KPR Mills Ltd 1QFY18 Result Update Target: Rs 944 Previous Rating: Accumulate Current Rating: Accumulate Textile revenue impacted by slowdown due to GST, recovery from 2QFY18 onwards CMP (Rs) 806 Target Price(Rs) 944 Upside (%) 13.3 Prev. Target (Rs) 833 Share Holding (%) Promoter 74.9 Public 25.1 Others 0.0 Total 100.0 Avg Vol (6m) (000) 6.193 FV 5 Beta 1.0 Mcap (Rs Mn) 60,594 52 week H/L 500/882 Bloomberg/Reuters KPR IN / KPRM.BO Group B/ S&P BSE 500 Sensex/Nifty 32383/10020 ABS (%) Sensex KPR 3 M 7.8 13.7 1 Yr 14.8 52.8 1QFY18 result highlights Revenue: KPR Mills (KPRM) consolidated revenue grew by 12.1% YoY to Rs 7.4 bn. Growth in textile business was muted at 1.2% YoY due to impact of GST rollout. Sugar segment revenue grew by 471 % YoY to Rs 830 mn as unsold inventory was liquidated in this quarter. EBITDA: Higher operating leverage in sugar and soft cotton prices helped in the expansion of EBITDA margin by 50 bps YoY. EBITDA stood at Rs 1.5 bn with an increase of 15.1% on YoY basis. PAT: Depreciation cost was largely along the anticipated lines. Other income however declined 26.8% YoY and 47.0% QoQ. Tax rate was 28.8% of PBT. PAT grew by 16.3% YoY to Rs 731 mn. Outlook and Valuation We believe the impact of GST on textile business is only temporary in nature. Up gradation of existing yarn capacity to value added yarns will help to improve realization in textile segment from 2QFY18 onwards. We have assumed expansion in EBITDA margin for FY18E and FY19E due to tilt in product mix towards value added yarns and higher contribution from garment manufacturing. Sugar business revenue is likely to fluctuate on QoQ basis due to seasonal nature of business and we believe that one should look at Sugar revenue on a full year basis. Cotton prices are currently soft on an YoY basis and we expect it to remain stable over the next 6-8 months. Soft cotton prices along with cost efficiency will lead to expansion in EBITDA margin from 2QFY18 onwards. As of now, we believe that KPRM will be able to achieve our estimated sales and profitability numbers for FY18E and FY19E. Hence we have not changed our estimates. However we are now comfortable assigning a higher P/E multiple of 17x and arrive at a target price of 944. We maintain Accumulate rating on the stock. Particulars Revenue (Rs mn) EBIDTA margin (%) PAT (Rs mn) EPS PE (x) RoCE(%) RoE(%) FY16 FY17 FY18E FY19E 26,005 28,166 30,901 33,816 18.1 20.0 21.5 22.2 2,107 28.0 28.8 2,868 38.8 20.8 3,450 46.7 17.3 4,103 55.5 14.5 17.7 20.8 21.3 24.0 23.2 23.0 23.2 21.4 Vikash Mantry Email ID: vikashm@eisec.com (+91 22 61925314) 28 th July 2017
Consolidated Quarterly Performance INR in Mn 1QFY18 1QFY17 YoY (%) 4QFY17 QoQ (%) FY17 FY16 YoY (%) Net Sales 7,121 6,388 11.5 7,466 (4.6) 27,065 25,098 7.8 Other operating income 345 272 26.7 361 (4.4) 1,101 907 21.4 Total Revenue 7,466 6,660 12.1 7,827 (4.6) 28,166 26,005 8.3 Raw Material 4,463 3,971 12.4 5,031 (11.3) 17,022 15,929 6.9 Manufacturing Expenses 749 742 0.9 705 6.3 2,728 3,204 (14.8) Employee Cost 739 632 17.0 700 5.6 2,783 2,177 27.9 Total Cost 5,950 5,344 11.3 6,435 (7.5) 22,534 21,310 5.7 EBITDA 1,515 1,316 15.1 1,391 8.9 5,633 4,696 20.0 Depreciation 382 372 2.6 368 3.7 1,494 1,521 (1.7) EBIT 1,134 944 20.1 1,023 10.8 4,139 3,175 30.3 Other Income 43 68 (36.8) 81 (47.0) 275 239 15.1 Interest 149 202 (26.0) 138 8.0 645 576 11.8 PBT 1,027 810 26.8 966 6.4 3,769 2,838 32.8 Tax 296 181 63.4 247 19.9 901 731 23.3 PAT 731 629 16.3 719 1.7 2,868 2,107 36.1 EPS 9.9 8.3 18.6 9.7 1.7 38.8 28.0 38.8 Net sales at Rs 7.1 bn were mainly driven by increased traction in sugar business. Revenue from textile segment was down 14.2% QoQ and was up 1.1% YoY. We believe textile revenue was impacted due to impending GST implementation. Sugar business revenue was up 472% YoY and 274% QoQ due to sale of unsold inventory from 4QFY17. Raw material costs have gone up by 12.4% YoY and is down 11.3% QoQ. We believe management cut production due to GST related uncertainty. KPR s employee cost increased 17% YoY and 5.6% QoQ. Other manufacturing expenses were largely in line with our estimates. Improved performance in Sugar business and benign cotton prices resulted in expansion of EBITDA margin by 50 bps YoY and 250 bps QoQ to 20.3%. EBIT margin in Textile business expanded to 17.8% from 15.4% a year ago. Sugar business also delivered positive EBIT during the current quarter as compared to negative margin in 4QFY17. 2
