KPR Mills Ltd. |Q2FY15 Result Update | Disappointing quarter due to one-time expenses; Maintain BUY with target price of Rs 352 :: IndiaNivesh

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KPR Mills declared Q2FY15 results that were far below our estimates.
 Net sales de-grew 1.7% yoy to reach Rs 6573 mn from Rs 6684 mn in Q2FY14
(vs. INSPL est: Rs 7677 mn). This underperformance is on account of 33.9%
de-growth in sugar segment and muted growth of 6.6% in textiles segment.
 EBITDA de-grew 5.7% yoy to reach Rs 947 mn in Q2FY15 from 1004 mn in
Q2FY14 (vs INSPL est: Rs 1236). This was on account of lower profitability in
the textiles segment and de-growth in the sugar segment. EBITDA was
positively impacted by lower raw material cost (71.8% of net sales in Q2FY15
vs 73.1% of net sales in Q2FY14) while it was offset by higher other expenses
(6.8% vs 6.3%) and employee cost (7% vs. 5.6%).
 Despite de-growth in EBITDA, PAT grew 20.7% yoy to reach Rs 419 mn in
Q2FY15 from Rs 347 mn in Q2FY14 (INSPL est: Rs 499 mn). This growth in PAT
is on account of higher other income and other operating incomes and
reduction in depreciation and interest.
On segmental basis, textile segment reported 6.6% yoy growth to reach Rs 5379
mn in Q2FY15 against Rs 5045 mn in Q2FY14. This is because of reinstating textile
stocks to the extent of Rs 190 mn resulting from decline in cotton prices. Adjusting
for this, EBIT margin would be 16.9% for Q2FY15. EBIT margin of the segment
declined 317 bps yoy to reach Rs 13.4% in Q2FY15 from 16.6% in Q2FY14. Sugar
segment reported 33.9% yoy sales growth to reach Rs 925 mn in Q2FY15 from Rs
1399 mn in Q2FY14. However, the segment turned profitable with Rs 14 mn profit
in Q2FY15 against loss of Rs 88 mn in Q2FY14. Though marginal, sugar segment
EBIT margin of reported 1.5% against loss of 6.3% in Q2FY14.
For H1FY15, KPR Mills Ltd reported 8.1% yoy growth at Rs 12353 mn against Rs
11422 mn in H1FY14. This was driven by 6.9% yoy growth in textile segment and
5.9% yoy growth in sugar segment. EBITDA de-grew 4.3% yoy to reach Rs 1881 mn
in H1FY15 from Rs 1966 mn in H1FY14. EBITDA margin contracted 198 bps yoy to
reach 15.2% in H1FY15 from 17.2% in H1FY14. Muted sales growth coupled with
higher cost due to reinstating of textile stocks led to contraction in margins. However,
PAT grew 29% yoy to reach Rs 813 mn in H1FY15 from Rs 630 mn in H1FY14. This
growth in PAT is on account of higher other income and other operating incomes
and flat depreciation and reduction in interest.
Valuation
At CMP of Rs 310, the stock trades at PE of 6.4x and 4.7x its FY15E and FY16E
earnings estimate of Rs 49.3 and Rs 67.3 per share respectively. We maintain our
estimates on the company. The stock reinstation of textile segment is not likely to
appear again as cotton prices are near to minimum support price level. Sugar
segment is also likely to perform better with the commencement of season from
October. We maintain our BUY rating on the stock with target price of Rs 352.

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