25 FEBRUARY 2016
SECTOR: TEXTILES
KPR Mill
BSE SENSEX
23,088
S&P CNX
7,018.70
(INR CRORES)
CMP: INR640 TP: INR910 (+42%)
Buy
Y/E MARCH
Revenue
EBITDA
EBITDA Margin
NP (Adj.)
EPS (Adj.)
EPS Growth
BV/share
Core ROE (%)
Core ROCE (%)
P/E (x)
P/BV (x)
FY16E
2,439
476
19.5%
206
54.7
19%
293
20
18
11.7
2.2
FY17E
2,664
522
19.6%
244
64.9
19%
342
20
20
9.9
1.9
FY18E
2,866
590
20.6%
285
75.6
17%
400
20
22
8.5
1.6
We recommend to BUY KPR Mill for a target of INR 910 -
valuing the company at a 12.0x FY18E EPS.
Indian textile industry poised for 10% cagr:
Indian textile and
apparel industry is estimated to reach USD 221 bn in 2021 from USD
89 bn in 2011 (9.5% CAGR). Rising Chinese domestic consumption,
labour issues in China and Bangladesh and increasing power cost are
favourable for Indian export growth.
Value addition in yarn to raise profitability:
KPR has a capacity
of 90,000 MT and 27,000 MT in yarn and fabric segments, respectively.
It is gradually converting part of the yarn capacity towards higher
margin colored and mélange yarn. KPR is not looking at expanding
yarn and fabric capacity. The fabric capacity is likely to be utilized
internally given planned garment capacity expansion.
Garment expansion to aid growth:
The garment capacity expansion
to 5.9 cr pieces p.a. over the past 3 yrs is being followed-up by a
further expansion of 3.6cr pieces to take capacity upto 9.5 cr pieces
by Q1 FY17E. Garments is a export-oriented business with Europe
contributing ~70% of revenues. KPR caters to ~40 major brands in
Europe and new clients in the US will diversify its customer base. We
expect this business to grow at 30% CAGR upto FY18E.
Self-sufficiency in power:
Spinning, weaving and processing are
highly power intensive processes. The company has wind power
capacity of 61.9MW & Co-gen plant of 30MW. We believe power
cost is a key advantage for KPR Mills as is continuous availability that
is crucial to avoiding wastage in the spinning and weaving business.
Debt reduction to improve profitability:
Strong cash flow
generation has enabled KPR to reduce its long term debt from INR
313cr at FY15 end to INR 240cr in Q3 FY16. A rise in garment revenue
share will reduce working capital requirement and help bring down
the debt to revenue ratio. KPR plans to further reduce debt by repaying
high cost debt of ~INR 100cr that should aid in reducing interest cost
and improving profitability.
Valuations & View:
Vertically integration and self sufficiency in power
aid cost competitiveness, while the garment business is expected to
drive revenues. Increasing utilization of the garment capacity, foray
into valued added yarns along with reduction of debt will enhance
profitability leading to a PAT CAGR of 18% over FY16-18E. We
value KPR Mills at 12x FY 18E EPS of INR 75.6 providing for an
upside of 42%. We recommend to BUY for a TP of INR910.
KEY FINANCIALS
Diluted Shares (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
3.8
2,412
355
24%
30%
STOCK DATA
52-W High/Low Range (INR)
923/456
Major Shareholders (as of 29nd September 2015)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
75.0
14.2
10.9
40,468
3.2
(14)/(3)/55
(16)/(16)/37
Maximum Buy Price :INR665
Ravi Shenoy
(ravi.shenoy@MotilalOswal.com); Tel: +91 22 30896865
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

KPR Mill
CONCERNS
Impact of fluctuation in raw materials:
Sustained reduction in cotton prices may put the realisation under
pressure. This may impact the growth of the company as it may have to pass on the reduction in raw material
prices to clients. However, we do not expect reduction in margins due to increasing share of value added
products in its revenue mix.
Global competition:
Increasing global competition may keep profitability under check. The company exports
28% of its sales competing with global players from countries like Pakistan, China, Bangladesh and Vietnam.
In India, it competes with organized and un-organised segment, though it has benefit of larger scale.
BACKGROUND
KPR Mills, incorporated in 1984, is amongst the largest company in knitted garments sector. It is vertically
integrated company with presence in yarn to garments. It has marquee clients in its portfolio including about
1000 regular domestic clients for yarn and fabric. For garments, the company has approximately 20 international
brands including Marks and Spencers, Tesco, Decathlon, Carrefour, among others. It has sugar manufacturing
capacity of 5000 tonnes crushed per day and co-gen power of 30MW. Its textile manufacturing facilities are
situated at 8 locations in Tamil Nadu and sugar producing facility is located in Karnataka. Textile forms ~80%
of the total revenues of the company, with garments at 20.7%, yarn at 41.5%, and fabric at 18.7%.
INRCr
Total Income
Expenditure
EBITDA
Other Income
Interest
Depreciation
PBT
Tax
P\L of Associates
Adj. PAT
EBITDA (%)
Tax rate (%)
3QFY15
619
511
107.3
6
17
38
58.2
16
0
42.2
17.9%
27%
2QFY16
608
487
121.2
5
15
39
72.8
21
0
52.2
20.6%
28%
3QFY16
640.0
524
115.8
5
12
39
70.6
18
0
53.0
18.7%
25%
25%
2%
-31%
3%
21%
-18%
0%
-3%
yoy
3%
3%
8%
qoq
5%
8%
-4%
3Q FY16
KPR Mills 's total consolidated revenue for the quarter grew by 3% to INR 640.0 cr on account of strong
growth in the sugar business.
Textile segment:
Textile revenue de-grew by 6.6% YoY to INR 507.4cr on account of de-growth of
47% in fabric. Textile EBIT margin expanded to 14.7% during Q3FY16 from 12.6% in Q3FY15 as
contribution from garment and high value added yarn products rose.
Sugar segment:
Sugar business was strong and grew by 198.3% YoY to INR 87.0cr as the company
liquidated around 30k MT of sugar inventory during the quarter.
Interest cost declined 31% YoY on account of reduction in debt levels. Overall, PAT was up by 25% YoY.
25 February 2016
2

