Buy KPR Mill; target of Rs 640: Sharekhan

Sharekhan's research report on KPR Mill

KPR Mill (KPR) posted mixed performance in Q3FY2023, with revenue growing by 13.6% y-o-y, while negative operating leverage impacted both gross margin and EBITDA margin, which declined sharply by 434 bps and 544 bps y-o-y, to 39.4% and 18.8%, respectively, leading to a 17.6% y-o-y decline in PAT to Rs. 175 crore. Management has guided for overall revenue growth of 10% per annum for the next 2-3 years, aided by capacity expansion across businesses coupled with recovery in export demand. Further, positive operating leverage will drive margins improvement. Integrated business model along with a strong capacity expansion plan in the sugar and textile business would aid faster recovery for KPR, once the demand scenario improves. Higher free cash flow generation of Rs. 1,300 crore over FY2024/FY2025E will aid future capacity expansion programme. Ethanol blending could also be an additional growth lever.

Outlook

At 19x/15x its FY2024E/FY2025E EPS and 12x/10x its FY2024E/FY2025E EV/EBITDA, the stock offers favourable risk reward. We maintain our Buy recommendation on the stock with an unchanged PT of Rs. 640.

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