KPR MILL LTD (KPRMILL) Q3 FY23 Earnings Concall Transcript

KPR MILL LTD (NSE:KPRMILL) Q3 FY23 Earnings Concall dated Feb. 7, 2023.

Corporate Participants:

P L Murugappan — Chief Financial Officer

Analysts:

Abhishek Nigam — B&K SECURITIES — Analyst

Kapil Jagasia — Nuvama — Analyst

Muthu Kumar — Fidelity Ventures — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the KPR Mill Limited Q3 FY23 Conference Call, hosted by Batlivala & Karani Securities India Private Limited. As a reminder, all participant lines will be in a listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] I now hand over to Mr. Abhishek Nigam from Batlivala & Karani Securities India Private Limited. Thank you and over to you.

Abhishek Nigam — B&K SECURITIES — Analyst

Hello everyone, good evening and welcome to the Third Quarter FY23 Earnings Call for KPR Mill. Today we are joined by Mr. Murugappan, who is the CFO and Mr. Kandaswamy the company secretary for KPR Mill. Mr. Nataraj, who is the Managing Director who was supposed to join us today but unfortunately he had to cancel at the last moment, because of some urgent travel plans. And now without any further delay I will hand it over to Mr. Murugappan for any opening remarks.

P L Murugappan — Chief Financial Officer

Good afternoon everyone. I am Murugappan, Chief Financial Officer of KPR Mill Limited. I welcome you all for the KPR Mill Third Quarter Earnings Call for the financial year 2023. With me, our companies secretary. Mr. P. Kandaswamy also. A brief background of the industry. The Indian economy is reported to continue its fast-growing economies, the Indian textile industry is optimistic of repeating growth in financial year 2023 also. Despite adverse factors like global recession, Ukraine war, volatility in cotton prices, higher inflation etc, the FTA significant market like UAE, Australia — of FTA with UK, Canada are likely to create market opportunity for entire texture value chain in India.

The government is also focusing on policies to make industry globally accommodative. KPR is happy to announce a good performance in the third quarter of financial year 2023 also, overcoming the challenges, the industry is facing. The fluctuation in cotton prices has been putting pressure on yarn margin with the garment order position continues to be encouraging and the cotton prices have started stabilizing. We hope to have a better performance in the current quarter also. To improve its performance further, the company is contemplating into certain modernization and expansion plans which the Board has approved in the recent Board meetings.

The expansion of Ethanol capacity in KPR Sugar Mill Limited we proposed to increase the ethanol production capacity in KPR Sugar Mill Limited, from 130 KLPD to 250 KLPD at a project cost of INR150 crores. This project will be funded through internal accruals and term loans. The project is expected to complete by Financial year 2023-24. The project is eligible for interest subsidy under the ethanol augmentation scheme also. Second, the Vortex spinning mill. The company proposed to setup a Vortex spinning mill for viscose yarn production with an estimated project cost of INR100 crores.

This project is expected to complete by financial year 2024, the entire project cost will be made through internal accruals. Three solar power plant, we’ll propose to setup a12 megawatt solar power plant for captive consumption with a total cost of about INR50 crores. This project cost will be met through internal accruals, the project is expected to complete this year that is the 31/3/2023.

Expansion of processing under Printing Division. The company plans to increase the production capacity of its processing and printing by debottlenecking the process, which will increase the production by about 20%. The total project cost of rupees INR50 crores will be met through internal accruals. With this expansion, we hope that the next year’s increase in turnover and profitability will be improved.

Now, the floor is open for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Kapil Jagasia from Nuvama Wealth Research, please go-ahead.

Kapil Jagasia — Nuvama — Analyst

Thank you for taking my question. Sir, my first question is on the demand environment, how is that shaping up?

P L Murugappan — Chief Financial Officer

Demand is comparatively better. Only the margins in yarn is a little skewed, otherwise demand wise, both yarn and garments is doing well.

Kapil Jagasia — Nuvama — Analyst

Okay, so like how much margin yarn would have made this quarter?

P L Murugappan — Chief Financial Officer

It’s the about 14%.

Kapil Jagasia — Nuvama — Analyst

Okay, sir in terms of our garment segment volumes, they have increased by around 10% on a nine and FY23 basis. So my question is, even with increased capacity, the increase is only 10%, so are we facing any export slow down here in garment or the order book has shrunk, like what would be the order book position also here?

P L Murugappan — Chief Financial Officer

Order book currently is INR1,000 crores. The garment turnover is in line with the estimates, because with the new factory ramping-up is done in the first nine months, so we hope that it will improve in the current quarter and it is in line only.

Kapil Jagasia — Nuvama — Analyst

Okay, and can you please help me with sugar and ethanol sales breakup for this quarter?

P L Murugappan — Chief Financial Officer

Sugar and ethanol sales you are asking?

Kapil Jagasia — Nuvama — Analyst

Yes.

P L Murugappan — Chief Financial Officer

It’s about INR619 crores.

Kapil Jagasia — Nuvama — Analyst

For this quarter.

P L Murugappan — Chief Financial Officer

Yeah.

Kapil Jagasia — Nuvama — Analyst

Okay, sure. Thank you so much.

P L Murugappan — Chief Financial Officer

Excuse me, sorry sugar and ethanol sales number is INR252 crores, for the year is INR619 crores.