KPR Mill
IVRCL: Financials and Valuation
KPR Mill Financials & Valuation
INCOME STATEMENT
Y/E MARCH
FY14
(INRCR)
FY15 FY16E FY17E FY18E
RATIOS
Y/E MARCH
FY14
FY15
FY16E FY17E FY18E
Net sales
Growth
COGS
Employee Cost
Other Expenses
EBITDA
EBITDA Margin
Depreciation
Other Income
Interest Cost
PBT
Tax
Rate
Adjusted PAT
Growth
PAT Margin
2,265 2,457 2,439 2,664 2,866
43%
8%
-1%
9%
8%
1,587 1,674 1,544 1,655 1,754
151
183
220 253
272
218
272
285 312
321
415
437
476 522
590
18.3% 17.8% 19.5% 19.6% 20.6%
157
154
154 165
175
31
24
21
26
28
98
84
60
44
36
192
223
282 340
407
50
50
76
95
122
26% 22% 27.0% 28.0% 30.0%
142
174
206 244
285
38% 22% 19% 19% 17%
6.3% 7.1% 8.4% 9.2% 9.9%
Adjusted EPS (INR)
Book Value
Div Per Share
Dividend Payout
Net Debt / Equity
P/E
P/BV
Dividend Yield
ROCE
ROE
Debtor days
Inventory days
Creditor days
W.Cap cycle
37.7
216
7.4
20%
0.9
17.0
3.0
1.1%
15%
19%
38
93
64
67
46.1
251
9.3
20%
0.7
13.9
2.6
1.5%
16%
20%
42
113
61
93
54.7
293
10.9
20%
0.5
11.7
2.2
1.7%
18%
20%
40
110
58
92
64.9
342
13.0
20%
0.3
9.9
1.9
2.0%
20%
20%
38
108
61
85
75.6
400
15.1
20%
0.1
8.5
1.6
2.4%
22%
20%
38
105
61
82
BALANCE SHEET
Y/E MARCH
FY14
FY15
(INRCR)
FY16E FY17E FY18E
CASH FLOW
(INRCR)
FY14
FY15 FY16E FY17E FY18E
Y/E MARCH
Share Capital
Share warrants
Reserves
Networth
Loans
Less Net Def. Tax Liab
SOURCES OF FUNDS
38
15
762
815
38
15
893
945
38
38
38
15
15
15
1,050 1,238 1,456
1,103 1,290 1,509
603 468 338
60
60
60
1,766 1,818 1,907
847
726
60
60
1,722 1,731
NI
Adjustments
(Inc)/Dec in W.Cap
Others
Pre Tax OCF
Tax Paid
CF from Operations
(Inc)/Dec in FA
Net investments
Others
CF from Investing act.
Equity issuance
Inc/(Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
Others
CF from Financing act.
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
192
230
(118)
168
472
(50)
422
223
246
(106)
(4)
360
(50)
310
282
220
20
0
522
(76)
446
340 407
201 194
(6) (23)
0
0
535 578
(95) (122)
440 456
Net Fixed Assets
1,255 1,206 1,181 1,168 1,145
Capital WIP
6
2
5
6
7
Goodwill
1
1
1
1
1
Inventories
405
516
465 490 504
Debtors
238
282
267 277 298
Cash & Investments
99
40
48
94 164
Loans & Advances
40
24
24
27
29
Other Curr Assets
47
40
39
43
46
Current investments
63
58
70
84 100
Curr. Assets
892
961
914 1,013 1,142
Creditors and Prov.
442
501
396 431 449
Net Current Assets
450
460
518 583 693
Other LT assets
11
62
62
62
62
APPLICATION OF FUNDS 1,722 1,731 1,766 1,818 1,907
(208) (110) (151) (152) (152)
0
(21)
0
0
0
29
25
16
17
19
(179) (106) (135) (135) (133)
0
0
0
0
0
(52) (139) (40) (135) (130)
(79)
(98) (82) (54) (38)
(32)
(42) (48) (57) (67)
(61)
12 (133) (14) (18)
(224) (267) (303) (260) (252)
19
76
95
(63)
99
36
8
40
48
45
48
94
70
94
164
25 February 2016
3

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