Kpr report

C O M P A N Y R E P O R T

India

7 October 2011 KPR Mill Rs 91.35

Se c t o r : T e x t i l e R e a d y f o r th e B IG L e a g u e

KPR Mill, amongst India’s top five yarn producers and garments manufacturers,

offers great value at current market price. Fears about cotton price cycle have pushed

down the stock to a level where it has downside protection from strong dividend

yield, besides future upside from ongoing capacity expansion.

KPR is increasing its yarn capacity by 60% in FY12. KPR will also attain 100%

power self-sufficiency through its Co-Gen cum Sugar project commencement in

FY13. This will further lead to higher capacity utilizations across garments and

fabric.

Turnover crosses Rs 10 billion, KPR ready for the big league

FY11 has been a landmark year for KPR, with turnover crossing Rs 10bn. With 4

year revenue CAGR of 22%, it is amongst the fastest growing in the sector.

Amongst Industry’s best balance sheet: KPR’s D/E is close to 1 (FY11),

despite Rs 3.7bn of on-going investments in capacity expansion and

modernization.

Sustainability of revenues: KPR has the ability to make use of its vertically

integrated operations, diversified product-mix and global customer base in tune

with prevailing trends. In Q1 FY12, mere 4.7% growth in yarn was made up with

fabrics and garment exports growths to achieve 31.3% top-line growth.

Efficient manufacturing: Several innovative practices give KPR a significant

cost edge, resulting in better margins compared to the peer group.

Growth drivers for FY11-13: KPR will increase its yarn production capacity by

60% in FY12. Power self-sufficiency in FY13 will not just save costs but ensure

operations continuity year round resulting in increased utilization. Sugar Mill

operations will commence in third quarter of FY13. Textile sector per se, will

witness revival as cotton prices have now stabilized worldwide.

At current price, KPR quotes at a PE of 2.5x and EV/EBITDA of 3.2x based on

FY13 expected numbers, much below peer average of 10.8x TTM PE or 9.2x

EV/EBITDA. Expecting valuations to revive to historical levels as cotton prices

settle down, KPR Mill could reach Rs 265 by March 2013. A further attraction

is likely strong dividend yield at current price.

FY'07 FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E

Revenue (Rs. Mn) 4,974 6,064 7,477 8,340 11,074 14,003 17,743

EBITDA (Rs. Mn) 1,359 1,384 1,097 1,641 2,493 2,231 3,472

PAT (Rs. Mn) 584 793 101 504 722 566 1,367

EBITDA margin (%) 27 23 15 20 23 16 20

Net margin (%) 11.7 13.1 1.4 6.0 6.5 4.0 7.7

ROE (%) 21 19 2 10 13 9 20

ROCE (%) 15 10 5 9 11 8 14

P/E Ratio (x) NL 4.6 7.7 8.3 9.7 6.2 2.5

EV/EBITDA (x) 5.3 6.7 5.1 5.0 5.5 5.5 3.2

D/E 1.3 1.2 1.0 0.8 1.3 1.6 1.2

Dividend Yield (%) 5.2 9.7 4.9 3.3 6.6 7.7

FY 06 FY 07 FY 03 FY 08 FY 11 FY 12-13E FY 09 FY 10

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BSE Sensex 16,233

Nifty 4,888

52 week high (Rs) 246.85

52 week low (Rs) 89

Bloomberg KPR.IN

NSE KPRMILL

BSE 532889

Equity Shares (mn) 37.68 Face Value (Rs) 10

Market Cap (Rs mn) 3,442

Share Price Performance (%)

KPR Sensex

1 week -6.7 -1.3

1 month -9.6 -4.9

3 month -24.4 -14.9

6 month -50.7 -17.1

1 year -58.7 -20.1

Shareholding Pattern (Jun’11)

Promoters 74.5%

FIIs/FVCIs 8.9%

MF/Banks 2.9%

Body Corporates 3.9%

Others 9.9%

Company Report: KPR Mill 7 Oct’11

Four-S Research 2

Investment Positives

Among top 5 domestic integrated textile companies

Among leaders in both yarn and garments

Amongst the

biggies of Indian

cotton textile sector

KPR is amongst top five manufacturers of cotton yarn in terms of installed

spindleage capacity in India and one of the largest manufacturers of garments

in terms of total units produced. KPR is only below large integrated players

like Vardhman Textiles, Nahar Spinning and Alok Industries in terms of

installed capacity of spindles.

Leading Yarn Players – Capacity in Spindles (000s)

Source: Company data, Four-S Research

KPR would further consolidate its position in the yarn segment with its

ongoing expansion of 103,680 spindles in the compact yarn space, 16,128

spindles of melange yarn and 13,104 spindles addition at Sathyamangalam

plant.

KPR is one of the largest manufacturers of garments in India. Capacity

utilisation of the garmenting division still hovers around 55%-60% levels

providing significant scope for growth.

A leading Garment Producer in India

Mn Pieces FY 10 FY 11

Bombay Rayon 38 41

KPR Mill 30 35

Gokaldas Exports 29 29

House of Pearl Fashions 11 16

Nahar Spinning 7 8

Celebrity Fashions 6 5

Alok Industries 4 5

Source: Company reports, Four-S Research

In FY 11, KPR extended its lead from Gokaldas Exports, with production of

35mn pieces compared to Gokaldas’s 29mn pieces.

Company Name FY 10 FY 11 FY 12 E

Vardhman Texti les 870 880 940

Nahar Spinning 346 383 436

Alok Industries 300 300 412

KPR Mill 212 220 353

Nahar Industrial Enterprise 201 201 201

Super Spinning Mil ls 177 166 166


Four-S Research 3

Vertically integrated operations

KPR’s operations

are vertically

integrated and

located in Asia’s

largest apparel

manufacturing

cluster

KPR has developed one of the largest vertically integrated operations in South

India with a total manufacturing capacity of 248,976 spindles; garmenting

facility to produce 63 million pieces per annum of readymade knitted apparel;

63,500 MT of yarn making ability and production of 21,000 MT of fabrics per

annum; processing facility to handle 23 MT of fabric per day. In FY12, KPR

will increase its total yarn capacity to 3,53,088 spindles.

Its presence across the entire textile manufacturing value chain helps to meet

end to end requirements of clients; offering spinning, knitting & garmenting at

one location. This also helps the company to maintain strong hold over the

quality resulting in premium pricing and repeat orders.

Strategically located state of the art manufacturing facilities

Breadth of business

operations has

helped achieve

strong revenue

traction

All operations are strategically located within a 50km radius from Tirupur,

regarded as one of the Asia’s largest apparel manufacturing clusters. The close

proximity to buyers helps to reduce material handling costs and facilitates

immediate feedback regarding the quality of the product. KPR has set up a

large exclusive showroom of over 7,000 sq ft to facilitate buying for its clients.

The location of the facilities helps to utilize the key technical personnel across

all plant sites.

KPR will achieve 100% self-sufficiency in power with its Co-Gen cum Sugar

project coming up at Bijapur, Karnataka.

Source: Company Data, Existing facilities as on 31st March, 2011

Industry Innovator and Trend Setter

KPR’s biggest

strength is its

ability to

innovate above

The biggest reason an investor should look at KPR is its clear reputation as an

innovator in the industry. Its proven ability to think out of the box, and come up

with unique solutions that convert challenges into advantages, is what has enabled

KPR to deliver growth with superior financials.

Location of Facilities Nature of Work Capacity

Existing

Sathyamangalam Spinning 30,240 spindles

Karumathampatti Spinning 30,240 spindles

Neelambur Spinning & Knitting 50,784 spindles

Arasur Spinning, Knitting & Garmenting

100,800 spindles Garmenting :85,000 pieces per day (single shift) Storage : 450 tons

Tirupur Garmenting 12mn pieces capacity outsource

SIPCOT, Perundurai Fabric Processing 23 tons/day

Tirunelveli, Tenkasi & Coimbatore

Wind Mills (65 nos.) 61.07 MW

Ongoing Expansion FY12-13

Karumathampatti Spinning Compact Yarn 103,680 spindles; Melange Yarn 16,128 spindles


KPR Sugar Mill Co-Gen Sugar mill

34 MW Power generation 5000 TCD


Four-S Research 4

common

industry

challenges.

Here are some examples of its innovative management style and practices:

Employee friendly Labour practices

Employees are a

big strength for

KPR Mill

Textile industry inherently is manpower intensive. With growing employment

opportunities in other sectors, manpower training and retention are critical

industry challenges.

For spinning and garmenting, more than 90% of employees are women, most of

them from rural areas. KPR has figured out how to keep them motivated and

derive good productivity through friendly accommodation, nutritious food,

recreation and formal and vocational education. About 7000 employees have

completed school or college using KPR’s program. In fact, in FY11, KPR spent

Rs. 12mn on higher education for 2,495 employees.

Kaizen

Ground-up

innovation

culture

“Kaizen” is the Japanese word for shop-floor innovation. While you will not

expressly hear KPR say the word “Kaizen”, but that is what they follow. Walk

their shop-floors, and you see examples of “Kaizen” and Japanese-style

manufacturing practices all around.

Examples of “kaizen” abound in KPR. A tiny one: use of skates for employees in

the spinning section. This has reduced worker fatigue and cut down requirement of

workers. The idea came from the shop-floor.

In-house power generation

KPR will

achieve 100%

self-sufficiency

in power by

FY13. This

would result in

higher capacity

utilizations and

reduced costs.

Power outages have been a problem many textile mills face. The outage forced

production break not only bleeds the top-line through lower capacity utilization

but hurts the bottom-line due to cost overruns. KPR has overcome this hurdle by

planning towards 100% self-sufficiency in power by 2013.

KPR recently commissioned additional windmills of 21.25MW in March 2011

taking its total wind capacity 61.07 MW. Presently, KPR has one of the largest in-

house power generation capacities capable to meet 75% of its internal power

needs.

