Buy This Multibagger Textile Stock For A Target Price of Rs. 810 Says Sharekhan

KPR Mill Ltd is a mid-cap company with a market capitalization of Rs 22,122.42 Cr that manufactures textile products. The company's business emphasis is multifaceted, encompassing yarn, fabrics, garments, and white crystal sugar. The company also produces a variety of textiles such as readymade knitted apparel, melange, carded, polyester, and yarn. The shares of this company have given 245.42% multibagger return in the last 1 year, 81.57% in the past 6 months. Following the release of the company's Q3FY2022 results, brokerage firm Sharekhan has issued a buy call on the stock with a target price of Rs. 810. This suggests that the stock has a potential upside of 25.77 percent from its current market price of Rs 644.00 per share as of 10 Feb, 3:30 pm IST.

Q3FY2022 results of KPR Mill

Sharekhan has said that "Q3FY2022 was a mixed quarter for KPR Mill with strong y-o-y revenue growth of 36%, led by 30% growth in the textile business and 81% growth in the sugar business. Yarn & fabric and garment segments registered revenue growth of 35% and 21%, respectively. Garment sales volume stood at 27.6 million in Q3FY2022 compared to 26.8 million in Q2. The margin was impacted by higher cotton prices, which led to a 608 bps y-o-y decline in gross margin and 282 bps y-o-y decline in EBITDA margin".

According to the brokerage "EBITDA margin of the yarn & fabric and garment, businesses stood at 20% and 29%, respectively. New expansion projects - including a 42-million garment capacity commissioned in Q3 and a sugar-cum ethanol plant are in progress, which will add to revenue and profitability in the medium term. The company is doing a buyback of 22.4 lakh shares for Rs. 180 crore at Rs. 805 per share (22% premium of current CMP)".

The garment segment's revenue grew by 35% y-o-y to Rs. 448 crore with a sales volume of 27.6 million; EBITDA margin of the garment division sustained at 29% in Q3FY2022, sugar business revenue grew by 81% in Q3; EBITDA margin stood at 23% and garment business order books stood at Rs. 1,000 crore improving from Rs. 750 crore in Q2FY2022, are the key positives of the stock according to Sharekhan.

"Gross margin and EBITDA margin declined by 608 bps and 282 bps y-o-y, respectively, due to higher input prices and lesser RoSCTL benefits compared to earlier quarters" remains a key negative of the stock, says Sharekhan.

Buy for a target price of Rs. 810

The brokerage has claimed that "Increased garmenting capacity, improving sales of high-value yarn/fabrics products, and better growth prospects in export markets backed by government reforms would help the textile business achieve strong double-digit growth in 2-3 years. We expect KPR's revenue and PAT to post 16% and 33% CAGR, respectively, over FY2021-FY2024. Further, the company is likely to create value for shareholders by demerging its sugar business into a separate entity once it attains a certain scale. The stock currently trades at 25.0/19.0x its FY2023E/FY2024E EPS and 16.2x/12.5x its FY2023E/FY2024E EV/EBITDA. We maintain our Buy recommendation on the stock with a revised price target (PT) of Rs. 810."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.