Experienced management and established track record of operations:
KEPL has an operating record of three decades in the manufacturing of cotton yarns. KEPL operates with 50,928 spindles capacity. The company’s promoters have more than three decades of experience in the combed cotton yarn manufacturing business, leading to long-standing relationships with customers and suppliers. Acuité believes that KEPL will continue to benefit from the extensive experience of its promoters, and established relationships with clients will improve its business risk profile over the medium term.

Stagnant revenues albeit improvement in profitability:
KEPL registered revenue of Rs.128.69 Cr. in FY2025 (Prov.) against Rs.126.71 Cr. in FY2024. The absence of production capacity expansion over the past two years, during which average capacity utilization stood at ~96 percent, which has led to stagnation of revenue. During 4MFY2026, the company registered revenue of ~Rs.48.15 Cr. which is nearly ~6 percent lower than revenue registered during the 4MFY2025 and expected to end the year with the revenue of Rs.128-130 Cr. The operating profit margin has improved to 14 percent in FY2025 (Prov.) from 11.82 percent in FY2024, due to low raw material cost and lower power expenses during the year. During the 4MFY2026 the EBITDA margin stood at ~18 percent. Consequently, the PAT margins improved to 7.41 percent in FY2025 (Prov.) from 4.79 percent in FY2024.
Acuite believes, the revenue will remain in similar levels in absence of capex plans in the near to medium term, however, profitability is expected to improve due to expected savings in employee costs following machinery modernization undertaken last year.

Healthy financial risk profile:
Financial risk profile of the company is healthy marked by healthy net worth of Rs.151.51 Cr. as on March 31, 2025 (Prov.) as against Rs.141.28 Cr. as on March 31, 2024. The improvement in net worth is due to accretion of profits to reserves. The company’s total debt, which only comprise of unsecured loans of Rs.2.43 Cr. as on March 31, 2025 (Prov.) against Rs.1.12 Cr. as on March 31, 2024. Debt equity remained at 0.02 times as on March 31, 2025 (Prov.) against 0.01 times as on March 31, 2024. Debt to EBITDA of the company remained at 0.12 times as on March 31, 2025 (Prov.) as against 0.07 times as on March 31, 2024. The company is expected to maintain its capital structure as it does not plan to incur any debt funded capex plan over the medium term.

Intensive working capital operations:
The working capital operations of KEPL are intensive in nature as reflected from the gross current asset (GCA) days of 252 day in FY2025 (Prov.) against 246 days in FY2024. The elongation in GCA days is due to elongated inventory levels. As the raw material availability is seasonal in nature, the stocks up inventory required for  5-6 months, in order to meet the demand and quality of the end products, resulting in inventory days of 162 days in FY2025 (Prov.) against 195 days in FY2024. The debtor days remained at 19 days in FY2025 (Prov.) against 20 days in FY2024. Payments to suppliers are majorly made upfront, resulting in creditor days of 4 days in FY2025 (Prov.) against 2 days in FY2024. Despite the intensive working capital operations, the fund based working capital limits remained unutilized over the past 12 months ending June 2025.
Acuite believes, the working capital operations will remain intensive over the medium term due to nature of the industry and seasonal availability of the raw material.

­Susceptible to volatility in raw material prices
KEPL’s profitability margins are susceptible to fluctuations in the prices of major raw materials such as domestic cotton which is the company's primarily raw material. Cotton being an agricultural commodity by nature, prices are inherently volatile and influenced by agro-climatic conditions. Despite the prevalence of Minimum Support Price (MSP), the purchase price depends on the prevailing demand-supply situation, which limits bargaining power with the suppliers as well. However, the company has been able to maintain its operating margins. Acuité believes that KEPL should be able to maintain its operating profitability around existing levels notwithstanding the volatility in prices of its key inputs, on the back of its established position in the domestic markets.