Further, in order to achieve 100% self sufficiency for internal power requirements,

KPR has been proactively exploring new avenues for green power. It recently

participated in Co-Gen cum Sugar project (with installed capacity of 34 MW of

Co-Gen and 5,000 TCD of sugar) established by "K.P.R. Sugar Mill Limited" at

Bijapur district, Karnataka by making it a wholly owned subsidiary. The project is

expected to go on stream by third quarter of FY13. This move would see KPR

save ~Rs 120mn per annum and meet all its power needs in-house.

Attaining self-sufficiency in power will ensure operational continuity leading to

significant capacity utilization increases in Fabric and Garment segments by

FY13.


Four-S Research 5

Advanced machinery

State-of-the-art

plants

While this isn’t something exactly unique to KPR, but it does tell you a bit about

the management mindset. Each time KPR implements an expansion, it puts up

state of the art plant and machinery. The effluent treatment plant at its processing

unit is regarded as a model unit in Tirupur.

Its new 100% compact yarn manufacturing facility at Karumathampatti will need

to employ only about half the manpower as compared to KPR’s own previous

facility of similar capacity. The earlier unit was set up as recently as in FY08.

Within 4 years, KPR management has managed to source better machinery and

half manpower requirement.

Robust Financial Performance

Annual Results 2010 – 2011

One of the fastest growing companies

Outperformed

peers in revenue

growth and

operational

efficiencies

KPR’s revenues grew at 3-yr CAGR of 22% over FY08-FY11 to reach Rs

11,074mn in FY11 as compared to 18% CAGR growth witnessed by peer

group average during the same period.

The growth for company was 400 basis points higher than the peer group in

terms of revenues.

Superior operating and net margins

KPR has consistently maintained above average EBITDA and net margin

compared to its peer group over the last few years. During FY11, the

company’s EBITDA margin stood at 23% as compared to peer group average

of 16%. KPR’s net margin stood at 7% as compared to peer group average of

6% in FY11.

FY08 FY09 FY10 FY11

EBITDA Margin

Peer Group (Mean) 12% 13% 15% 16%

KPR 23% 15% 20% 23%

PAT Margin

Peer Group (Mean) 5% 4% 5% 6%

KPR 13% 1% 6% 7%

Source: Ace Analyser, Four-S analysis

Higher dividend payout


Four-S Research 6

KPR has had consistently high dividend payout ratio compared to the peer

average with 31% in FY11 compared to peer average of 4%.

In FY11 the Company announced Interim dividend of Rs 3 per share and Final

dividend of Rs 3 per share, thereby, resulting in total dividend of Rs 6 per

share.

Dividend Payout Ratio FY10 FY11

Peer Group (Mean) 6 4*

KPR Mill 41 31

* Dividend information NA for Mudra Lifestyle

Source: Ace Analyser, Four-S Research

Financial prudence reflected in strong balance sheet

Low Leverage

Low leverage

enhances

attractiveness

giving sufficient

scope to scale up

further in future

In a sector where D/E ratios have gone haywire due to availability of

subsidised debt (under TUF scheme), KPR is the only major textile company in

India which believes in keeping its debt-equity around 1x. The financial

conservatism provides KPR with sufficient scope to pursue aggressive growth

strategy without leading to equity dilution.

Company funded its recent capacity expansion programmes through IPO

proceeds, internal accruals, preference issue of Rs 150mn and debt of ~Rs

3,435mn (TUFS).

The planned Rs 3,258mn investment in Co-Gen cum Sugar mill project would

be again funded by a mix of internal accruals and debt. The projected D/E

would rise to 1.6 in FY12 due to new debt taken and would come down back to

1.2 in FY 13.

Increasing asset turnover

KPR’s fixed assets turnover doubled from 0.7x in FY08 to 1.4x in FY11. This

reflects improving asset efficiency and better capital management. KPR has

always invested in regular modernization of its machineries.

Q1 FY12 Consolidated Results Snapshot

KPR achieved 31%

revenue growth

YoY in first

quarter of 2012,

though margin was

impacted

In a very tough quarter for the industry, KPR’s first quarter FY12 consolidated

revenues grew at 31.3% Y-o-Y to reach Rs 3,212mn boosted by strong exports

growth of 73% YoY & increase in price realization across segments.

EBITDA decreased by 28% YoY to Rs 442mn; EBITDA margin declined to

13.8% from 25.1% due to one-time Raw Material write down of Rs 278mn.

PAT decreased to Rs 106mn with PAT Margin at 3.3%.

However, margins are expected to improve going forward as cotton prices have

stabilized after reaching all time highs in the previous quarter.


Four-S Research 7

Revenue and Growth EBITDA and Margin

Source: Company data, Four-S research

Achieves traction in Textile Exports as well

Doubled exports in

4 years

KPR exports have more than doubled in last four years. It was able to sustain

an average growth rate of 28% despite recessionary fears in US and Europe by

diversifying its markets. It has successfully reduced its dependence on Europe

markets from 96% in FY08 to 80% as of today, with increased focus on Asia

and Australia.

Set to continue strong growth momentum

Drivers in place for 27% revenue growth over FY11-13

Rest of FY12 is

expected to be

better with cotton

prices settling

down, yarn

capacity additions

on track

We expect top-line to grow at a 2-yr CAGR of 27% to reach Rs 17,743mn by

FY13. This would include operations of KPR Sugar Mill from Q3FY13

onwards. The strong growth is expected as the 60% yarn capacity increase

would be implemented in FY12 itself. FY13 will derive the full benefits of the

total 90,000 MT yarn capacity.

KPR’s investments in captive power generation would make it self-sufficient

by FY13. This would enable continuity of operations all year around. At

present the State witnesses frequent power outages in peak season. In the past,

KPR has focussed on yarn capacity utilization and maintained it at 90%. In

FY13, the company would be able to increase its fabric and garmenting

utilizations based on self-sufficiency.

Hence, all key product segments are set for double-digit growth. The yarn

segment would grow at 2-yr CAGR of 26% to reach Rs 9,130mn by FY13.

Garmenting division, dedicated to exports, would see 22% 2 yr CAGR growth

to reach Rs 4,224mn by FY13. Similarly, fabric revenues would grow at

CAGR of 20%. Total Revenue from textile segments would grow at 2-yr

CAGR of 24% to reach Rs 16,053mn by FY13. This would be slightly higher

`Mn

2,446

3,212

0

1,000

2,000

3,000

4,000

5,000

Q1FY'11 Q1FY'12

`Mn In %

613

442

25.1%

13.8%

0%

5%

10%

15%

20%

25%

30%

100

200

300

400

500

600

700

800

Q1FY'11 Q1FY'12

EBITDA EBITDA Margin


Four-S Research 8

than FY07-FY11 5-yr CAGR growth of 22%.

Compact yarn expansion: A high value add product

KPR is adding 103,680 spindles at a cost of Rs 3,100mn at its

Karumathampatti plant. About 50% of the total capacity has already been

commissioned in August 2011. The balance would be operational in phased

manner by October 2011. Being one of the largest compact yarn expansions at

a single location, the move will help KPR consolidate its presence among

premium product segments. As per management estimates, compact yarn

realisations are 5% to 10% higher as compared to conventional yarn.

The company is also looking to explore international markets and domestic

markets out of Coimbatore for export of compact yarn.

Sugar Mill operations

The Sugar Mill operations are estimated to generate an annual turnover of Rs.

3,350mn with EBITDA of 20%. The Co-Gen will produce 208mn units of

power annually at an estimated cost of Rs. 2.7 per unit.

Will maintain strong profitability

EBITDA margins

will revive in FY13

With concerted efforts to shift product mix towards high value add segments,

KPR would be able to command premium pricing/ realisations for its products.

Though, we expect EBITDA margins to be under some pressure in FY12E due

to huge cotton price variations, it would bounce back from 16% in FY12E to

20% from FY13 onwards:

a) Yarn realisations would enjoy 45% mark-up over cotton prices in FY13, up

from the historical average of 41% over FY08-FY11. Compact Yarn capacity

(22% of total FY13 MT capacity) would result in higher realizations. Cotton

prices are expected to be stable around current levels in FY13.

b) We expect fabric division to experience capacity utilization of 55% in FY13,

up from 45% in FY11.

c) We expect garmenting division to have high realisations after subdued

pricing for past few years. Garment realisations would grow to Rs. 110 per

piece by FY13 as compared to average of Rs. 85 per piece over FY08-FY11.

This is mainly on account of pricing trends observed even in recent quarters.

d) Sugar Mill operations are expected to have 20% EBITDA margins. The Co-

Gen project will also reduce the power costs.

Professional management team to spearhead growth

Management

vision evident in

approach to

resolve challenges

The 16-membered core management team (including board of directors and key

managerial personnel) at KPR brings with it a rich experience of 1-4 decades

acquired in textile industry. Mr. K.P. Ramasamy, the Chairman, has rich industry

experience in the production and marketing across all the products segments and


Four-S Research 9

facing the sector holds memberships in all key industry associations including Southern India

Mill's Association (SIMA).

