CMP (Rs) 1015 52W H/L (Rs) 1194/700

Mkt Cap (Rs crs) 34709 Dividend Yield (%) 0.5%

RoE (%) 19.5% RoCE (%) 20.5%
D/E (x) 0.08 3yr Avg Divd payout (%) 11%
EV/EBITDA (x) 27 P/E (x) 43
Promoter Holding (%) 71% Pledged Shares (%) 0.0%

About KPR Mills

KPR Mill is promoted by three brothers: K.P. Ramasamy, K.P.D. Sigamani and P. Nataraj.

KPR is one of the largest vertically integrated apparel manufacturing companies in India, producing cotton yarn
(3.7 lakh spindles – 100000 Metric tons of yarn), cotton knitted fabrics (capacity of 40,000 MT p.a.) and
garments (capacity of 157mn pieces p.a.) in its facilities in Tirupur-Coimbatore.

It had also set up a garment unit with a capacity of 10mn pieces p.a. in Ethiopia through its subsidiary in FY19.

The company also has an embedded fabric processing capacity of 22,000 MT and printing division with a
capacity to print 7,500 MT p.a. (one lakh high fashion garments per day).

The company installed windmills with a total generation capacity of 61.92MW of green power for captive
consumption (up to 60%) in Tamil Nadu to become self-reliant in terms of power requirements.

The company diversified its operations by entering the sugar segment in FY13 and the ethanol segment in
FY20. KPR’s sugar mills have a capacity of 10,000 TCD with ethanol plant capacity of 130 KLPD.

Furthermore, the company a Co-gen cum sugar plant with a capacity to generate power of 40 MW, which is
partially used for captive consumption and partially sold to a third party.

KPR recently entered the retail segment with its own brand ‘FASO’, a 100% organic innerwear, sportswear and
athleisure brand. The company recently commissioned 42mn pieces of garment facility and is in the process of
expanding capacity in the sugar/ethanol segment with 10,000 TCD, ethanol capacity of 230 KLPD and Co-gen
power of 47.5 MW.
Around ~60% of the total revenue comes from the domestic market, whereas ~40% is exported to over 60
countries, including Europe, Australia and the US. KPR’s clientele includes ~1,200 regular domestic clients for
yarn and fabric and ~60 leading international brands for garments.

The key revenue segments are yarn and fabric (~45% of sales), garment (~37%), sugar (~14%) and others (4%).

The revenue share of yarn and fabric reduced from 75% in FY13 to 45% in FY21 and is expected to decline
further as the company plans to add capacity in garmenting and increase the captive utilisation of yarn and
fabric. The captive utilisation is 25–30% for yarn and 50% for fabric. The revenue share of garment increased
from 17% in FY14 to 37% in FY21.
Promoter group and shareholding

CR Anandkrishnan is the son of KP Ramasamy.

Business model

KPR is among the largest vertically integrated textile players in India with focus spanning across yarn, fabric,
garment and retail businesses.

The company utilizes Shankar-6, the best variety of cotton, as raw material (to produce different counts of yarn)
to ensure consistent quality. Vertical integration helps the company maintain a stronghold over quality,
resulting in premium pricing, repeat orders and control over raw material prices. The control over its value
chain enabled the company to reduce lead time and provide timely delivery to domestic and international
clients across Europe, Asia, Australia and the US, thus positioning it as a preferred vendor.

The 10yr average EBITDA margin of the company stands at 18.9%, which is remarkable, given the volatile
nature of the textile industry.

Garmenting:

KPR Mill has diversified its offerings over the years - from a pure-play yarn manufacturer to one of the largest
garment manufacturers in the country. Enthused by the robust demand for apparel (current order book of
INR750cr), KPR has been significantly investing in garment manufacturing capacity, which increased from 32mn
pieces in FY14 to 105mn pieces in FY21, making KPR the largest knitted garment manufacturer in India. KPR has
an additional capacity of 10mn pieces in Ethiopia. The company commissioned 42mn pieces in the garment
segment in November 2021 enhancing its garment capacity to 157mn pieces.

Particulars 2016 2017 2018 2019 2020 2021 2022 2023 2024
Garment Capacity - Million pieces 59 95 95 115 115 115 157 157 157
The company is doing a brown field expansion to grow the capacity to 177 million pieces. As of now the
company has not planned any further green field capex and are waiting for further stability in European market
before planning any expansions.

