In the current year so far, textile stocks have emerged as investors' favourite picks, led by several positive factors including a fall in raw material (RM) prices, recovery in the export demand and potential FTAs.
Key players in the textile sector have strategically consolidated their position in crucial export markets, such as home textiles and readymade garments, capitalizing on opportunities arising from the US-China trade war, according to analysts.
Major shares in the textile space have delivered healthy returns in CY23 so far and one notable performer was KPR Mill, one of India’s largest vertically integrated textile players that rewarded its shareholders with impressive returns.
In June alone, the company's shares gained 19.52% to record a new 52-week high of ₹685.9 apiece in today's trading session. In the current year so far, the shares have zoomed 28.88%.
This remarkable performance signifies a complete turnaround for shares after ending the previous calendar year, CY22, with a negative return of 22.79%. However, it is worth highlighting that in CY21, the stock delivered a massive return of 282%.
Over the last three years, the stock yielded a return of 577%, and over the last five-year period, it soared by 410%.
Looking ahead, domestic brokerage firm Sharekhan maintains a positive outlook on the stock, maintaining a 'buy' call and has revised its target price upward to ₹800 apiece, indicating a potential upside of 19%.
KPR Mill is one of India’s largest vertically integrated textile players, which has a steady financial record with a sturdy balance sheet. The strength of its integrated model helps the company to achieve a consistent EBITDA margin, which is much better than some of its exporting peers, said the brokerage.
The company has recently announced a capital expenditure of Rs. 500 crore, with Rs. 250 crore allocated to the modernization of plants. This investment will not only enhance operational efficiency but also contribute Rs. 250 crore in incremental revenues, further boosting profitability in the coming years, it noted.
KPR Mill's garment business order book for the next six months stands at an impressive ₹1,000 crore. Factors such as the "China + 1" strategy, the potential signing of a free trade agreement (FTA) with the UK and increasing opportunities in the US market create a favorable environment for consistent growth in its high-margin garment business.
Moreover, the company's integrated business model, coupled with a robust capacity expansion plan in the sugar and textile segments, positions it for a faster recovery once demand improves. The generation of higher free cash flow will support future capacity expansions, while the push for higher ethanol blending serves as an additional growth lever, according to brokerage.
The company posted mixed bag numbers for FY2023, with revenues growing by 28% YoY to ₹6,185.9 crore, while EBIDTA margins were down by 470 bps due to higher cotton prices and a change in mix.
However, Sharekhan expects KPR Mill to reap the benefits of expanded garment capacity, with the recovery in export demand likely to materialize in FY2024. The decline in cotton/yarn prices will provide some relief on margins, it added.
The brokerage anticipates revenue and profit after tax (PAT) to grow at a CAGR of 17% and 27%, respectively, over FY 2023–2025E and expects that improved cash flows will aid in reducing the company's debt burden.
7 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