Management vision evident in approach to resolve challenges facing the sector –

power outages and employee sourcing


Four-S Research 10

Peer Benchmarking

Defining peer set

We have benchmarked KPR with listed Indian textiles companies classified as

follows:

a) Large and medium-sized integrated players involved in manufacturing and

supply of yarn, fabric and garments

b) Companies focused on garment exports

Presence across the Value Chain

Financial Comparison

Higher CAGR in revenues over FY08-FY11

KPR achieved

above par 3yr

CAGR of 22% in

revenues

Source: Ace analyser, Four-S research

KPR posted a strong growth in revenues at 3-yr CAGR of 22% over FY08-

FY11 to reach Rs 11,074mn in FY11 as compared to 18% growth witnessed by

44%

35%

28% 27%23%

17% 16% 15%

9%2% -16%

22%

-20%

-10%

0%

10%

20%

30%

40%

50%

Alo

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Bom

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Ray

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Hou

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Man

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Var

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exti

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Mudra

Lif

esty

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Nah

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pinnin

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Arv

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Ltd

Wel

spun I

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Gok

alda

s E

xpo

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Cel

ebri

ty F

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KP

R

Companies

Cotton/ Polyester

Yarn Fabric Designing Dyeing

Readymade

Garments/ Home

Furnishing Retailing

Large Integrated Players

Alok Industries

Vardhman Textiles

Arvind Mills

Bombay Rayon

Welspun India

Mid-Size Integrated Players

Nahar Spinning

Mandhana

Mudra Lifestyle

Garment Focused Exporters

House of Pearl Fashions

Gokaldas Exports

Celebrity Fashions

KPR Mill Limited


Four-S Research 11

peer group average during the same period.

The company outperformed most of its peers in terms of revenue growth

driven by strong performance across all its key product segments. The

accelerated growth in revenues was led by strong pace of growth in garmenting

division at 3-yr CAGR of 27% over FY08-FY11.

Superior EBITDA margin

KPR has consistently maintained higher margins compared to its peer group

during the period FY08-FY11. The company witnessed better EBITDA margin

of 22.5% in FY11 as compared to peer group average margin of 16% during

the same period.

The company’s margins are higher compared to most of the textile players,

except for players like Alok Industries and Vardhman Textiles. Benefitting

from their large-scale operations, these companies enjoy significant economies

of scale especially towards raw material procurement (average raw material

cost as a %age of revenue: 51%-55%).

EBITDA Margin Comparison (2008-2011)


KPR has been able to maintain superior margins compared to industry due to

its continuous focus on high margin products and cost consciousness.

i) Yarn division contributes over 50% to net sales. Realisation for yarn grew at

robust 3-yr CAGR of 21% to reach Rs 178/kg in FY11;

ii) Contribution (to net sales) from high margin garment division increased to

26% in FY11 from 23% in FY08;

ii) Company is amongst the lowest cost operators in terms of power costs

compared to peer group average:

In-house power generation to reduce power cost: KPR has installed 65

windmills with total power generation capacity of 61.07MW. Captive

power capacity helps the company to meet ~75% of its power requirements

internally leading to significant savings in costs. KPR’s power and fuel

costs at 3% of net sales are significantly lower than the peer group average

of 6% for FY’11.

12% 13%15% 16%

23%

15%

20%23%

0%

5%

10%

15%

20%

25%

FY08 FY09 FY10 FY11

Industry Average KPR


Four-S Research 12

Power & Fuel Cost/Sales

Source: Company data, Four-S research

PAT Margin outperforming peers in FY10 and FY11

KPR’s PAT margin

has been higher

than peer group in

last two years


KPR’s PAT margin stood higher at 6% and 7% when compared to its peer

group average of 4% and 6% during FY10 and FY11, respectively.

This was despite the fact that KPR charged additional depreciation of Rs

525mn on windmill in FY11 due to reassessment of useful life of wind mills.

The company also charged interest on term loans for new projects in FY11.

Consistent high dividend payout ratio

KPR has been

consistently

rewarding its

shareholders with

significantly higher

than peer group

dividend payouts

Note: Dividend information is NA for Mudra Lifestyle for FY11


KPR had consistently high dividend payout ratio compared to the peer average.

In FY11 the Company announced Interim dividend of Rs 3 per share and Final

5%6%

5%6%

3% 3% 3% 3%

0%

2%

4%

6%

8%

FY08 FY09 FY10 FY11


4% 4%

6%

1%

6%

7%

0%

2%

4%

6%

8%

FY09 FY10 FY11Industry Average KPR

3% 6% 4%

75%

41%31%

0%10%20%30%40%

50%60%70%80%

FY09 FY10 FY11Industry Average KPR


Four-S Research 13

dividend of Rs 3 per share, thereby, resulting in total dividend of Rs 6 per

share.

Improving Return on Capital Employed (ROCE)


KPR consistently improved and outperformed its peer group average in terms

of returns on capital employed (ROCE).

The company improved its ROCE from a low of 5% in FY09 to 10% in FY11

with an improving fixed asset turnover ratio. FA turnover ratio doubled from

0.7x in FY08 to 1.4x in FY11.

With low leverage on Balance Sheet compared to peers


KPR’s low leverage

is one of its most

attractive features

KPR’s D/E ranges between 0.8x-1.3x over FY08-FY11which is significantly

lower than the peer group average range of 1.6x-2.0x. The company’s

management operates at lower financial leverage providing it scope for

aggressive future expansion. Low leverage on balance sheet helped KPR to

raise debt to the extent of Rs 3,435mn during FY11 for its new projects.

8%7%

9%

5%

9%10%

0%

2%

4%

6%

8%

10%

12%

FY09 FY10 FY11


1.82.0

1.81.6

1.2 1.0

0.8

1.3

0.0

0.5

1.0

1.5

2.0

FY08 FY09 FY10 FY11Industry Average KPR


Four-S Research 14

Q1FY’12 peer comparison – Standalone results

Higher growth and EBITDA Margin in a tough quarter

EBITDA margins

of most of textile

players were

impacted with

sudden decrease in

raw material costs.

Still KPR’s

EBITDA was

marginally higher

than peer group

Source: NSE, Company data, Four-S Research

In a very tough quarter for the industry, KPR saw a higher YoY growth in

revenues (23.5%) in Q1FY’12 compared to peer average of 14%.

As a result of unprecedented cotton price volatility, KPR did one time Raw

Material write down of Rs 278mn. Hence, its EBITDA decreased to 14.6%.

However, EBITDA was still marginally higher than peer group average of

14.3%. PAT margin declined to 3.4%.

However, the performance can still be considered above board, as 6 more peers

reported negative PAT numbers compared to 2 for the same period last year.

Company

Q1FY'12 YoY Growth (%) Q1FY'11 Q1FY'12 Q1FY'11 Q1FY'12


Alok Industries 16,456 49.7% 29.7% 27.5% 4.2% 3.5%

Vardhman 9,694 19.5% 22.4% 3.8% 9.7% NA

Arvind Ltd. 8,218 42.2% 16.2% 17.8% 3.3% 8.1%

Bombay Rayon 6,038 20.1% 25.5% 24.8% 10.4% 9.4%

Welspun India 5,419 14.8% 12.9% 15.9% 3.3% 4.9%


Nahar Spinning 3,874 29.8% 16.5% NA 5.1% NM

Mandhana Industries 2,050 42.6% 23.3% 18.9% 8.9% 7.6%

Mudra Lifestyle 832 -26.2% 16.0% 3.8% 2.2% NM


House of Pearl Fashions - NM NM NM 10.1% NM

Gokaldas Exports 2,444 -7.2% NM NM NM NM

Celebrity Fashions 388 -45.7% NM 1.7% NM NM

Mean 14.0% 20.3% 14.3% 6.4% 6.7%

KPR Mill 2,987 23.5% 25.2% 14.6% 11.7% 3.4%

Revenue (Rs mn) EBITDA Margin (%) Net Margin (%)


Four-S Research 15

Valuation Comparison

Trading at Attractive Multiples

KPR is trading at

very attractive

valuation

multiples

currently

compared to

both the peer

group average

and the historical

valuations

*Valuation is based on TTM financials as of June 2011

Source: NSE, Company data, Four-S Research

At CMP of Rs 91.35 per share, KPR is trading at 6.4x of its TTM June’11 PE and

4.4x of TTM June’11 EV/EBITDA.

The valuation is significantly lower i.e. at discount of 38% and 51% when

compared to peer group average trailing P/E and EV/EBIDTA multiples,

respectively. The valuation ignores the likely growth in revenues and profits

coming from the ongoing expansion in high margin product segments. We

believe the company is set for re-rating FY12 onwards.

At current TTM EV/EBITDA multiple of 4.4x, KPR presents an attractive value

investing opportunity. The company is trading at a discount of 21% compared to

its historical 4-yr average EV/EBITDA of 5.6x.

31Mar’08 31Mar’09 31Mar’10 31 Mar’11 7 Oct’11

EV/EBITDA (x) 6.7 5.1 5.0 5.6 4.4

PE (x) 4.6 7.7 8.3 9.7 6.4

Source: NSE, Four-S Research

Company CMP (Rs.) No. of shares Market Cap Net Debt EV EV/Sales EV/EBITDA PE P/B

7th Oct'11 (mn) (Rs mn) (Rs mn) (Rs mn) (x) (x) (x) (x)


Alok Industries 18 788 14,220 1,07,550 1,21,770 1.7 6.7 4.4 0.5

Vardhman 193 64 12,307 28,738 41,045 0.9 4.3 3.1 0.5

Arvind Ltd. 96 255 24,540 21,523 46,062 1.0 7.5 12.0 1.4

Bombay Rayon 276 99 27,302 30,949 58,251 2.1 10.7 13.2 1.1

Welspun India 27 89 2,420 15,937 18,358 0.9 9.4 19.7 0.4


Nahar Spinning 60 36 2,157 13,244 15,401 1.0 10.1 14.9 0.3

Mandhana Industries 210 33 6,959 5,402 12,362 1.4 8.1 10.0 2.0

Mudra Lifestyle 25 48 1,178 3,766 4,944 1.2 19.9 NM 0.5


House of Pearl Fashions 52 20 1,018 2,756 3,774 0.2 4.6 4.8 0.2

Gokaldas Exports 88 34 3,032 2,862 5,894 0.6 NM NA 0.8

Celebrity Fashions 6 20 112 1,458 1,570 1.0 NM NA 0.5

Mean 1.1 9.0 10.3 0.8

KPR Mill 91 38 3,442 6,854 10,296 0.9 4.4 6.4 0.6


Four-S Research 16

Valuation and Price Target

Current valuations depressed on raw material volatility

Valuations will

correct as normalcy

returns to cotton

prices

First quarter of FY12 saw unprecedented raw material price volatility. Share

prices of most of the textile players fell down. Players in cotton textiles were

impacted the most compared to those with interests in manmade textiles, retail

and other businesses. We expect the worst to be over, and overall cotton

textiles players to do much better henceforth.

