Can KPR Mill Sustain Its 300% Multibagger Stock Returns Over the Next Decade?

Born to a small farmer, Ramasamy started his business expedition in 1971 with a single power loom. He borrowed money from relatives the following year and added looms. His brother K.P.D. Sigamani and P. Nataraj joined the business soon after.  The company set up spinning mills the following year and moved the operations to fabric and garment manufacturing.

Then the process of integrating the entire process from yarn to fabric was also completed. The business touched a milestone of ₹500 crore in 2004. Later in 2007, the management decided to bring in private equity investors. Soon after, the company went on with an Initial public offering. The stock price was 50 paise initially. Now the stock is trading at a range of ₹800.

The share of the company has given a great return over the years increasing investors’ wealth. Over three years, the stock gave a multi-bagger return of almost 300 percent increasing 4x times. The stock surged 33 percent last year compared to the 28 percent return of Indian benchmark NIFTY 50 in the same period.

The challenges grew along with the growth of the business. Generally, apparel and textiles come with cut-throat competition in a volatile market. Rapid inflation and deflation in the price of cotton can make conditions worse. After a slowdown during the COVID, the industry is rediscovering opportunities.

KPR recently made an entry into domestic retail by trading garments by establishing a brand called FASO. Not only that, the government’s target to increase apparel exports to $100 billion by FY28 presents KPR Mill with a good growth opportunity in the future as well. So, let’s delve in-depth into the article to assess the future of KPR Mill.

KPR Mill – Corporate Overview

KPR Mill is one of India’s top five listed textile companies, with a diverse business emphasis that includes yarn, fabrics, garments, green power, sugar, and ethanol, employing over 30,000 people (90% of whom are women). Over three decades, the company has gained extensive experience in the textile industry, allowing it to leave an indelible mark.

The Company manufactures an astonishing range of textile kinds, including Readymade Knitted Apparel; Fabrics; Compact, Melange, Carded, Polyester, and combined yarn, and reaches out to global consumers with diligence, top quality, and delivery excellence.

The renowned ‘KPR Group’ has 15 high-technology manufacturing units with a capacity to produce 1,00,000 MT of cotton yarn and 4,000 MT of viscose vortex yarn per year. Its sugar plants have an aggregate capacity of 20,000 TCD, while its ethanol plants have a capacity of 360 KLPD.

FASO’s unique 100% organic cotton-based goods, which have numerous specific features, have established a firm foothold in the business. Its aggressive Pan-India expansion ambitions have begun.

KPR Mill – Financials

In the fiscal year 2023, KPR Mill saw a substantial increase in revenue, surging by 28.27% to reach ₹6,185.88 crore as opposed to ₹4,822.48 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a  robust Compound Annual Growth Rate (CAGR) of 22.65% in revenue.

On the other hand, the net profit experienced a decrease, contracting 3.3 percent from ₹841.84 crore in FY2022 to ₹814.1 crore in FY2023. The reason for the decrease in profitability was due to the consequential increase in yarn prices which did not commensurate with the increase in the price of cotton thereby impacting the margin in the yarn segment. 

Though due to the Ukraine war, garment orders from Europe in general were slow, since the company is in the basic segment its impact was less. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased a 29.29% CAGR.

In FY23, KPR Mill maintained favorable financial metrics with a Return on Equity (ROE) of 23.62% and a Return on Capital Employed (ROCE) of 24.54%.

KPR Mill – Future Plans

Garment Segment – A Growth Driver

KPR is India’s largest garment maker and exporter, accounting for around 3.8% of the country’s knitted apparel exports. Over time, the company has effectively transitioned from a pure-play yarn maker to a value-added garment player.

While India is a dominant player in domestic textile exports to the world, it lags far behind China, Bangladesh, Vietnam, and Sri Lanka in garment exports to the United States, Europe, and other markets; this is due to India’s higher production costs (higher wages/power costs) and the lack of FTAs and favored nation status with key developed countries.

Despite these challenges, KPR has effectively built a niche for itself through a consistent increase in garment revenues, aided by long-standing ties with significant global retailers in the United States, the United Kingdom, and other nations. Aside from that, timely and consistent capacity expansion has helped the organization fuel growth and improve serviceability.

Over the last decade (FY12-FY23), India’s knitted garment exports have expanded at an 8.2% CAGR; in contrast, KPR’s garment exports have grown at an impressive 18% CAGR, assuring sustained market share increases over this time.

Consistent Capacity Additions

KPR’s garment capacity has increased by ~5x, from 32 million pieces in FY14 to 157 million pieces by the end of March 23. Almost 68% of overall capacity expansion occurred over the last five years (FY17-FY23), owing to strong order traction from current customers and improved demand visibility.

Solid Client Base

Aside from capacity additions, KPR’s strong client base with decades of well-entrenched connections is a critical component of its constant garment revenue development. The company distributes about 100% of its apparel products to 60 major international companies, including Primark, K-Mart, Marks & Spencer, ASDA, Walmart, and H&M.

In terms of client concentration, no single customer accounts for more than 10% of total export revenues. As a precaution, KPR offers buyer-specific insurance plans to all international customers, which significantly reduces the default risk. It also has a 15-day receivables policy for overseas players, which is reviewed every 3-6 months.

Conclusion

The future looks promising for KPR Mill, but challenges lie ahead. This textile titan has skillfully navigated the competitive landscape, forging powerful global partnerships and steadily expanding garment production capabilities. As India strives to amplify apparel exports, KPR’s expertise positions them favorably. 

However, the road is not without obstacles – volatile cotton pricing and intense rivalry creates hurdles. Their domestic retail foray with FASO adds an intriguing dimension. Now, what do you think about the KPR’s future trajectory? Share your perspectives on KPR Mill’s future prospects.

Written by Nalin Suriya

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