| 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.
Continued growth in operating income and margin during FY23:
KKP group has shown growth in its operations during FY23, as per the estimates till March 31, 2023 the group has reported consolidated revenue of Rs.781.91Cr for the year as against Rs.741.53Cr of previous year. EBITDA margin improved to 11.13 percent as per FY23 YTD figures against 9.96 percent during previous year. The growth in revenue is driven by volume growth coupled by better realisations in fabric segment. Apart from the production of fabrics the group also involved in trading of fabrics during the year which contributed around 10 percent of the total revenue. The raw material prices have been settling down from Q2FY23 which resulted in low realisations and inventory loss due to price drop in yarn segment. However, good realisation rates for fabrics throughout the year has helped in sustaining the growth in revenue for FY23. The growth in EBITDA margin is attributable to the benefits from capital expenditure. The group had incurred capital expenditure of ~Rs.64Cr during FY22 for modernization of machinery and installation of solar power of 1.20 Mega Watt (MW) which has improved overall productiivity of the group resulting in better margins. Further, the group had incurred additional capital expense towards its machineries of Rs.54 Cr in FY23 which is expected to further improve margins FY24 onwards. Acuite believes that the group's presence in entire value chain and capex towards modernization of capacity will help in acheiving similar levels of operating income and profitablity in the medium term.
Moderate financial risk profile:
Financial risk profile of the group is mopderate as observed from the net worth position, capital structure and moderate coverage indicators. The net worth improved to Rs.277.84 Cr as on March 31, 2023 (Est.) as against Rs.238.54Cr during FY22, the growth is mainly due to accretion of profits to reserves. On account of demerger there was a reduction in Quasi equity of Rs.42.05Cr which led to decrease in net worth to Rs.238.54Cr during FY22 from Rs.260.58Cr of FY21. The gearing of group has deteriorated to 1.46 times March 31, 2022 against 1.08 times during previous year. The deterioration was on account of debt funded capex. As per FY23 (Est.) the gearing ratio continued to be 1.45 times due to further infusion of debts. Further to this, the total outside liabilities to net worth was at 1.68 times as on March 31, 2023 (Est.) as against 1.78 times in previous year. The coverage indicators were adequate with DSCR of 1.36 times as on March 31st 2023 (Est.) as against 1.50 times as on March 31st 2022. Interest coverage stood at 2.95 times as on March 31st 2023(Est.) as against 2.63 times as on March 31st 2022. Debt to EBITDA has marginally improved to 4.39 times as per FY23 (Est.) from 4.56 times during previous year. Acuite believes that financial risk profile of the group will improve in the medium term in absence of debt funded capex plans.
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| Intensive working capital operations:
Working capital operations of the group are intensive which is reflected by the Gross current assets days ranging between 250-260 days during past 3 years. As per FY23 YTD figures GCA days stood at 258 days against 241 days during previous year. The debtor days stood at 91 days for FY23 estimates. Generally, the group allows a credit period of 60-90 days to its customers. The group maintains raw material inventory for 6 months and finished goods inventory for 30-40 days. The group’s creditor days were ranging between 30-40 days during past 3 years which has led to increased dependency on its fund based working capital limits. The fund based limits were utilised at an average of 92 percent during past 12 months ending May 2023. Acuite believes that working capital operations of the group will remain moderately intensive on account of high inventory levels and low creditor days.
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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