Given KPR’s revenue traction, capacity additions led scale-up of operations,

we expect KPR to make the most of industry revival.

Price Target

KPR should hit a

price of Rs 265 by

March 2013. We

expect it to rerate

towards historical

valuation levels

with industry

revival

Current valuations of KPR are depressed compared to its own historical

trading levels, and peer group averages. As shown in the table in the

immediate preceding page, KPR has traded at an EV/EBITDA of around 5x or

more in recent years. Similarly, it has traded at a PE of around 8x. These

values are also in line with peer averages.

We believe, KPR valuations will revert to these values as normalcy returns to

cotton prices. While there is a good case of KPR quoting at a premium to peer

averages, given its more efficient manufacturing, conservative financials and

consistent dividend payouts, we are basing price expectations in line with

sector averages.

Assuming KPR reverts to its normal trading range of 8x PE and 5x

EV/EBITDA by FY13, we get an average price expectation of Rs 265 by

March 2013.

An investor at current price can also look forward to strong dividend yields,

which may also give downside support at current levels.


Four-S Research 17

KPR’s Business

Vertically Integrated Operations

Amongst the

largest vertically

integrated players

with focus on Yarn

and Garments

KPR has established one of the largest vertically integrated manufacturing

capacities in South India with the capability to produce readymade knitted

apparel, knitted fabric and carded and combed cotton yarn. The integrated

manufacturing operations enable the company to better customize products as

per the client specifications and provide consistent quality assurance in a cost-

effective manner.

KPR’s presence across the Textile Value Chain

Yarn: Amongst India’s top 5 producers

Yarn is the main

play for KPR with

over 50%

contribution to

turnover. Yarn

capacity is

increasing by 50%

in FY12

KPR is amongst India’s largest cotton yarn producers. The company currently

has installed capacity of 248,976 spindles which translates into an annual

production capacity of 63,500MT of yarn. This includes both carded and

combed yarn.

After its ongoing expansions go on stream, KPR’s total installed capacity will

go up to 353,088 spindles. The annual production capacity would increase to

90,000MT of yarn.

Leading Players - Installed Spindleage (‘000)

Source: Company data, Four-S Research

Largest revenue contributing segment

Yarn continues to contribute over 50% of the company’s revenues. Average

yarn realisation consistently increased from ~Rs 102/kg in FY08 to Rs182/kg

in FY11. KPR consumes ~25% - 30% of its yarn production in-house and the

Company Name FY 10 FY 11 FY 12 E

Vardhman Texti les 870 880 940

Nahar Spinning 346 383 436

Alok Industries 300 300 412

KPR Mill 212 220 353

Nahar Industrial Enterprise 201 201 201

Super Spinning Mills 177 166 166

Sourcing of

Raw materials

Knitting

(21,000MT Fabric)

Processing (23MT of fabric

per day)

Apparel

Making (63mn pieces,

operating double shift)

Spinning (248,976 Spindles)

(63,500MT Yarn)

Processing (23MT of fabric

per day


Four-S Research 18

remaining 70% - 75% is sold in the domestic markets.

Expansion – Adding 132,912 spindles

New unit of Compact Yarn at Karumathampatti

Compact yarn

capacity addition

will bring

productivity gains

as well for KPR

Sensing an opportunity in higher value add yarn segment, KPR is setting up a

new unit to manufacture 100% compact yarn. It is adding 103,680 spindles at a

total estimated cost of Rs 3,100mn at its existing facility in Karumathampatti.

Out of this, 50% of the planned addition has already been commissioned in

August 2011. The balance would be commissioned by October 2011 in phased

manner. The expansion is funded by a mix of debt and equity. The equity

includes IPO proceeds of Rs 710mn and internal accruals. Financial closure has

been achieved for all debt requirements under TUF scheme.

Conventional Spinning Vs Compact Spinning:

Compact spinning Conventional Spinning

Installed capacity ~12,000 spindles ~200,000 spindles

Planned expansion 1,03,680 spindles -

Cost per spindle* Rs. 28,500 Rs. 25,000

Realization 5% to 10% higher

Manpower 1,200 employees 2,000 employees

Input-Output Ratio 100:77 100:82

Wastage 23% 18%

*Cost per spindle includes cost of installation and preparation of land & building

The expansion would help KPR to achieve higher productivity and better

realisation as compared to conventional spinning. The key benefits of compact

yarn spinning would include:

i) Higher average realizations: ~ 5 to 10% higher as compared to conventional

yarn realizations.

ii) Increased automation to help lower personnel requirements. KPR would

need to employ only additional 1,200 workers in comparison to 2,000 workers

required for similar conventional yarn capacity.

Upgrading its existing unit at Sathyamangalam

Bank Loans for the

projects sanctioned

under TUFS

KPR completed modernisation of its existing 30,240 spindleage capacity at

Sathyamangalam unit in March 2011. This involved replacement of existing

ring frames with new ring frames that yield better productivity.

KPR is also adding 13,104 new spindles of recently launched LR9/AX 1632.

This would result in considerable reduction in per spindle cost. 30% of planned

addition has been commissioned by August 2011 and the balance would be

completed by January 2012 in a phased manner. Total investment of ~Rs

380mn was incurred on the projects.


Four-S Research 19

Melange Yarn at Karumathampatti

Driven by domestic and export market demands, KPR would install 16,128

spindles of Melange Yarn capacity at its Karumathampatti plant. Melange Yarn

is unique in its softness, natural fibre texture and liveliness. The spindle cost is

economical at Rs. 11,000 per spindle. 25% of Melange Yarn would be used for

captive consumption. The unit is expected to be fully operational by January

2012 in a phased manner. Total Project Outlay is Rs.177mn.

Fabric: Captive capacity, feeds garment unit

KPR’s fabric

segment

contributes 14% to

revenues

KPR’s fabric division equips high speed automatic knitting machines with a

capacity to manufacture 21,000 MT of fabric per annum. These machines,

manufacturing fabrics of various products/ Dia, are spread across the facilities

of Neelambur and Arasur.

Fabric contributed about 14% to the total revenues (during FY11). KPR

consumes about 25% - 30% of its fabric production for in-house garmenting

and the remaining is sold in domestic and export markets.

Fabric Dyeing and Processing

The state-of the art fabric processing unit at SIPCOT, Perundurai is set up on a

34 acre land and integrates the fabric processing aspects of dyeing, bleaching

and finishing. The unit has fabric processing capacity of 23 tons/ day and

adheres to highest international standards.

Effluent Treatment Plant (ETP)

KPR has installed an ETP with capabilities to treat 2.5mn litres a day which

enables it to reuse 95% of the waste water to the process again. Zero discharge

systems is achieved as per PCB norms.

Knitted Garments: Export Play

KPR’s garment

division is 100%

export oriented. It

contributed 27% to

total revenues in

FY11.

KPR is amongst the

largest garment

producers in India

Knitted Garments segment contributed 27% to the total revenues (during

FY11) and enjoys highest margins. Of the total garment capacity, 12mn pieces

of the garment are outsourced through the Tirupur facility and the remaining is

produced in-house. The company outsources small orders to local

manufacturers and executes bulk orders in-house in order to achieve efficiency.

100% of the garment production is exported to Europe, US and Australia.

KPR’s garmenting division currently operates at 55% to 60% capacity

utilisation which provides it with significant scope for growth without further

expansion.


Four-S Research 20

Amongst the largest domestic apparel manufacturer

KPR plans to increase its annual garment production to +38mn pieces by

FY’13 from 35mn in FY’11.

Leading Garment Producers in India

Mn Pieces FY 10 FY 11

Bombay Rayon 38 41

KPR Mill 30 35

Gokaldas Exports 29 29

House of Pearl Fashions 11 16

Nahar Spinning 7 8

Celebrity Fashions 6 5

Alok Industries 4 5 Source: Company Reports, Four-S Research

Quantum Knits: a 100% subsidiary

KPR formed a wholly owned subsidiary, Quantum Knits Pvt Ltd in June 2009,

to provide independent and exclusive control of all operations, management

and transactions of the Garment Unit at Arasur to its subsidiary. The primary

purpose of having a separate identity is to meet additional market demand and

avail marketing and administrative advantages for the company. Quantum has

a capacity to produce 52 million pieces per annum in double shift.

Outsourcing production of Garments at Tirupur

KPR outsources production of about 12mn pieces of garments annually.

This effectively increases its production capacity to 63mn pieces of

garments per annum:

52mn in-house through 100% subsidiary Quantum Knits at Arasur

11mn outsourced capacity at Tirupur.

Strategic investments in captive power generation

One of the largest windmill farms

Power has been a

pain area for Tamil

Nadu based textile

players. KPR has

mitigated this risk

to operational

continuity by

investing in Wind

Mill farms

The company has installed wind Mill with a total generation capacity of

61.07MW for captive consumption at Tirunelveli, Tenkasi Theni and

Coimbatore districts with an objective to become self- reliant in power

consumption needs, support its expanding operations and reduce dependence

on state electrical grid.

With one of the largest in-house power capacity in southern India, company

achieves substantial competitive advantage in power costs. KPR’s power cost

as a percentage of revenue stood at 3% as compared to industry average of 5%

during FY’11. The wind mill, operating during April-March of each year, helps

the company to meet about 75% of its power requirement through captive

consumption.


Four-S Research 21

State of the Art Plants

KPR has always focused on installation of the best available machinery to

ensure that it produces the best output and this enables KPR to charge a

premium from its clients. Installation of the best available machinery improves

processes by increasing automation and also improves the quality of output.

