KPR Mill Q4 Results Review - Higher Garment, Sugar Volumes To Drive Growth In FY25: Systematix

Systematix Research Report

KPR Mill Ltd.’s Q4 was a mixed bag, with revenue missing estimate, operating performance in line and Ebitda margin surpassing estimate. Net sales fell 13% YoY to Rs 17 billion (6% lower than our estimate); the ~50% YoY drop in sugar and ethanol revenues, marginally offset by 3% YoY growth in textile revenue, led to the variance.

Gross margin expanded 541 basis points YoY to 38.8% (versus our estimate of 40%), boosted by soft raw material prices. Ebitda rose 5% YoY and 23% QoQ to Rs 3.3 billion, in line with our estimate. Ebitda margin expanded 332 bps YoY, but contracted 213 bps QoQ to 19.7% (we estimated 19.1%).

Profit before tax grew 6% YoY and 18% QoQ to Rs 2.8 billion but was 6% lower than our estimate. Higher effective tax rate of 23.1% versus 19.8% in Q4 FY23, led to the tempered 2% YoY growth in profit after tax at Rs 2.1 billion (9% below estimate).

KPR currently has an order book of ~Rs 10 billion. Management expects to complete its brownfield garment expansion of 30 million pieces by H1 FY25, enhancing its total capacity to ~177 million pieces. Post expansion, management expects quarterly garment production volumes to touch ~45 million pieces from Q3 FY25. It expects subdued cotton prices and gradual recovery in exports to aid profitability, in the event of challenging market conditions.

Near term, KPR would focus on investing in the textiles division, considering the uncertainty and restrictions imposed on the use of sugar syrup/juice to produce ethanol.

We have raised FY25E/FY26E revenue by 8%/4% to factor in expected higher volume growth in garments and sugar, which explains the 9%/5% increase in EPS.

Reiterating Buy with a target price of Rs 971 (earlier Rs 923), based on 25 times FY26E earnings.

Key risks:

1. Lower: garment realization,

2. export demand, and

3. sugar production.

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