Textiles stocks like KPR Mills and Gokaldas Exports (GEL) remain value buys for the New Year 2022, experts suggest. Over the past year, ready-to-wear (RMG) exporting companies have experienced a significant revaluation.

KPR Mills, along with Gokaldas Exports, have grown over 270% in 2021 so far, compared to a 23% increase seen in the Nifty50 over the same period.

What led to the rally?

The financial performance of KPR Mills and Gokaldas Exports has improved significantly. “KPR Mill’s return on capital employed (RoCE) improved from 440 bps to 24% in fiscal year 21, Gokaldas Exports balance sheet deleveraging (D / E for GEL increased from 0.9x at 0.5x) and strong corporate backlogs were the main triggers for the revaluation, ”said Pankaj Pandey, head of research at ICICI Securities in a note.

The brokerage company continues to love KPR and GEL to play the long term structural role in the garment export space due to their strong business models and long standing relationships with renowned global clients.

There are strong opportunities for Indian garment exporters (current market share of 5%) which warrants reassessment, given strong and lasting visibility of earnings.

“We carry over our estimates to FY24E and incorporate an EBITDA CAGR of 21% and 36% over the FY21-24E for KPR and GEL, respectively. We maintain our PURCHASE rating on KPR Mill and Gokaldas Exports with a revised target price of Rs 820 and Rs 425, respectively, ”Pandey points out.

The revised target price translates into an increase of 22% and 24% from the December 28 closing price for KPR Mill and Gokaldas Exports respectively.

Long-term intact history supported by capacity expansion:

Apparel exporters have witnessed strong customer interest over the past two quarters as many large global retailers diversify their supplies and reduce their dependence on China.

Global order bookings from India have grown rapidly due to the China + 1 strategy of global retailers. Indian apparel players are exploring opportunities to expand their tailoring capabilities in order to capitalize on long-term growth opportunities.

“KPR and GEL have both embarked on an entirely new expansion of their capabilities. We are preparing cumulative investments worth Rs 700 crore for the two companies (KPR Rs 480 crore, GEL Rs 220 crore) during fiscal year 22-24E, ”the note said.

The majority of investment needs should be financed by internal adjustments. With an average asset turnover of 3x, ICICIdirect expects companies to generate additional income worth Rs 2,000 crore.

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