Recent investments in Co-Gen cum Sugar project

KPR’s latest

investment in Co-

Gen cum Sugar

project will make it

100% self-sufficient

in power by FY13

With Tamil Nadu reaching saturation point for wind power generation, KPR

proactively started exploring new avenues for green power. The Company

recently announced participation in the Co-Gen cum Sugar project of 34 MW

of Co-Gen and 5,000 TCD of sugar established by "K.P.R. Sugar Mill Limited"

at Bijapur district, Karnataka by making it wholly owned subsidiary.

This would help KPR to produce power for 100% of its requirements, saving

costs as well. The project would involve a total expenditure of Rs 3,258mn.

While KPR would invest Rs 725mn in the project, the balance will be funded

through external debt. The project is expected to go on stream by Q3 FY13.

KPR Sugar Mill, now a wholly owned subsidiary of KPR, has received all the

necessary approvals and licenses. The company would soon begin with the

civil construction work at Bijapur, Karnataka. Availability of bagasse from

nearby Co-op Sugar mills around 25000 TCD which do not have Co-gen

facility would help KPR to procure raw material (bagasse) for its co-gen

project sufficient to produce 34 MW of power.

Summarising the capacity

State-of-the-art Facilities

•Production Facilities-6 state-of-the-art production facilities located in Tamilnadu •Sathyamangalam

•Karumathampatti,

•Neelambur &

•Arasur

•Tirupur and

•Perundurai

Manufacturing Capacity

•Total capacity of 248,976 spindles

•Manufacturing capacity of 63,500MT of yarn; 21,000MT of fabric and 63mn pieces (double shift) of readymade knitted apparel p.a. Processing facility to handle 23MT of fabric per day

•Installed wind millswith a total power capacity of 61.07MW

Business Mix (FY'11)

•Products:

•Yarn (55%)•Knitted Garments

(27%)

•Fabric (14%)

•Others (4%)

•Geographies:

•Domestic (71%)

•Exports to markets including Europe, US, Australia and others (29%)


Four-S Research 22

Source: Company Data, Four-S Research

Location of Facilities Nature of Work Capacity

Existing Sathyamangalam Spinning 30,240 spindles

Karumathampatti Spinning 30,240 spindles

Neelambur Spinning & Knitting 50,784 spindles

Arasur Spinning, Knitting & Garmenting

100,800 spindles Garmenting :85,000 pieces per day (single shift) Storage : 450 tons

Tirupur Garmenting 12mn pieces capacity outsource

SIPCOT, Perundurai Fabric Processing 23 tons/day

Tirunelveli, Tenkasi Theni & Coimbatore

Wind Mill (65 nos.) 61.07 MW

Ongoing Expansion

Karumathampatti Spinning 103,680 spindles – Compact Yarn

16,128 spindles – Mélange Yarn


Revenue Mix: A diversified sales mix

All three product

segments – Yarn,

Fabric and

Garments -- have

delivered high

growth

KPR has vertically diversified within the cotton value chain to reduce

dependence on any one part.

Yarn is the largest segment contributing over 50% of the company’s revenues

since FY07 onwards. The revenues grew at a 4 yr CAGR of 24% to reach Rs

5,794mn in FY’11. Yarn contribution in FY11 increased to 55% of total sales

due to improved price realisations and strong demand in markets. The

contribution peaked in FY08 (58%) due to addition of 100,800 spindles at

Arasur plant in 2008.


Revenues derived from the fabric segment increased by CAGR of 16% during

FY07-FY11 to reach Rs 1,490mn in FY11. The segment contributes ~14% of

the total sales. Garmenting revenues account for ~27% of the total sales in

FY11. The segment grew at a strong CAGR of +21% over FY07-FY11 to

reach Rs 2,826mn in FY11.


Four-S Research 23

29% 29% 25% 25% 21% 29%

71% 71% 75% 75% 79% 71%

0%

20%

40%

60%

80%

100%

FY06 FY 07 FY 08 FY 09 FY 10 FY11Domestic Export

Global scale of operations

KPR caters to both domestic & international clients across India, US, Europe

and Australia. While the company exports 100% of its garment production

outside India, the yarn and fabric is sold in domestic markets and export

markets. The company continues to derive over 25% of its revenues from

export markets. Export revenues increased significantly in FY11 amounting to

29% of total revenues. However, domestic markets continue to dominate

majority (~71% in FY11) of revenues.

Domestic versus Export split


Strong & diversified client base

KPR has over 15 years of relationship with a diversified customer base of over

1,000 regular domestic clients for yarn and fabric spread across the country and

over 40 leading international apparel retailers.

Focused Marketing Team

The company has a strong marketing team, which is in charge of continuous

acquisition of new and potential buyers who would stay with the company for a

long period of time. The marketing team pitches for new buyers after making a

detailed study of the buyer’s profile with respect to their years of existence,

financial strength, track record of performance etc in the market. This helps the

company to add large and potential buyers to its portfolio from key markets of

EU, US and Australia.

Cost Efficient Operations

Unique raw material procurement policy

KPR reduced

cotton holding in

response to volatile

cotton prices. This

KPR procures high quality Shankar - 6 cotton from during the buying season

i.e. October - March, to ensure highest & uniform quality of cotton at an

economical cost. The harvesting of cotton is done in October ensuring

increased availability of cotton at relatively lower prices. The company


Four-S Research 24

reduced the extent

of raw material

write-down done in

Q1FY12

procures majority of its cotton requirement during December to January when

the availability is at its peak and the prices are low.

However, considering the high volatility in cotton prices over the past year,

KPR swiftly shifted to 3 months inventory policy. This was done in order to

get benefit of any decline in surging cotton prices so as to keep inventory costs

low.

In-house power plant to save on power costs

Low power costs The captive wind power capacity of 61.07 MW helps the company to meet

~75% of its power requirements. KPR has one of the lowest power costs (3%

in FY11 as compared to 5% for peer group) compared to its peer group

average. This provides the company a significant competitive edge in the

industry.

Internationally accredited processes

A player of

international

standards

The manufacturing facilities at KPR are internationally accredited and are

staffed with trained supervision and equipped with high tech quality control

equipments. The company enforces stringent quality control measures to

ensure end products of international standards.

International accreditations include:

ISO 9001: 2000 – certification for quality management system.

ISO 14001: 2004 – certification for environmental management systems.

SA 8000: 2001 – certification for social accountability management system

for the manufacture of cotton yarn.

World-wide Responsible Apparel Production Certificate (WRAP) –

ensuring apparel production under lawful, humane and ethical conditions.

Ethical Trade Initiative (ETI) – for sound working conditions of workers.

Global Organic Textile Standard (GOTS) - for organic cotton products.

OEKO-TEX – for responsible and ethical endeavors.

Certified by International Association for Research and Testing in the field

of Textile Ecology with respect to apparel manufacturing operations.

Certified as a Trading House by Ministry of Commerce and Trade.

TUV- SIMA-Five Star category indicating ‘Excellence in Code of

Discipline’ for providing women employment

Quality control initiatives include:

Procurement of highest quality raw materials.

Installation of high-tech quality control equipment such as Uster Tester-4,

Uster HVI Spectrum, Uster AFIS Pro, Zweigle Hariness Tester-G566 and

Uster Classimat Quantum.

Uses latest technology equipment Jossi Vision Shield for contamination

free yarn.

Installed Schlafhorst Auto Coner that makes sure to spin sophistication in

every yarn and ensuring homogenous quality yarn and better productivity.


Four-S Research 25

Mandatory usage of hand gloves, hair net, mask, aprons, etc for the twin

benefits of safety and quality.

Special customer service department headed by a textile technologist for

continuous improvement and customer satisfaction.

Inspection at every stage to ensure stringent quality conformance

Business with a social face

Committed to

social development

and welfare

KPR continues to involve itself into the activities aimed at overall development

of the society. It has contributed actively towards community welfare

measures, taking several initiatives related to education, health, environmental

improvement and other development measures such as:

Installed wind mill having a total capacity of 61.07MW to meet energy

requirements through eco-friendly renewable sources of energy.

Collaborated with Italy’s Water Treatment Technology to reuse 95% of the

waste water. The ‘effluent treatment plant’ has a total capacity to handle

2.5mn litres of waste water and achieved Zero discharge as per the PCB

norms.

Invested in municipal infrastructure by constructing short road linkages to

manufacturing facilities from the national highways and state roads with an

objective to provide quality infrastructure and connectivity.

Established an educational institution in Coimbatore in 2009 through its

charitable trust, ‘KPR Charities’ promoted by M/s K.P.Ramasamy, KPD

Sigamani and P.Nataraj (permanent trustees) with an objective to provide

education to all. The trust promoted educational institutions in the name of

‘KPR Institute of Engineering and Technology’ & ‘KPR School of

Business’ approved from AICTE and affiliated with Anna University.


Four-S Research 26

Financial Analysis and Growth Outlook

FY12 started with turbulence for textile and apparel players. Cotton prices

sharply corrected ~ 40% from all time highs achieved in March 2011. As a

result, many players were stuck with high cost inventories. On the demand

side, economic uncertainties caused weakness. Many spinning Mill had to

resort to production cuts to ease their stock positions. Readymade Apparel

business was impacted by 10% excise duty on domestic sales.

At present, cotton prices have stabilized, the industry is poised for better times.

While the FY12 margins would get impacted, FY13 would witness normal

profitability.

Revenues to grow at a 2-yr CAGR of 27% during FY’11-13E

Growth led by yarn

expansion and

increased capacity

utilisation due to

planned self-

sufficiency in

power, coupled

with industry

revival

We expect KPR’s revenues to grow at a CAGR of 27% over FY’11-’13E to Rs

17,743mn driven by strong growth across all its product segments. This

includes operations of KPR Sugar Mill in FY13.

