 12490 15331 17743 20365
Total Networth 11006 12866 15701 18113 20734
Total networth and liabilities 23816 23914 25522 29276 30874
Source: Company, Karvy Research
Higher share of garment
sales and inhouse
consumption of yarn is
expected to aid revenue
and margin improvements.
Signicant repayment
of long term debt has
resulted in signicant
reduction in interest
payments.
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May 30, 2018
K.P.R. Mill Ltd
Exhibit 10: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18P FY19E FY20E
PBT 2838 3769 3980 4788 5199
Depreciation 1521 1494 1399 1403 1446
Interest 552 625 374 23 (96)
Tax Paid (865) (964) (1076) (1341) (1456)
Inc/dec in Net WC (2010) (153) (1702) 547 (326)
Cash ow from operating activities 2036 4771 2974 5421 4768
Inc/dec in capital expenditure (1999) (1992) (541) (3211) (1867)
Others (50) 15 194 (237) (18)
Cash ow from investing activities (2048) (1977) (346) (3448) (1885)
Inc/dec in borrowings 626 (1037) (2135) 559 (982)
Dividend paid (538) (44) (55) (1034) (1123)
Interest paid (630) (637) (516) (444) (341)
Others (109) (978) 19 (573) 243
Cash ow from nancing activities (651) (2696) (2686) (1493) (2204)
Net change in cash (663) 98 (59) 480 679
Source: Company, Karvy Research
Exhibit 11: Key Ratios
YE Mar FY16 FY17 FY18P FY19E FY20E
EBITDA Margin (%) 18.1 20.0 19.0 19.2 19.5
EBIT Margin (%) 13.1 15.7 14.9 16.2 16.5
Net Prot Margin (%) 8.1 10.2 9.6 10.6 11.1
Dividend Payout Ratio (%) 30.7 1.8 2.2 30.0 30.0
Net Debt/Equity (x) 73.8 51.5 38.8 24.7 12.6
RoE (%) 17.1 17.7 20.1 17.2 17.7
RoCE (%) 17.2 17.6 21.2 19.8 21.6
Source: Company, Karvy Research
Exhibit 12: Valuation Parameters
YE Mar FY16 FY17 FY18P FY19E FY20E
EPS (Rs.) 28.0 38.1 39.3 46.6 50.7
DPS (Rs.) 8.6 0.7 0.9 14.0 15.2
BVPS (Rs.) 146.3 171.1 212.4 245.1 280.6
PE (x) 29.7 17.2 15.8 13.3 12.2
P/BV (x) 5.7 3.8 2.9 2.5 2.2
EV/EBITDA (x) 14.9 9.9 8.9 8.0 7.4
EV/Sales (x) 2.7 2.0 1.7 1.5 1.4
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18P are based on historic market price
6
May 30, 2018
K.P.R. Mill Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
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