KPR Mill hosted a conference call on 29 July, 2021. In the conference call the company was represented by Mr P Nataraj- Managing Director, Mr P L Murugappan- Chief Financial officer and Mr Kandaswamy-Company Secretary.

The emergence of second wave of pandemic disrupted the activities due to COVID restrictions; however, empowered with unique strength, KPR was well placed to resist the impacts of the pandemic strongly and capitalize on the opportunities ahead. India being the largest producer of cotton and its availability surging yarn market, strong order support for garments enabled good results in the textile segment.

KPR's strong performance improved cash flow and profitability for the company. The margins of cotton yarn prices are expected to remain healthy for spinners on the back of a supportive export demand coupled with a gradual improvement in the domestic consumption levels after the pandemic. The global issues could continue to support India's healthy export levels thus its fluctuation in cotton prices.

Operations of the company were completely impacted in first 15 days of second wave of covid . However, the company being a supplier of yarn to export related business, the company was allowed to run the spinning mill and the garment factories to certain extent.

Europe contributed 57% of the total exports of the company and the balance is contributed by USA.

Other income increased from Rs 6.5 cr to Rs 36.87 cr. Of the total Rs 36.87 cr, Rs 26 cr is one of kind. The company was eligible for state subsidy from 2011 to 2021. However, the government was holding it since introduction of GST and the state government came out with the option to refund the state GST and they have refunded toll 2020.

Production volumes for the quarter stood at Yarn -19,000 tons, Fabric -4600 ton and garment 26.6 million garments.

Sales volume of Yarn stood at 13500 ton, fabric -500 ton and garment -28 million for the quarter.

Revenue Break up:Rs 366 cr is yarn revenue and Rs 16 cr is fabric revenues in Q1FY2022. Sugar revenue was Rs 65 cr and ethanol revenue was Rs 44 cr in Q1FY2022. The company did not do any exports of sugar in Q1FY2022. It exported around 15,000 tons in Q4FY2021. The company had inventory of 26,000 ton of sugar as on 30 Jun, 2021. The export incentive for sugar in FY2021 is Rs 9 cr.

Cotton Inventory: The company has cotton inventory which will last till October. The purchase price of the inventory is around 49,000 against the current price of Rs 56000. Prices of cotton will go up in off season and will come down in the season. CCI will procure cotton at Minimum Support Price (MSP) which is around 43000 and the company expects the prices to come down in the season.

The cotton output in India is around 360-370 lac bales consistently and there will not be much deviation in the production in India. There will not be much impact on prices due to production of cotton.

RoSCTL was reintroduced on July 14, 2021 and has come through a press release and official notice is yet to come as such the company following conservative policy has not accrued that income which is more or less equal to earlier period. It is around 5% and the company will be eligible for Rs 15-16 crore in Q1FY2022.

Margins:

Margins improved by 265 bps. Improvement in margins is on account of the company's integrated nature of operations in textile business and yarn margins are also very good in the quarter which has resulted in improved margins. The company expects to maintain the margin in the medium term. However, difficult to say in the long run.

Margins were lower in sugar segment because ethanol sales were low as the oil marketing companies were not lifting the stock due to lock-down. Also, the company under took maintenance activity in Q1 which the company usually undertakes in Q2. The company expects distillery ethanol margin of around 30% both for existing and new mill.

The company wants to maintain a margin of above 20% in textile business as such is adding value added products capacity. Yarn margin is around 29% and garment margin is around 23% in Q1FY2022.

There is no big difference in margins with respect to cotton and synthetic fiber. The difference is mostly 1 or 2 %.

India is the largest exporter of yarn and healthy margins is due to good demand.

Capacity Expansion:

The expansion project initiated in the garment as well as the sugar segments by the company are progressing well. The garment expansion is expected to be completed as per schedule. The sugar cum ethanol is also expected to be completed as per schedule except some machines which has to be transported from other parts of the country as such is delayed by 15-30 days. The expansion will be completed in FY2022 and the full impact in next financial year. The company expects some volume in Q4FY2022.

The capacity will be for 220 KLPD of ethanol, 10,000 TCD of sugar and 50 MW for power taking the total capacity to 340 KLPD of ethanol, 20,000 TCD of sugar and 90 MW power.

With the new expanded capacity, the management is aiming overall revenues of Rs 1000 cr in next 2-3 years.

The consolidated margin will be around 25% for the sugar business and it may go up also since the company is going little higher on ethanol in the new factory. The company will be producing ethanol from sugar in the season and from molasses in off season.

On the garment expansion, being an integrated player, the company wants to focus on garment expansion on the value addition side than on spindles.

The current fabric capacity is 7500 ton which will be sufficient to meet the increased garment capacity.

The company expects that the industry will expand since the margins are good. On the industry front, there is already excess capacity in spinning. The industry will plan to expand on garment or value addition side.

To setup a state-of-the-art spinning mill with 1 lac spindle a capex out lay of Rs 450-500 cr is required or Rs 45,000-Rs 50000 per spindle. And the machinery cost will be around 80%.

Ethiopia: Unrest has started in Ethiopia again. The company plans to suspend the operations in Ethiopia and bring back the machinery.

Yarn: The current situation is completely different from 2010-11. China plus one and even the cotton scenario about the China and the serious steps taken by US and the European Union are favorable. All these things seem to have long-term perspective and the company believes that the present situation will continue for long time but at the same time the company cannot say that the spread will remain the same. The company believes that the present situation is favorable to spinning industry and will prolong. The spreads may vary but the company expects that the industry will do good.

The positive trend in yarn business which has happened for last one and half year has never happened in last 15-20 years.

There is 15% capital subsidy for setting up of garment factory only for machinery portion. The machinery portion of the garment factory is only 30%. There is no other subsidy available as on date in Tamil Nadu and the company has subsidy for exports like RoSCTL, drawback, GST refund. Also, the company has interest subsidy up to July to the tune of 3%, and the company expects that it might be extended.

Employees: The company has 25,000 employees and will be adding 5,000 people in its new capacity. The company provides various facilities including accommodation, food and other entertainment.

Apart from mobilizing the people the challenges faced include availability of skilled people. So even if people are available, require skill will not available as such the company will have to develop the skill with appropriate training.

Outlook: The company's revenues is around Rs 4000 cr, and with addition of capacity it will add another Rs 1000 cr. The company expects Indian knitwear requirement might go up.

Current year the company is looking at a target of 105-110 million garments. And for yarn and fabric around 90,000-ton kind of level.

Order book: The company had Rs 575 cr order book in previous quarter and Rs 700 cr order book presently. China+ 1 and looking at the current demand scenario, the company plans to ramp up its new garment capacity to 100% within 2 years. If GST plus status is removed to Pakistan by European Union it will be beneficial to India.

FASO: The company is expanding the customer base. It wants to reach a customer base of 10,000 retailers by FY2023 and 15000-20000 by 2024-25. The company is focusing on retail addition however has not targeted the turnover.