Yarn division will continue to contribute over 50% of the total revenues with

CAGR of 26%, revenues from fabric will grow at CAGR of 20% and that for

garments at 22% during FY’11 - FY’13.

We expect yarn sales volume to increase by ~1.6x during the period, on basis

of added capacities. Fabric and Garmenting sales volumes would increase by

~1.2 times in the period.

Rs. mn


4,9746,064

7,4778,340

11,074

14,003

17,743

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000



Four-S Research 27

Segment-wise Performance

With sales volume

growing 1.6x to

53,312MT, Yarn to

contribute to 55%

of textile turnover

in FY13

Yarn

Yarn would grow at a 2-year CAGR of 26% to Rs 9,130mn in FY13E led by

impressive growth (1.6x) in volumes to 53,312MT. Volume growth would

result from increase in capacity of installed spindleage from 212,064 in FY11

to 353,088 in FY13.

The yarn realization in Q1 FY12 peaked to Rs. 209/kg. This was a result of

cotton prices peaking in the same period. Now with cotton prices coming down

and stabilizing we expect average realization in FY12 to be Rs. 185/kg. In

FY13, based on cotton prices stability, we expect average yarn realization to go

back to Rs 171/per kg. This would be still a 45% mark-up on estimated cotton

prices. We expect KPR to command premium over the market rate from higher

value add compact yarn segment.

Yarn FY08 FY09 FY10 FY11 FY12E FY13E

Sales (Rs mn) 3,335 3,654 4,088 5,794 7,570 9,130

Sales (MT) 32,793 32,440 32,882 32,547 41,024 53,312

Realization Rs./kg 102 115 127 182 185 171


Fabric sales to see

1.2X sales volume

increase, due to

better capacity

utilizations. It

would contribute to

13% of textile

turnover

Fabric

We expect fabric revenues to grow at a 2-year CAGR of 20% to Rs 2,136mn in

FY13E led by increase in utilisation of existing capacity and improved

realizations. FY 12 would be impacted by current domestic challenges, but we

expect to maintain 45% capacity utilization, based on robust first quarter. The

fabric processing capacity utilisation would increase from 45% in FY11 to

55% in FY13E.

Fabric FY08 FY09 FY10 FY11 FY12E FY13E

Sales (Rs mn) 776 902 1,139 1,490 1,883 2,136

Sales (MT) 7,325 9,029 10,689 9,408 9,450 11,550

Capacity 39% 52% 60% 45% 45% 55%


In FY12 and 13 we expect Fabric to enjoy 8% mark-up on yarn prices.


Four-S Research 28

Garments to see

sales volume

increase of 1.2x by

FY13 and would

contribute to 25%

of textile turnover

Garments

Knitted garment revenues would witness growth at a 2-year CAGR of 22% to

Rs 4,224mn in FY13E. KPR is adding employees for its garment division so as

to augment production and sales contribution from garment business.

All garment sales are contributed through exports to marquee client base of

international retailers.

Garments FY08 FY09 FY10 FY11 FY12E FY13E

Sales (Rs mn) 1,392 1,749 2,290 2,826 3,491 4,224

Sales (mn units) 15 21 30 33 35 38


EBITDA to dip in FY12 but revert to over 20% by FY13

The unprecedented

raw material costs

volatility will settle

down, we expect

20% margin levels

to be retouched in

FY13

The first quarter of FY12 was rough as EBITDA margin declined to 13.8%

from 25.1% due to one-time raw material write down of Rs 278mn. The write-

down was done as cotton prices crashed ~40% from all time highs. In rest of

FY12 we expect stability to return and EBITDA to improve due to added

capacities and power savings. We expect FY12 EBITDA margin to be 16%

and then FY13 to be a normal year with 20% margin. EBITDA in absolute

terms would achieve 2-yr CAGR of 19% to reach Rs. 3,471mn in FY13.


1,384 1,101 1,641 2,493 2,230 3,471

23%

15%

20%23%

16%

20%

0%

5%

10%

15%

20%

25%

0

1,000

2,000

3,000

4,000

FY'08 FY'09 FY'10 FY'11 FY'12 FY'13EBIDTA EBITDA margin


Four-S Research 29

KPR’s PAT would

similarly face a

negative growth in

FY12

FY13 would be a

milestone year for

KPR’s profitability

as investments in

fully available new

yarn capacity,

100% self-

sufficiency in

power, and four

months of sugar

mill operations

make its PAT cross

the Rs 1300mn level

Net Profit soared at 2-year CAGR of 167% over FY09-11 to reach Rs 722mn

while the net margin increased consistently from 1.4% in FY09 to 6.5% in

FY11. However, FY12 PAT will be impacted as EBITDA margin gets

significantly reduced, and increased financial charges due to new debt. We

expect FY12 PAT margin to be 4%.

FY13 would be a turnaround year as operational profit margins return to

normalcy. The Sugar Mill operations with 20% EBITDA margin would further

boost the PAT margin. We expect PAT margin to be 8% in FY13.

In absolute terms, buoyed by 60% added capacity, increased scale of

operations PAT would reach Rs. 1,366mn by FY13.


Attractive Return Ratios

Buoyed by higher

profitability both in

terms of margins

and scale, we would

see return ratios

touch double-digits

in FY13

Source: Company Data, Four-S Research Note: Returns based on Average Equity and Average Capital Employed

FY09 was a roughshed year for KPR with raw material cost increasing by 35%

YoY. Hence the PAT and Return ratios were impacted.

KPR in last 2 years has developed a robust business model by focusing on

exports, capacity additions and captive power generation. In the current cotton

volatility based turbulent quarter, it was able to maintain capacity utilization at

90%. Though its EBITDA saw a decrease, it did post a positive PAT compared

to few other peers.

101 504 722 566 1,3661%

6%7%

4%

8%

0%

2%

4%

6%

8%

10%

0

500

1,000

1,500

FY'09 FY'10 FY'11 FY'12 FY'13Net Profit NET Margin

21%19%

2%

10%13%

9%

20%

15%

10%5%

9%11%

8%

14%

0%

5%

10%

15%

20%

25%


RoE RoCE


Four-S Research 30

In FY 12, we expect return ratios to decrease but to a much lesser extent than

that witnessed in FY09. In FY 13, we expected the ROE to improve to 20%

and ROCE to improve to 14% as KPR would benefit from economies of scale.

Low debt to equity

KPR is adding debt

in FY11 and FY12

for expansion

projects, and the

new Co-Gen cum

Sugar Mill project

But given its

regular loan

repayment

strategy, we expect

D/E to return to 1.2

levels by FY13


Regular loan repayment strategy has helped KPR to maintain its debt equity

mix at about 1-1.2x. Debt to equity ratio increased from 0.8x in FY’10 to 1.3x

in FY’11 due to Rs 3,435mn debt raised for capacity expansion.

The company further expects to maintain its debt to equity mix at ~1.6x in

FY12 to finish its capacity expansion projects and invest in KPR Sugar Mill. It

plans to repay Rs. 754mn in FY 12. FY13, we expect the D/E to come back to

1.2

Lower levels of debt would provide KPR with greater financial strength to

pursue growth strategy.

Improving Turnover Ratios

Improving

turnover ratios

indicating

improvement in

asset management

The turnover ratios would remain fairly consistent and improve marginally

over FY11 indicating a stable and improving operating cycle.

The debtor turnover decreased sharply from 51 days in FY10 to 40 days in

FY11 indicating a prudent and aggressive collection policy of the company.

FY08 FY09 FY10 FY11 FY12E FY13E

Asset Turnover 0.7 0.8 0.9 1.0 1.1 1.2

Debtor Days 46 52 51 40 38 37

Inventory Days 87 92 75 71 76 66 Note: Turnover ratios based on average balance sheet financials i.e. (beginning year+ closing year)/2


1.21.0 0.8 1.3

1.61.2

0.0

0.5

1.0

1.5

2.0

2.5

FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E

Peer Average

FY08-11


Four-S Research 31

Risk factors

Internal Factors

Delay in ongoing capacity expansion

The company has laid out its expansion plan looking at the strong demand

prospects of the compact yarn spinning sector. Any delay in completing the

projects could result in loss of revenue and profitability.

Mitigant:

The company ensures that its expansion plans are on track with its defined

timelines. It has successfully commissioned ~50% of planned expansion in

compact yarn by August 2011 and the balance would be commissioned and

operational by October 2011 in a phased manner. The modernization of

Sathyamangalam plant is on-track with 30% commissioned by August 2011

and the balance is expected to be completed by January 2012 in a phased

manner.

Geographical concentration of export revenues

The company derives majority of its export revenues (over 80% in FY’11)

from the European countries and is subject to risks relating to political,

economic, legal and regulatory conditions in the region.

Mitigant:

KPR has made concerted efforts towards greater diversification among its

export markets in past three years. In FY09, Europe markets share at Rs.

1630mn was 91% of total exports. While in FY11 exports to Europe increased

to Rs. 2409mn, the share in total exports reduced to 80%. In FY11, exports to

Australia were 13% and Asia was 5% of total exports.

Lack of long term contract with customers

KPR does not have long term contracts with its customers for sale of finished

goods. The company’s revenues can be severely impacted in case of customer

attrition.

Mitigant:

The company has developed strong relationships of over 15 years with its

clients. This is reflected in robust CAGR of ~22% in sales over FY08-FY11.

The strong revenue growth of 31% in first quarter of FY12 is another example

of KPR’s revenue traction.

External Factors


Four-S Research 32

Increase in prices of raw material

Cotton, the primary raw material constitutes a significant percentage of total

expenses incurred by the company. Any increase in cotton prices/ decrease in

supply of cotton could materially and adversely affect the business.

