| Established track record of operations:
The group established its first company KKP Weaving and spinning mills in 1983. The promoters later expanded into other activities of spinning, weaving, knitting, Stitching and production of grey fabrics. The promoters of the group has experience of more than 2 decades.
Fuly integrated group:
The group is vertically integrated this includes spinning of yarn to production of garments and Madeups. DTPL involves in purchase of cotton and viscose from various suppliers and production of compact yarn to their group companies. The Group has 68,000 spindle capacity, 350 looms, 6.5 M.W of windmills and 600 Stitching machines. This captive consumption will ensure the better margins and provides the flexibility of production as per customer desire and gives competitive edge over other players in the industry. Acuite believes that integration will continue ensure improved margins over the medium term.
Improved operations in FY22 resulting significant growth in revenue:
KKP group registered significant growth in FY22 as the group on consolidate basis generated Rs.743.85Cr compared to Rs.648.17Cr in FY21. The factors contributing the growth are increased yarn sales, realisation rate and increased capacity utilization. KKP spinning Mils Private Limited (KSMPL) contributes major growth in revenue of the group. KSMPL on standalone basis reported Rs.641.49Cr of revenue for FY22 (Including Intercompany transactions). In FY22, there was a capex undertaken for setting up solar power plant and modernization of machineries, which is expected to have positive impact on the EBITDA margins from FY23. The Solar plant will have the capacity to produce 3.5 MW of electricity. The EBITDA and PAT for FY22 (Provisionals) stood at 9.94 percent and 3.13 percent respectively. Acuite believes that operations of KKP group will improve in the medium term.
Moderate financial risk profile:
KKP group’s gearing is healthy at 1.20 times as on March 31,2022 (Provisionals) against 1.08 times as on March 31,2021. Group’s Net worth is comfortable at Rs.287.83Cr as on March 31, 2022(Provisional) against Rs.260.58Cr for previous year. Net worth increased by Rs.27Cr on account of healthy accretions of net profit in the reserves. Total outside liabilities to total tangible net worth (TOL/TNW) stood healthy as on March 31, 2022(Provisionals) at 1.39 times against 1.36 times in previous year. Debt protection metrics of the group are moderate marked by interest coverage ratio, Debt service coverage ratio and Net cash accruals to total debt (NCA/TD) of 2.62 times, 1.58 times and 0.12 times, respectively as on March 31, 2022 (Provisionals) against 2.16 times, 1.66 times and 0.10 times as on March 31, 2021. Debt/EBITDA of the group stood high at 4.54 times as on March 31, 2022. Acuite believes that the financial risk profile of the company will improve over the medium term.
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| Moderate working capital cycle
KKP Group’s working capital operations are moderate as evident from Gross Current Assets days of (GCA) of 246 days as on March 31, 2022 (Provisionals) against 265 days as on March 31, 2021. Debtor days Improved to 93 days as on March 31, 2022 (Provisionals) from 116 days in March 31, 2021. Inventory days stood at 144 days as on March 31, 2022 (Provisionals). Acuite believes that working capital operations of the group will improve over the medium term on account of timely receipts from debtors.
Intense competition in the textile industry and Susceptibility to changes in raw materials :
The group operates in a highly competitive textile industry, characterised by minimal product differentiation and fragmented nature, which restricts pricing flexibility. Indian textile products face stiff competition due to the products from other countries like Bangladesh, Pakistan, Vietnam, etc in the export market. The main raw material purchased by the company is cotton. Hence, the margins are susceptible to changes in cotton prices. Cotton being an agricultural commodity, the availability and price of the same is highly dependent on agro climatic conditions. The purchase price depends on the prevailing demand-supply situation which limits bargaining power with the suppliers as well. Acuite believes that KKP group will able to maintain its operating margins around existing levels in spite of volatility in raw material prices.
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