| Experienced promoters and 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. 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 the group will continue to benefit from its long track of operations and the rich experience of the management.
Improved operating margins albeit low revenue growth led by change in product mix.
In FY2024, KKP group registered a revenue of Rs.803.38 Cr, marginally improved from FY2023 revenue of Rs.799.75 Cr, despite of lower trading activity. The group changed its product mix with a view to reduce the trading in spinning and weaving segments. Consequently, the trading revenue dropped by 51 percent, from Rs.245 Cr. in FY2023 to ~Rs.120 Cr. in FY2024. The operating profit margins improved to 14.95 percent in FY2024 (Prov) from 11.75 percent in FY2023, due to lower trading activity coupled by benefits of integrated operations. Additionally, the group registered revenue Rs.444.20 Cr. (net off intercompany transactions) till September 2024 and expected to close the year in the range of Rs.850-870 Cr, as the group currently has order book for three months which is approximately Rs226 Cr. The operating profit margin is expected to remain in the range of 14-15 percent for the medium term due to favourable market conditions and further supported by benefits from integrated operations. The PAT margin improved to 4.09 percent in FY2024 (Prov.) from 2.70 percent in FY2023, despite of increased interest costs and depreciation, primarily due to substantial improvement in operating profit for the year.
Above average financial risk profile:
KKP group’s financial risk profile is above average marked by healthy networth, moderate gearing and moderate debt protection metrics. As on March 31, 2024 (Prov.), the group’s networth stood at Rs.318.44 Cr. compared to, Rs.280.49 Cr. The improvement in networth is due to accretion of profits to the reserves. Despite a marginal increase in overall debt levels to Rs.448.06 Cr. as on March 31, 2024(Prov.) from Rs.430.33 Cr. as on March 31, 2023, gearing levels remained comfortable at 1.41times as on March 31, 2024 (Prov.). Additionally, the total outside liabilities to tangible networth (TOL/TNW) also improved marginally to 1.70 times as on March 31, 2024(Prov.) against 1.81 times as on March 31, 2023. The gearing of the company is expected to improve further over the medium term on account of absence of any debt funded capex plans. The debt protection metrics stood moderate with DSCR and ICR of 1.31 times and 2.54 times respectively as on March 31, 2024(Prov.). Debt to EBITDA also improved to 3.63 times as on March 31, 2024(Prov.) against 4.49 times as on March 31, 2023. Acuite believes that the financial risk profile of the company will improve further over the medium term due to its conservative leverage policy.
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| Working capital intensive nature of operations:
KKP group’s working capital operations are intensive in nature as reflected through its gross current asset (GCA) days of 278 days in FY2024 (Prov.) against 261 days in FY2023. The stretched GCA days are mainly on account of higher inventory levels and stretched debtor days. The high inventory levels are common across the industry as the raw material i.e. cotton generally is procured during the season of October to March and will be stocked up to meet the inventory requirements for next 5-6 months. This has led to high inventory days at 162 days in FY2024 (Prov.). The group offers a credit period of 60-90 days its customers and enjoys a credit period of 45-60 days from its suppliers. The elongated working capital conversion cycle has led to high dependency on the fund based working capital limits, which were utilized at an average of 90 percent in past 12 months ending September 2024. Acuite expects, the working capital operations of the group to remain intensive over the medium term on account of business cycle of the industry.
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 owing to the benefits of integrated operations.
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