Mitigant:

As a result of its vertically integrated operations, KPR is usually able to pass

on any increase in cotton prices through the value chain and gain from

increased price realizations. Recently, the steep fall in cotton prices forced

KPR to write-off high cost inventory. To reduce this risk, KPR has adopted a

strategy to maintain reduced inventory levels when the prices are high.

Foreign exchange risk due to enhanced focus on exports

The company’s increased focus towards exports would expose it to the risk of

foreign exchange fluctuations.

Mitigant:

KPR manages its forex exposure through close monitoring of market

conditions and by hedging of its export order values with forward contracts

mainly in Euro, British Pound and U.S. Dollar.

Competition from domestic players and other low cost countries

KPR competes with number of organized and unorganized players in the textile

industry. Stiff price competition from domestic and international players from

low-cost countries including Bangladesh, Indonesia and China can adversely

impact operations and profitability.

Mitigant:

With vertically integrated operations, KPR has been able to manufacture

superior quality products and command a better price. The consistent track

record of the company in timely delivery of premium quality products has

helped it to establish strong relationships with its clients.

Changes in technology may render current technologies obsolete

Apparel industry has experienced rapid technological improvements and

sophistication in production equipment, use of which is essential to reduce cost

and enhance efficiency. KPR would be required to upgrade technology and

machinery at regular intervals, requiring significant capital investment.

Mitigant:

KPR uses state of the art production equipments and imports most of its

machinery from countries such as Germany, Italy, Switzerland, Japan, United

States and Taiwan to take advantage of the latest manufacturing technologies.

The company has a policy of reviewing its technology vis-à-vis that available

in the market, at regular intervals, so as to introduce any latest technological

innovation which would help it to reduce cost and improve efficiency.


Four-S Research 33

Industry Update

Large and growing sector

Textile sector to

witness double digit

growth of ~11%

p.a. to reach

$134bn by 2015

Indian textile industry is the most important industrial segment for the country.

It is the second largest provider of employment after agriculture providing

direct employment to more than 35mn people. The sector contributes about 4%

to the country's GDP, 14% to the industrial production and 17% to the export

earnings.

The Indian textile industry would continue to witness double digit growth of

~11% CAGR to reach ~$134bn in size by 2015 from ~$78bn in 2010. The

strong growth momentum would be driven by improving exports and domestic

demand on the back of increasing population, increasing income levels, rapid

urbanization, improving demographics and increasing penetration of retailers

into smaller cities.

Size of Indian Textile Industry

($ bn)

Export Vs Domestic

($ bn)

Source: Technopak estimates

Exports to grow at a faster pace…

T&A exports to

grow at strong

CAGR of 12% over

2010-2015

Increased recovery in global demand would see India accelerate its exports by

1.7x to reach ~$45bn by 2015E, growing at a CAGR of ~12 p.a. over 2010-

2015E. Its share in global T&A trade will double to touch 8% by 2020.

The domestic market would also grow at a robust pace of +11% CAGR over

the period to reach $90bn in 2015E from ~$52bn in 2010. Though, domestic

demand would continue to dominate bulk of the market (66% share), the pace

of growth would be faster for exports.

Apparel exports to far outpace growth in domestic market

Apparel exports to

grow at robust

Apparel exports would more than double to reach $25bn in 2015E. The rate of

growth would far outpace the growth in overall apparel sector during 2010-


Four-S Research 34

CAGR of 16% as

against 11%

expected in

domestic markets

2015E. The high growth for Indian exports would be possible due to increased

sourcing shift from developed countries to Asia and India’s strengths as a

suitable alternative to China for global buyers.

As per latest AEPC Export update, Apparel exports in Q1 FY12 grew 34%

over Q1FY11 to reach $3.58bn. In July itself, exports grew by 42%.

Source: AEPC estimates

EU and US – continue to be key export markets

EU and US are the major textile exporting countries from India. Together,

they constitute over 50% of total textile exports.

For Jan – May 2011, India’s exports of apparel to US increased 8.5% y-o-y to

reach $1.55bn and exports to EU increased by 27.7% to reach $3.3bn.

Yarn - good run to continue

Demand for cotton yarn is likely to remain buoyant and grow at a healthy 9 –

10% p.a. over the medium term (CRISIL). The growth momentum would be

backed by strong domestic demand and revival in export demand.

Steadily growing demand over past few years

The total demand for cotton yarn was around 3,073mn kg in 2009-10. Out of

this, around 59% was from the domestic market, 21% from the direct export

of yarn, and the remainder from derived exports.

Historically, the demand for yarn has been growing steadily, and achieved a

CAGR of 6% between 2004-05 and 2009-10. The only exception was in

2008-09, when the global recession affected exports.


Four-S Research 35

The recent slowdown

in domestic yarn

demand due to

cotton price volatility

is subsiding since the

cotton prices

stabilized in Rs

30,000 per candy

levels

Cotton Yarn Demand (mn Kg)

Source: Office of Textile Commissioner, CRISIL Research

The recent decline in yarn prices has led to slowdown in demand of yarn. The

apparel manufacturers are holding back on their requirements, expecting

further price corrections. However, we believe that this is a short term

phenomenon. The growth in domestic demand would remain favourable over

the medium term, on the back of robust economic activity, rising income, and

growing populace with higher disposable incomes. The global off-take would

continue to witness gradual recovery.

Key Growth Drivers

Abundant availability of raw material

Global cotton

production is

expected to surpass

consumption in 2012.

Hence, the cotton

prices are expected

to be stable around

current levels

As per USDA cotton outlook, world’s cotton production will surpass its

consumption in 2011-12.

Cotton (mn of 480-lb bales): 2010-11 E 2011-12 P Increase

World's production 115.3 127.5 11%

World's consumption 116.6 120.0 3%

World exports 38.1 42.0 10%

Source: USDA Cotton Outlook 2011

The projected 11% increase in world’s production has led to significant

correction of cotton prices.

0

50

100

150

200

250

Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11

International cotton prices

2,272 2,521

2,824 2,948 2,898 3,073

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10P


Four-S Research 36

Cotton prices in

domestic as well as

international

markets have come

down from historical

highs

Source: USDA, US cents per pound for Upland Cotton

India is the second largest producer, exporter and consumer of cotton in the

world. India has the largest area under cotton cultivation of 11.1mn hectares

- constituting 33% of the world’s harvested cotton area of 33.3mn hectares.

The Cotton Advisor Board has placed India’s cotton production in 2010-11 as

32.5 mn of 170 kg bales. This translates into 25.38mn of 480 lb bales or 22%

of world’s cotton production. Like-wise, India is estimated to have 17% share

of world’s consumption and 13% share of world’s exports in 2010-11 cotton

year.

The prices of benchmark Shankar-6 variety of cotton soared in the past year

rising to Rs.61,500 per candy levels at the end of FY11. However, slowdown

in demand, export ban and international trends have been instrumental in

bringing prices sharply down (-40% since April, 2011) over the past months.

S-6 Average Fortnightly Lint Prices in Rs. per candy spot

Source: Cotton Corporation of India

Low cost skilled labour

India’s advantages in

manpower and

domestic demand

will continue

India has abundant availability of manpower with skill sets across all

activities of the textiles value chain. India has a cost advantage over other

countries with lower labour cost of $0.57 per hour as against that for China

($0.69), South Korea ($5.73), Hong Kong ($6.15) and USA ($15.13).

(Source: IBEF)

Growing income levels

Indian domestic textile market is growing at a very good pace driven by

favorable consumer demographics. Per capita income in India is growing at a

rapid pace; expected to grow at >17% to reach `54,527 in 2010-11 from

`46,492 in 2009-10.

0

10000

20000

30000

40000

50000

60000

70000

Opg Oct F1

Oct F2

Nov F1

Nov F2

Dec F1

Dec F2

Jan F1

Jan F2

Feb F1

Feb F2

Mar F1

Mar F2

Apr F1

Apr F2

May F1

May F2

Jun F1

Jun F2

10-11 09-10


Four-S Research 37

Government support and initiatives

Textile being an

important

contributor to GDP

and employment, is

high priority sector

with the government

TUFS – To enhance the competitiveness of India’s textile industry,

Government launched the subsidised long tenure loans for capacity

expansions under the Technology Upgradation Fund Scheme (TUFS). In

March 2011, government re-introduced the newly structured TUFS. Under

the restructured scheme, stand-alone spinning upgradation projects are

eligible for 4% interest reimbursement and spinning units with matching

capacity in upward processing are eligible for 5% interest reimbursement.

Value-addition sectors such as garmenting, processing and technical textiles

are in for additional benefits. These sectors would get 10% capital subsidy

and 5% interest rebate on specified machinery.

TUFS has propelled investment of more than Rs. 2,077.47bn since its start

(Apr 1999) to June 2010.

Recently, CCEA approved increase of allocation under revised TUFS from

Rs. 80bn to Rs. 154.32bn in the 11th Plan. The Government now plans to

extend TUFS for the sector into 12th Plan period (2012-2017) as well.