Kapil Jagasia — Nuvama — Analyst

Okay. And the breakup would be for that could be between sugar and ethanol?

P L Murugappan — Chief Financial Officer

Sugar sales INR60.63 crores.

Kapil Jagasia — Nuvama — Analyst

Okay. Thank you.

Operator

Thank you. We have the next question from the line of Muthu Kumar from Fidelity Ventures. Please go ahead.

Muthu Kumar — Fidelity Ventures — Analyst

Thanks for the opportunity sir. I have three questions, first most of the capex is you have told — in your annual report you have mentioned capex is planned at Chengappalli garment unit, could you please clarify what is the quantum of capex in there in that Chengappalli garment unit.

P L Murugappan — Chief Financial Officer

The Chengappalli garment unit expansion is completed in the 2022 March itself, total project cost is about INR250 crores.

Muthu Kumar — Fidelity Ventures — Analyst

Okay sir. My next question, is…

Operator

Mr. Kumar, sorry to interrupt you, but your audio is not very clear, request you to kindly go off the speaker phone.

Muthu Kumar — Fidelity Ventures — Analyst

Okay. Can you..

Operator

It’s just sounding very distant.

Muthu Kumar — Fidelity Ventures — Analyst

Now?

Operator

Yes, this is much better.

Muthu Kumar — Fidelity Ventures — Analyst

And the second question is, what are the steps taken to tackle cotton volatility and prices. And when you can expect the demand momentum for cotton and spinning mix up?

P L Murugappan — Chief Financial Officer

Demand wise, there is no issues, the movement of goods is good only, only the margins are fluctuating, that’s why we are keeping a very low inventory two to three months stock, we are maintaining to avoid the high fluctuation impact.

Muthu Kumar — Fidelity Ventures — Analyst

Okay. Sir, in the preceding season, what were your major focus, sugar or garment export or cotton yarn? In the forthcoming season, what is your major focus that is in sugar or in garment or in cotton yarn?

P L Murugappan — Chief Financial Officer

All are know part of the business only.

Muthu Kumar — Fidelity Ventures — Analyst

Okay sir, and what is the expected integrated EBITDA margin?

P L Murugappan — Chief Financial Officer

Currently, nine months, is about 23%, we hope that we will be doing around that level.

Muthu Kumar — Fidelity Ventures — Analyst

Okay sir, thank you. That’s it.

Operator

Thank you. We have the next question from the line of recording from [Indecipherable] from Unique Portfolio Managers. Please go-ahead.

Unidentified Participant — — Analyst

Good afternoon sir. Sir, earlier you had mentioned that by quarter three, we intend to completely ramp-up the new capacity which you have put up. But, if you look at the numbers, we have manufactured about 32 million units and if we ramp it all-up, it should have been 38 odd. Sir is there any reason for this?

P L Murugappan — Chief Financial Officer

No, no. Currently the production capacity is more or less reached. We hope that we will be doing somewhere along with 35 million garments per quarter.

Unidentified Participant — — Analyst

I’m sorry, 35?

P L Murugappan — Chief Financial Officer

35 to 36 million garments per quarter.

Unidentified Participant — — Analyst

Okay and sir, what could be our margins in garment for this quarter?

P L Murugappan — Chief Financial Officer

This quarter is about 21%.

Unidentified Participant — — Analyst

Okay, and you said the excess — the high-price inventory that you’re carrying in yarn and fabric that is done now and the margins are back from the previous quarter?

P L Murugappan — Chief Financial Officer

Still, the fluctuation is very heavy in cotton, so the margins are squeezed only, but we hope that it will stabilize this quarter.

Unidentified Participant — — Analyst

Okay sure. Thanks and all the best.

Operator

Thank you. We have the next question from the line of Chinmay Shah an Individual Investor. Please go-ahead.

Unidentified Participant — — Analyst

Thank you, sir for the opportunity. Sir, we have planned for a new capex, by next year, right so what are we going to have you permitting positioning? What would be the approx revenue generation from the new capex?

P L Murugappan — Chief Financial Officer

Actually, the sugar division there will be increase in revenue of about INR50 crores because sugar will be converted in the ethanol but the margins in the next, it is very good. And what I’d say, we expect their revenue or it’s got INR100 crores from 2024 2025 onwards, because it will be completed in 2024 run-rate. So solar power plant, we give a to saving of around INR12 crores rupees per annum. And then the gathering division capacity will increase by 20% it will be internally consumed.

Unidentified Participant — — Analyst

Okay and sir, one more question regarding cotton sir. How are you ramping-up the distribution. And what is the future prospects for cotton? What are we planning now?

P L Murugappan — Chief Financial Officer

Now, the ramping-up is good, they’re going well. We hope that it will reach break-even level in the coming year 2023/2024 period.

Unidentified Participant — — Analyst

Most of this distribution happens via online or offline channels, sir?

P L Murugappan — Chief Financial Officer

Mostly offline online also there.

Unidentified Participant — — Analyst

Okay sir, thank you so much.

Operator

Thank you. As there are no further questions. I would now like to hand it over to the management for closing comments.

P L Murugappan — Chief Financial Officer

Thank you very much attending the KPR Mill’s quarter three earnings call. Thank you once again for attending the call.

Operator

[Operator Closing Remarks]