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With 1 Year Return of 273.92%, This Multibagger Stock Gets A Buy Call From Edelweiss
KPR Mill Ltd's shares have received a lot of attention in the last year as the company's share price has appreciated more in value. In the last month, the shares of KPR Mill have surged from Rs 530.30 as of 08.12.2021 to Rs 716.20 as of now which results in a surge of +185.90 (35.06%). In the previous six months, the stock has risen by +362.14 (102.28 percent) from Rs 354.06 on July 8, 2021, and in the last year, it has risen by +524.66 (273.92 percent) from Rs 191.54 on January 8, 2021 to the current market price.
This mid-cap firm has a market capitalization of Rs. 23,756 and specialises in Yarn, Fabrics, Garments, and White Crystal Sugar. Readymade Knitted Apparel; Fabrics; Compact, Melange, Carded, Polyester, and Combed Yarn are among the textiles manufactured by the company. Edelweiss Broking Ltd, on the other hand, has issued a buy call on KPR Mill Ltd with a target price of Rs. 860.
Key investment rationale for KPR Ltd according to the brokerage
KPR's revenue increased at a 10yr compound annual growth rate (CAGR) of ~12%, which is 5% above industry average despite the slowdown in the textile sector from FY13-18. The garment segment has provided a steady balance to the company's growth, as this segment has grown at a CAGR of 16% driven by the continued augmentation of its garmenting capacity (20% CAGR over FY13-22E), as demand has remained robust over the years. As a result, the segment's revenue contribution increased from 17% in FY13 to 37% in FY21. With further capacity addition of 42mn pieces in the garment segment, we expect it to continue its growth momentum and post a revenue CAGR of 22% to INR2,400cr over FY21-24E.
We expect higher cotton-yarn spread, increased salience from the high-margin garment and ethanol segments, and operational efficiencies to improve KPR's margin profile and return ratios. We forecast higher volumes and expansion of margin-accretive business segments to aid profitability and enhance RoCE and RoE to ~28% and ~25%, respectively, by FY24E.
Although KPR has been operational in the sugar segment since FY13, it forayed into the ethanol segment only in FY20 with a capacity of 90 kilo litre per day (KLPD). With strong demand from Oil marketing companies (OMCs), it increased its ethanol capacity to 130 KLPD, which would now be enhanced to 360 KLPD by Q4FY22. With this increased capacity, we forecast the sugar/ethanol segment to generate revenue of ~INR1,400cr by FY24E (thrice of FY21 levels). As a result, we expect revenue contribution from this segment to rise from 14% in FY21 to ~24% in FY24E. Margins in the ethanol segment are in the range of 25-30% for KPR, which would help elevate the company's margin profile.
Buy With A Target Price of INR 860
Edelweiss Broking Ltd has said in its research report that "Currently, textile and ethanol are the two major themes in the Indian market. We expect these sectors to grow stronger with substantial government support. KPR Mill is one of the largest textile companies in India and aims to establish its stronghold in the sugar/ethanol segment with increased ethanol capacity."
According to the brokerage "In addition, we see the elevated cotton yarn margins strongly supporting its yarn segment margins (we believe this cotton yarn spread will be beneficial for KPR for a few more quarters). With all segments firing at the moment, we initiate coverage on KPR Mill with a target price of INR860 based on 26x FY24E EPS."
Disclaimer
The above stock has been picked from the brokerage report of Edelweiss Broking 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.
