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Timing capex to perfection
KPR Mills (KPR) has chalked out an aggressive capex plan of INR 4,760 mn over
FY11-FY12, to expand its capacity from the existing 212,064 spindles to 333,696
(103,680 for compact spinning and 17,952 new spindles) at Satyamangalam,
Tamil Nadu.The capex will also involve modernisation of 30,240 existing
spindles. The entire capex is likely to come on stream by August 2011. With
cotton yarn prices, expected to remain firm, we believe the timing KPR’s capex
is apt for it to benefit from the next upcycle in yarn prices.
Increase in captive power capacity to keep power cost low
The company has increased its power capacity from 40MW to 62MW in Jan 2011
in order to support its capacity expansion in spinning activities which is expected
to come onstream by August 2011 thereby supporting 75 % of its power needs
operating at full capacity. This strategy has helped company in becoming selfreliant
in power consumption needs and to reduce its power cost which stood at
3.1% in FY10, significantly low against 12.4% for its peers.
Higher spreads to keep EBIDTA margins higher
KPR has enjoyed average spread INR 35 per kg over FY07-FY10.Recently cotton
yarn prices have increased at a faster pace than raw cotton prices due to
increased demand from China and Bangladesh thereby leading to increase in
spreads. KPR also enjoys higher realization than its peers because of high
quality product and its presence in Tirupur markets. We expect net spreads over
cotton to be at INR 54 per kg and INR 48 per kg for FY12 and FY13 respectively,
higher than the historical average. We believe that these higher spreads are
sustainable given that the company will produce higher count yarn post compact
spinning capacity coming onstream, thereby helping achieve higher spreads.
Outlook and valuations: Attractive; initiating coverage with ‘BUY’
With incremental spinning capacities coming on stream, complemented by
higher cotton yarn realization makes KPR attractive at current levels. Due to
higher depreciation and interest cost we have valued KPR on EV/EBIDTA basis.
KPR is currently trading at 3.7x FY12E EV/EBIDTA and 3.3x FY13E EV/EBIDTA.
We have valued KPR at 4.2x FY12E EV/EBIDTA and arrive at a fair value of INR
215 per share. We initiate coverage on the stock with ‘BUY’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Timing capex to perfection
KPR Mills (KPR) has chalked out an aggressive capex plan of INR 4,760 mn over
FY11-FY12, to expand its capacity from the existing 212,064 spindles to 333,696
(103,680 for compact spinning and 17,952 new spindles) at Satyamangalam,
Tamil Nadu.The capex will also involve modernisation of 30,240 existing
spindles. The entire capex is likely to come on stream by August 2011. With
cotton yarn prices, expected to remain firm, we believe the timing KPR’s capex
is apt for it to benefit from the next upcycle in yarn prices.
Increase in captive power capacity to keep power cost low
The company has increased its power capacity from 40MW to 62MW in Jan 2011
in order to support its capacity expansion in spinning activities which is expected
to come onstream by August 2011 thereby supporting 75 % of its power needs
operating at full capacity. This strategy has helped company in becoming selfreliant
in power consumption needs and to reduce its power cost which stood at
3.1% in FY10, significantly low against 12.4% for its peers.
Higher spreads to keep EBIDTA margins higher
KPR has enjoyed average spread INR 35 per kg over FY07-FY10.Recently cotton
yarn prices have increased at a faster pace than raw cotton prices due to
increased demand from China and Bangladesh thereby leading to increase in
spreads. KPR also enjoys higher realization than its peers because of high
quality product and its presence in Tirupur markets. We expect net spreads over
cotton to be at INR 54 per kg and INR 48 per kg for FY12 and FY13 respectively,
higher than the historical average. We believe that these higher spreads are
sustainable given that the company will produce higher count yarn post compact
spinning capacity coming onstream, thereby helping achieve higher spreads.
Outlook and valuations: Attractive; initiating coverage with ‘BUY’
With incremental spinning capacities coming on stream, complemented by
higher cotton yarn realization makes KPR attractive at current levels. Due to
higher depreciation and interest cost we have valued KPR on EV/EBIDTA basis.
KPR is currently trading at 3.7x FY12E EV/EBIDTA and 3.3x FY13E EV/EBIDTA.
We have valued KPR at 4.2x FY12E EV/EBIDTA and arrive at a fair value of INR
215 per share. We initiate coverage on the stock with ‘BUY’.
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