The details of the funds disbursed so far under TUFS are as follows:

Year Disbursement Subsidy (Rs bn)

FY’10 28.86 FY’09 26.32 FY’08 11.43

Source: Ministry of Textiles, India


Four-S Research 38

Profit & Loss Statement

(Rs mn) Income Statement FY'09 FY'10 FY'11 FY'12E FY'13E

Net Sales 7,182 8,032 10,494 13,406 16,053

Other Operating Income 295 308 580 597 685

Revenue from Sugar Mill operations 1,005

Revenue from Operations 7,477 8,340 11,074 14,003 17,743

(Increase) / Decrease In Stock In Trade & WIP 14 (119) (605) (271) 130

Consumption of Raw Materials 5,103 5,171 7,243 9,803 10,657

Manufacturing Expenses 344 344 431 450 539

Power and Fuel expenses 233 261 336 409 518

Personnel Expenses 493 609 821 915 1,066

Administrative & Other Expenses 55 274 163 210 252

Selling & Distribution Expenses 134 160 192 256 306

Operational expenses for Sugar Mill 804

Total Expenses 6,376 6,699 8,581 11,773 14,272

EBITDA 1,101 1,641 2,493 2,230 3,471

Depreciation 560 705 1,257 1,064 1,311

EBIT 541 936 1,236 1,167 2,160

Other Income 26 31 22 70 89

Financial Expenses 384 273 323 483 427

Profit before Tax 183 693 934 754 1,822

Provision for Taxes 82 189 212 189 455

Profit after Tax before Minority Interest 101 504 722 566 1,366

Minorities Interest and Others - - - - -

Reported Net Profit 101 504 722 566 1,366

(Rs mn)

Product-wise Textile Revenue Break-Up FY'09 FY'10 FY'11 FY'12E FY'13E

Yarns 3,654 4,088 5,794 7,570 9,130

Fabrics 902 1,139 1,490 1,883 2,136

Knitted Garments Export 1,749 2,290 2,826 3,491 4,224

Others 877 515 384 462 563

Total 7,182 8,032 10,494 13,406 16,053

Financial Annexure


Four-S Research 39

Common Size Metrics Income Statement FY'09 FY'10 FY'11 FY'12E FY'13E

Net sales 96.1% 96.3% 94.8% 95.7% 90.5%

Other Operating Income 3.9% 3.7% 5.2% 4.3% 3.9%

Revenue from Operations 100.0% 100.0% 100.0% 100.0% 100.0%

(Increase) / Decrease In Stock In Trade & WIP 0.2% -1.4% -5.5% -1.9% 0.7%

Consumption of Raw Materials 68.3% 62.0% 65.4% 70.0% 60.1%

Manufacturing expenses 4.6% 4.1% 3.9% 3.2% 3.0%

Personnel expenses 6.6% 7.3% 7.4% 6.5% 6.0%

Administrative & Other expenses 0.7% 3.3% 1.5% 1.5% 1.4%

Selling & Distribution expenses 1.8% 1.9% 1.7% 1.8% 1.7%

Total Expenses 85.3% 80.3% 77.5% 84.1% 80.4%

EBITDA 14.7% 19.7% 22.5% 15.9% 19.6%

Depreciation 7.5% 8.5% 11.3% 7.6% 7.4%

EBIT 7.2% 11.2% 11.2% 8.3% 12.2%

Other Income 0.3% 0.4% 0.3% 0.8% 1.1%

Financial Expenses 5.1% 3.3% 2.9% 3.4% 2.4%

Profit before tax and Exceptional Items 2.4% 8.3% 8.4% 5.4% 10.3%

Exceptional Items - - - - -

Profit before tax 2.4% 8.3% 8.5% 5.4% 10.3%

Provision for taxes 1.1% 2.3% 1.9% 1.3% 2.6%

Profit after tax before minority interest 1.4% 6.0% 6.5% 4.0% 7.7%

Minorities Interest and others 0.0% 0.0% 0.0% 0.0% 0.0%

Reported net profit 1.4% 6.0% 6.5% 4.0% 7.7%

Product-wise Textile Revenue Break-Up FY'09 FY'10 FY'11 FY'12E FY'13E

Yarns 52.1% 51.8% 55.2% 56.55 53.5%

Fabrics 12.9% 14.4% 14.2% 14.0% 13.3%

Knitted Garments Export 24.9% 29.0% 26.9% 26.0% 26.3%

Others 10.1% 4.8% 3.6% 3.4% 3.5%

Total 100% 100% 100% 100% 100%


Four-S Research 40

Balance Sheet (Rs mn)

Balance Sheet FY'09 FY'10 FY'11 FY'12E FY'13E

Shareholder's Equity

Share Capital 377 377 527 527 527

Reserves and Surplus 4,722 4,985 5,437 5,726 6,773

ESOPs

Total equity capital 5,099 5,362 5,964 6,253 7,300

Liabilities

Secured Loans 5,118 4,392 7,130 9,289 8,174

Unsecured Loans 190 158 121 161 193

Deferred Tax Liability 396 534 419 302 729

Total Liabilities and Owner's Equity 10,803 10,446 13,634 16,005 16,396

Assets

Goodwill on consolidation - - - - -

Gross Block 9,925 10,104 11,764 13,918 17,114

Less: Depreciation 1,719 2,414 3,620 4,684 5,994

Net Fixed Assets 8,206 7,690 8,144 9,234 11,120

Work-in-progress 3 255 1,775 2,557 -

Investments - - - - -

Current Assets

Inventory 2,070 1,360 2,944 2,914 3,489

Debtors 1,184 1,161 1,252 1,636 1,959

Cash and Bank Balance 462 522 397 624 812

Other Current Assets 230 149 69 160 164

Loans and Advances 551 668 564 640 656

Total Current Assets 4,497 3,860 5,226 5,974 7,079

Current Liabilities 1,792 1,117 1,372 1,600 1,640

Provision 111 242 139 160 164

Total Current Liabilities 1,903 1,359 1,511 1,761 1,804

Net Current Assets 2,594 2,501 3,715 4,213 5,275

Miscellaneous expenditure - - - - -

Total Assets 10,803 10,446 13,634 16,005 16,396


Four-S Research 41

Cash Flow Statement

(Rs mn) Cash Flows FY'09 FY'10 FY'11 FY'12E FY'13E

Net Profit/(Loss) before Tax 183 693 934 754 1,822

Add Depreciation 560 705 1,257 1,064 1,311

Loss on Fixed Assets Sold/Discarded 1 3 20 - -

Interest Expense 384 273 323 483 427

Interest Income (21) (20) (15) - -

Dividend Income (4) (10) (6)

Operating Cashflow before Wcap 1,102 1,644 2,514 2,300 3,560

(Increase)/Decrease in Trade/Other Receivables (242) 4 (92) (383) (323)

(Increase)/ Decrease in Loans and Advances 11 (97) (38) (77) (16)

(Increase)/Decrease in Inventories (391) 710 (1,584) 30 (575)

(Increase)/Decrease in Other Current Assets (78) 80 77 (91) (4)

Increase/(Decrease) in Trade/Other Payables 1,211 (677) (55) 250 43

Cash Generated from Operations 1,612 1,663 823 2,030 2,685

Direct Taxes Paid (65) (94) (186) (306) (28)

Operating Cash flow- A 1,547 1,570 638 1,724 2,657

Purchase of Fixed Assets incl WIP (302) (451) (2,815) (2,937) (639)

Proceeds from Sale of Fixed Assets 2 10 26 - -

Purchase of Investments - (2,745) (3,625) - -

Proceeds from Sale of Investment 50 2,745 3,625 - -

Dividend Received 4 10 6 - -

Interest Received 21 20 17 - -

Cash from Investing activities- B (225) (410) (2,767) (2,937) (639)

Proceeds from Share Capital - - - - -

Proceeds from Securities Premium (1) - - - -

(Repayment)/ Proceeds of Secured Loans (914) (707) 2,715 2,159 (1,115)

(Repayment)/ Proceeds of Unsecured Loans (22) (32) (37) 39 32

Interest Paid (384) (273) (301) (483) (427)

Dividend Paid (113) (75) (320) (237) (274)

Tax on Dividend (19) (13) (53) (39) (46)

Cash from Financing activities- C (1,453) (1,100) 2,004 1,440 (1,830)

Change in Cash= A+B+C (132) 60 (125) 227 187

Opening Balance 594 462 522 397 624

Closing Balance 462 522 397 624 812


Four-S Research 42

Ratios Ratios FY'09 FY'10 FY'11 FY'12E FY'13E

Per Share Numbers

EPS 2.7 13.4 19.0 14.7 35.9

CEPS 17.5 32.1 52.3 42.9 70.7

DPS 2.0 5.5 6.0 6.0 7.0

Adj. Book Value per Share 135.3 142.3 154.3 162.0 189.7

Profitability Ratios

EBITDA margin 14.7% 19.7% 22.5% 15.9% 19.6%

Pretax margin 2.4% 8.3% 8.5% 5.4% 10.3%

Net margin 1.4% 6.0% 6.5% 4.0% 7.7%

ROAE 2.0% 9.6% 12.8% 9.3% 20.2%

ROACE 5.0% 9.2% 10.7% 8.1% 13.8%

Growth Ratios

Revenue growth 23.3% 11.5% 32.8% 26.4% 26.7%

EBITDA growth -20.5% 49.1% 51.9% -10.5% 55.6%

Net profit growth -77.8% 278.6% 43.2% -21.6% 141.5%

Activity/Turnover Ratios

Asset turnover 0.8 0.9 1.0 1.1 1.2

Working Cap turnover 2.6 3.3 3.6 3.5 3.7

Debtors turnover 7.0 7.1 9.2 9.7 9.9

Debtor Days 52 51 40 38 37

Inventory turnover 4.0 4.9 5.1 4.8 5.5

Inventory Days 92 75 71 76 66

Payables turnover 6 6 9 9 11

Payables Days 58 64 41 39 33

Liquidity Ratios

Current Ratio 2.4 2.8 3.5 3.4 3.9

Quick Ratio 1.3 1.8 1.5 1.7 2.0

Cash Ratio 0.7 0.2 0.4 0.3 0.4

Solvency

Debt Equity 1.0 0.8 1.3 1.6 1.2

Leverage Ratio 2.1 1.9 2.3 2.6 2.3

Net Debt / EBITDA 4.4 2.5 2.8 4.0 2.2

Interest Coverage 1.4 3.4 3.8 2.4 5.1

Valuation Ratios

P/E 7.7 8.3 9.7 6.2 2.5

P/BV 0.2 0.8 1.2 0.6 0.5

EV/EBITDA 5.1 5.0 5.6 5.5 3.2

EV/Sales 0.8 1.0 1.2 0.9 0.6


Four-S Research 43

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