This Textile Stock Gained Over 110% In 1 Year, Sharekhan Sees Potential Upside

KPR Mill Ltd is a textiles-focused mid-cap company with a market capitalization of Rs 21,682.03 crore. The company's shares rose from Rs 290 to Rs 630 in a year, representing a 116 per cent gain. The stock has declined -10.59 per cent year to date (YTD) but has gained 35.67 per cent in the previous six months. The stock is now trading at a market price of Rs 630.10, and brokerage firm Sharekhan believes the stock has even more upside potential and has given it a buy call rating with a target price of Rs 810.

Q4FY2022 Result Update

The brokerage has said "KPR Mill (KPR) posted yet another quarter of strong revenue performance. Q4FY2022 revenue grew by 30% y-o-y to Rs. 1,449.9 crore, driven by 34% y-o-y growth in the textile business and 13% y-o-y growth in the sugar business. Yarn and fabric and garment divisions registered y-o-y revenue growth of 16% and 57%, respectively. The garment division's sales volume stood at 38 million pieces in Q4FY2022 compared to 28 million pieces in Q3. Margins were impacted by higher cotton prices, which led to a 148 bps y-o-y decline in gross margin and a 150 bps y-o-y decline in EBITDA margin. Yarn and fabric and garment division's EBITDA margin stood at 18% and 25%, respectively. For FY2022, KPR's revenue and PAT grew by 37% and 63% y-o-y, respectively, with EBITDA margin improving by 177 bps to 25.3%, led by better mix. The company's liquid cash on books stood at around Rs. 440 crore, which can be utilised for its future capex programme in the coming years."

Buy for a target price of Rs. 810

The brokerage has claimed that "KPR's textile business is expected to maintain the strong double-digit growth momentum with increased garmenting capacity, improving sales of high-value yarn/fabrics products, and better growth prospects in export markets backed by government reforms. We expect KPR's revenue and PAT to report a CAGR of 20% and 21%, respectively, over FY2022-FY2024 with most of the new capacities operating at optimum utilisation. 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 22.1x/18.1x its FY2023E/FY2024E EPS and 14.4x/11.8x its FY2023E/FY2024E EV/EBITDA. We maintain our Buy recommendation on the stock with an unchanged price target (PT) of Rs. 810."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. 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.