K P R MILL

K P R Mills is entering the capital market on 2^nd August 07 with a public issue of 59.12 lakh equity shares of Rs.10 each in the band of Rs.225 to 265 per share. Run away, one more textile issue.

The company is a vertically integrated manufacturer producing readymade knitted apparel, knitted fabric and carded and combed cotton yarn. The company, as at 31-03-07 is having 1,28,064 spindles, 113 circular knitting machines, and 1,517 sewing machines. For FY 07 the company had total income of Rs.512.06 crores, PBT of Rs.80.25 crores and PAT of Rs.58.42 crores resulting in an EPS of Rs.18.40 on equity base of Rs.31.77 crores. Net worth on that date was Rs.333 crores with debt of Rs.416 crores. Debt equity ratio of 1.25 : 1 is not comforting.

The present manufacturing operations of the company are located at Coimbatore, Sathyamangalam and Trichur in Tamil Nadu and have produced 11.55 million pieces of readymade knitted apparel for FY 07. The company, in August 2005, commenced construction of new facilities at Arasur near Coimbatore to create apparel manufacturing capacity of 25.90 million pieces per year. Printing and embroidery machines also installed at the same location which became fully operational in March 07. All the capacity at this location shall be fully operational by the end of fiscal 2008.

The company is also expanding its processing facility at Perundurai as also installing balancing equipment for existing spinning facility at Sathyamangalam.

How much all these have costed or shall cost to the company? No where it has been mentioned in RHP. The company has only stated total cost to be entirely financed from the net proceeds of the issue. Other means of finance states, nill for all objects of expansion and balancing equipments. The requirement of Rs.97.75 crores has been stated to be met from issue proceeds while issue is in the range of Rs.133 crores to Rs.156 crores. Disclosure norms are really quite weak.

During FY 07, the company exported 99.8% of total readymade knitted apparel. It is well known fact that margins of IT and Textile companies have taken a serious beating due to rupee strengthening. The company's bottomline fell from Rs.75.52 crores in FY 06 to Rs.58.42 crores in FY 07, inspite of a rise in topline from Rs.443 crores in FY 06 to Rs.512 crores in FY 07. Margins are under pressure with EBITDA margin falling to 26.85% in FY 07 from 27.69% in FY 06. This would shrink further in FY 08.

Based on FY 07 EPS of Rs.18.40, the share is being issued at a PER of 14.4. This is definitely expensive, when compared to Alok Industries which had topline of Rs.1,865 cores with PAT of Rs.175 crores, resulting in an EPS of Rs.10.33 for FY 07. Share is ruling at a PER of less than 7 on historic earning. There are no takers for textile stocks inspite of growth expected to be posted by many established players, listed on the secondary market. So, why to go for this issue.

Share is definitely expensive and it would be better to remain away from the issue.