400% Dividends Payout Latest: Sharekhan Retains Buy On This Textile Stock As Medium-To-Long Term Growth Intact

Dividend-paying textile stock, KPR Mill has seen a significant correction in recent times, which brings a buy-on-dips opportunity in this midcap. Brokerage Sharekhan has retained Buy on KPR Mill as the medium-to-long-term growth trajectory of the company is intact. There is a potential upside of nearly 17% in this stock ahead.

On December 26th, KPR Mill's share ended at Rs 824.10 apiece, down by 0.92% on BSE with a market cap of Rs 28,168.89 crore. {image-
stocks71-1703633368.jpg www.goodreturns.in}

In the past five trading sessions, KPR Mill'sshare have dropped by nearly 4%. However, the stock's year-to-date performance is healthy with a double-digit upside of 58.5%. In 2023, the stock has paid dividends up to 400% amounting to Rs 4 per share.

In its latest research note, Sharekhan said, that KPR Mill's (KPR's) stock price has corrected by ~8% from a recent high providing a good opportunity to enter the quality textile play with a sturdy balance sheet and strong growth prospects with efficient management.

Sharekhan's note stated that the company is likely to see healthy improvement in the operating performance in H2FY2024 driven by 1) Correction in Indian cotton prices to Rs. 55,000 per candy and 2) Garment volumes to be at 80 million pieces (150 million pieces for FY2024) with capacity utilization of over 90% and 3) Strong performance of sugar business. Further, prudent capex plans to grab more opportunities in international markets, China + 1 strategy with India acting as a large supply base in South East Asia and customer additions will drive consistent revenue and PAT CAGR of 17% and 23% over FY2023-2026E.

According to the brokerage, With capacity utilisation at over 90%, the company is confident of ending FY24 with 150 million pieces in volumes. Further, its business is to grow at 12% CAGR over the next three years. Also, as cotton prices have fallen in India and are close to international prices, this is expected to provide some support to demand for yarn & fabric products in the coming quarters.

Moreover, KPR's EBITDA margins will be better in H2 compared to H1 as the yarn & fabric business will benefit from lower input prices and some uptick in volumes, helping business margins to improve to double digits, it said.

On the valuation, Sharekhan added, "In the medium-to-long term, the China + 1 factor, a likely signing a free trade agreement (FTA) with the UK and rising opportunities in the US provide scope for consistent growth for KPR's high-margin garment business (~40% of total revenues). Further, the integrated business model along with a strong capacity expansion plan in the sugar & textile businesses would aid a faster recovery for KPR, once demand improves. Higher free cash flow generation will aid future capacity expansions, while higher ethanol blending could be an additional growth lever. The stock trades at 29x/23x/19x its FY2024E/25E/26E EPS and 19x/15x/13x its FY2024E/25E/26E EV/EBITDA. We maintain a Buy on the stock with a revised price target (PT) of Rs. 962."

Among the key risks to the company as per Sharekhan will be a sustained slowdown in the global export market due to inflationary pressure or any significant increase in input prices.

KPR Mill is one of the largest vertically integrated, public li mited - listed companies with a diversified business focus spanning Yarn, Fabrics, Garments and White Crystal Sugar. KPR has earned a great deal of experience over the last 40 years to produce an indelible mark in the textile landscape.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.