Improved performance and stable growth make this a good pick
Moneylife Digital Team
Tirupur-based KPR Mill is one of the leading manufacturers of readymade knitted apparel, cotton knitted fabric and yarn in the country. The company has a presence across the entire value chain—from fibre to fashion, including production of yarn and fabric, designing, dyeing and manufacturing of readymade garments. This makes it less vulnerable to the ups and downs of the yarn market which affect most mills.
KPR Mill’s journey into textile sector began way back in 1984. The group ventured into garment exports in 1989. KPR Cotton Mills Pvt Ltd, now known as KPR Mill, was incorporated in March 2003. Beginning with 50,784 spindles in 2004, KPR Mill currently has a total manufacturing capacity of around 212,064 spindles which produce 54,000MT (million tonnes) of yarn per annum. The company also has 205 circular knitting machines to produce 21,000MT of fabrics per annum and 63 million pieces of readymade knitted apparel per annum along with dyeing facility to process 23MT of fabric per day. Quantum Knits Pvt Ltd is a wholly-owned subsidiary of the company. Quantum is its exclusive knitted garment manufacturing unit, knitting fashion trends for consumers across the world. Among the largest garment manufacturing facilities in India, Quantum has a capacity to produce 52 million pieces per annum in double shift.
KPR has more than 1,000 regular domestic clients for yarn and fabric. Its international client list includes Carrefour, Kiabi (France), C&A (Germany), Ethel Austin (UK), Bandos (Switzerland) and Mothercare (UK). Among the company’s competitors are Alok Industries, Spentex Industries, Gokaldas Exports and Maxwell Industries. KPR Mill entered the capital market some time in August 2007. After three years, the stock is quoting slightly below its listed price.
In May 2011, KPR Mill added 25 windmills with a combined capacity of 21.25MW (megawatts) to its current 40MW, lifting its wind power generation capacity to 61.25MW to support its compact spinning capacity expansion. The addition of 25 windmills would not only help the company meet its power requirements, but will also reduce its power costs significantly.
For the financial year ended 31 March 2010, KPR Mill recorded a consolidated net profit of Rs50.43 crore compared to Rs10.10 crore in FY08-09. In the same period, the company’s consolidated net revenues rose to Rs803.20 crore from Rs718.17 crore. In FY09-10, the company’s consolidated earning per share (EPS) increased to Rs13.38 from Rs2.68 in FY08-09. 
The company’s consolidated net profit for the December 2010 quarter stood at Rs33.58 crore compared to Rs20.20 crore in the December quarter of 2009. Consolidated net revenues rose to Rs288.61 crore against Rs196.88 crore; its standalone EPS increased to Rs8.73 from Rs5.33 in the December 2009 quarter.
The challenges faced by garment manufacturers like KPR Mill include fluctuations in cotton prices that affect the subsequent fall in cotton yarn prices which, in turn, put margins under pressure. In the third week of May, yarn prices declined to Rs225/kg from Rs280/kg in April for the benchmark variety. The fall in prices was mainly due to higher yarn inventory pile-up and reduced exports. In the same period, cotton prices, too, have dropped to Rs42,000 per candy (356kg) from the peak of Rs62,000/candy in April.
The reasons for the decline in yarn exports are the withdrawal of the duty drawback facility and DEPB (duty entitlement pass book) benefits on cotton yarn exports last year, as well as the imposition of a 10.3% excise duty on manufactured garments. This discouraged exports, as prices in international markets too have come down from their peak levels of February-March, squeezing export margins. Sagging demand for cotton yarn has forced mills to go for a production cut of 33.33% (1/3rd) of the existing daily production.
Over the past five quarters,
KPR Mill reported an average growth in revenues and operating profit of 26% and 106%, respectively. Its average operating margin is 23%. Its market-cap to revenues is 0.54, while its market-cap to operating profit is just 2.23 times. Consider buying the stock at the current market price.