Share of garment segment revenue increased from 17% in FY14 to 41% in FY20.

As the asset turnover of the garment business is usually twice that of the fabrics business, the company
strategically focuses on expanding this line of business. Owing to long-established relationships with
customers, the garment business tends to have higher visibility than the traditional yarn and fabric
segments. Moreover, the garment segment tends to deliver better and stable margins than yarn and fabrics,
which is highly volatile and is type of a commodity.

KPR exports all its garment products to around 60 leading international brands, which includes the likes of
Primark, Kmart, Marks & Spencer, ASDA Stores, Walmart, H&M etc.

Client concentration remains low as no customer accounts for 10% of its garment export sales. Geographically,
Europe accounts for over half the garment division exports (~57%), followed by the US (14%), Australia (13%),
and Asia (16%).

The company plans to export an incremental capacity of 42mn pieces. With higher demand from the
international market, KPR expects strong growth momentum in the garment division to sustain in the coming
quarters.

The company is not only getting orders from existing customers but also receiving orders from new customers.
This is mainly because of reduction in the replacement cycle to 15-20 days from 20-25 days earlier.
International customers are replacing the garments faster due to improvement in hygiene factors in the current
pandemic environment.

Furthermore, the company foresees a significant opportunity in the customer base shifting from China to India.
This will happen when most manufacturers further expand their respective manufacturing facilities to cater to
the shift in demand.
Foray into retail segment – FASO

Foray into Retail segment (FASO) In FY20, KPR ventured into the branded retail segment by launching premium
quality men’s innerwear and athleisure products under the brand name FASO (Fashion Adapted Sustainable
and Organic) in Tamil Nadu, Kerala, Andhra Pradesh and Telangana. FASO products are segmented in three
different premium ranges, viz. comfort, style and supreme. FASO categories include briefs, trunks, boxer shorts,
vests, gym vests and muscle tees. FASO aims to provide 100% super fine combed organic cotton and 100% in-
house production.

The company plans to expand its presence via MBO and the e-commerce channel. KPR would initially target
menswear in southern India and gradually expand to other regions once it achieves a sizeable scale. As per
industry reports, the men’s innerwear market is currently pegged at INR11,000cr (total innerwear market:
INR32,000cr) and is expected to advance at a CAGR of 7% to INR21,800cr by 2028. The men’s innerwear market
is largely unorganized with 60–65% being fragmented. The company has set an internal target to record sales
worth INR100cr in FASO over the next three to four years. However, the COVID-19-led disruption impacted the
ambitious sales target of FASO and the company could reach a turnover of only INR7–8cr in FASO in FY20.
Currently, FASO has a monthly revenue run-rate of INR1.5–2cr. With the opening up of the economy, KPR now
plans to expand the brand’s presence to other states as well. The company appointed consultants and
launched new advertisement campaigns to enhance the visibility of its brand. Moreover, it aims to expand the
MBO presence of FASO to 10,000, 15,000 and 20,000 outlets by FY23E, FY24E and FY25E, respectively.
Sugar capacity and Ethanol capacity

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 KLPD. With strong demand from OMCs, it increased its ethanol capacity to 130
KLPD, which was enhanced to 360 KLPD by Q4FY22.

The company has Ethanol production capacity of 18.25 crore liters. In FY24, it produced 10.64 crore liters of
Ethanol and 543.65 Million tons of sugar.

Below is the break up of revenue from the 4 business – Yarn, Sugar, Garmenting and Ethanol.

Line item Value in Crores %

Yarn 1940 35%
Garmenting 2571 46%
Sugar 473 8%
Ethanol 626 11%
Total 5610

The company is not planning any further expansion in Sugar or Ethanol segment as of now.

Valuation

Valuation Table
Particulars-FY27E -In crores Bear Base Bull
Current Mcap 34,709 34,709 34,709
EV 34,923 34,923 34,923
Revenue 7,373 7,761 8,149
Net Debt -33 -33 -33
EBITDA 1,327 1,552 1,793
EBITDA Margin % 18.00% 20.00% 22.00%
Current EV/EBITDA 27.0
Target EV/EBITDA 15.0 20.0 25.0
Target EV 19,907 31,044 44,819
Target Mcap 19,940 31,077 44,853
CMP 1,015 1,015 1,015
Fair Value per share 583 909 1,311
MoS @5% 5% 5% 5%
Fair Value per share after MoS 554 863 1246
Upside -47.55% -15.46% 24.22%