Segmental performance INR in Mn 1QFY18 1QFY17 YoY (%) 4QFY17 QoQ (%) FY17 FY16 YoY (%) Textile 6,005 5,936 1.2 7,004 (14.3) 24,105 21,741 10.9 Sugar 830 145 471.5 222 274.1 1,905 2,241 (15.0) Others 285 307 (7.1) 239 19.1 1,055 1,169 (9.7) Inter segment - - - - 53 (100.0) Total Revenue 7,121 6,388 11.5 7,466 (4.6) 27,065 25,098 7.8 EBIT Textile 1,068 912 17.1 1,100 (2.9) 4,013 3,064 30.9 Margin (%) 17.8 15.4 15.7 16.6 14.1 Sugar 64 24 165.6 (90) NA 83 64 28.7 Margin (%) 7.7 16.6 (40.5) 4.3 2.9 Others 1 8 (86.3) 13 (91.5) 43 47 (7.3) Margin (%) 0.4 2.6 5.4 4.1 4.0 EBIT 1,134 944 20.1 1,023 10.8 4,139 3,175 30.3 Margin (%) 15.9 14.8 13.7 15.3 12.7 3
Financials Income statement (Rs mn) FY16 FY17 FY18E FY19E Balance Sheet (Rs mn) FY16 FY17 FY18E FY19E Total revenues 26,005 28,166 30,901 33,816 Share Capital 377 370 370 370 % growth 1.4% 8.3% 9.7% 9.4% Reserves & Surplus 10,629 12,490 16,760 20,798 Operating expenses 21,310 22,534 24,272 26,325 Total Networth 11,006 12,860 17,130 21,168 EBITDA 4,696 5,633 6,629 7,491 Preference Capital - - - - % growth 7.4% 20.0% 17.7% 13.0% Total Debt 8,106 6,851 5,851 4,851 Depreciation 1,521 1,494 1,671 1,801 Deferred tax liabilities 437 442 442 442 EBIT 3,175 4,139 4,958 5,690 Other non-current liabilities 580 801 961 1,057 Interest 576 645 540 455 Current Liabilities & Prov 3,687 2,960 3,799 4,178 Other Income 239 275 308 385 Total Liabilities 23,816 23,914 28,183 31,696 Exceptional items Gross Block 22,272 25,307 26,907 28,507 PBT 2,838 3,769 4,726 5,620 Net Fixed Assets 11,883 13,095 13,024 12,823 Tax 731 901 1,276 1,517 Investments 17 119 2,119 4,119 PAT 2,107 2,868 3,450 4,103 Other non-current assets 1,066 324 405 506 % growth 21.4% 36.1% 20.3% 18.9% Total current assets 10,851 10,376 12,636 14,248 EPS 28.0 38.8 46.7 55.5 Total Assets 23,816 23,914 28,183 31,696 % growth 22.1% 38.8% 20.3% 18.9% Cash flow (Rs mn) FY16 FY17 FY18E FY19E Ratio analysis FY16 FY17 FY18E FY19E Profit before tax 2,838 3,769 4,726 5,620 EBIDTA margin (%) 18.1 20.0 21.5 22.2 Depreciation 1,521 1,494 1,671 1,801 PAT margin (%) 8.1 10.2 11.2 12.1 Change in working capital (2,210) (455) (1,076) (839) ROCE (%) 17.7 21.3 23.2 23.2 Total tax paid (894) (896) (1,276) (1,517) ROE (%) 20.8 24.0 23.0 21.4 Others 576 645 540 455 Inventory days 71 69 72 72 Cash flow from operation (a) 1,831 4,556 4,585 5,520 Payable days 44 27 36 37 Capital expenditure (1,804) (1,964) (1,681) (1,701) Receivables days 59 44 50 50 Change in investments 604 (102) (2,000) (2,000) Debt to equity (x) 0.8 0.6 0.4 0.3 Others - - - - Cash flow from investing (b) (1,200) (2,066) (3,681) (3,701) Free cash flow (a+b) 632 2,490 904 1,818 Equity raised/(repaid) 1,704 1,854 4,270 4,038 Valuation parameters FY16 FY17 FY18E FY19E Debt raised/(repaid) 518 (1,032) (936) (883) EPS 28.0 38.8 46.7 55.5 Dividend (incl. tax) (440) (65) (65) (65) P/E (x) 28.8 20.8 17.3 14.5 Others (2,360) (3,227) (3,765) (4,397) EV/ EBIDTA (x) 14.8 11.9 9.6 8.1 Cash flow from financing (c) (578) (2,471) (496) (1,307) EV/ Sales (x) 2.7 2.4 2.1 1.8 Net chg in cash (a+b+c) 53 19 408 511 P/BV (x) 5.4 4.6 3.5 2.8 4
Stock rating (1 year target scale) Disclaimer & Disclosure <0% - Sell East India Securities Ltd (hereinafter referred as 'EISEC') is a financial services firm registered as Research Analyst with SEBI - Registration Number INH300003231. The Author of the report does not hold any share in the company/ies discussed in this document. EISEC and its associated companies may hold shares in the company/ies discussed in this document. 0-10% - Reduce 10-30% - Accumulate >30% - Buy This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of EISEC. This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject EISEC to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored. This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Our investment recommendations are general in nature and available electronically/in printed form to our clients. Before acting on any advice or recommendation in this document, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but EISEC do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security in any jurisdiction. EISEC and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any investment decisions based on this document. Disclosure SEBI has initiated an enquiry in the matter of First Financial Services Ltd against 152 entities. EISEC is one of them. Corporate Office: 701, 7th Floor, Ruby Crescent Business Boulevard, Ashok Nagar, Kandivali (East), Mumbai - 400 101. Tel: +91 22 6192 5340 Head Office: DA-14,Salt Lake City, Sector-I, Kolkata 700064. Tel: +91 33 40205901. Web: www.eisec.com 5