The company's stock has exhibited significant volatility, declining 3.25% on November 04, 2025, to close at ₹1,041.70, reflecting investor concerns about margin sustainability. Trading approximately 25.35% below its 52-week high of ₹1,395.40, the stock has delivered an impressive 11.55% return over the past year, substantially outperforming the Sensex's 5.94% gain during the same period.
K P R Mill's diversified business model, spanning yarn production, cotton knitted fabric manufacturing, readymade garments, and wind power generation, positions the company as a comprehensive player in the textile value chain. However, the recent quarterly performance reveals underlying pressures that warrant closer examination by investors.
Financial Performance: Revenue Growth Masks Margin Deterioration
K P R Mill reported net sales of ₹1,766.27 crores in Q2 FY26, representing a marginal sequential decline of 0.15% from Q1 FY26's ₹1,768.98 crores but a healthy year-on-year growth of 9.73% compared to ₹1,609.66 crores in Q2 FY25. The revenue trajectory demonstrates resilience in demand, particularly when viewed against the backdrop of a challenging global textile environment.
However, the profitability narrative presents a more nuanced picture. Operating profit before depreciation, interest, and tax (excluding other income) stood at ₹310.25 crores, translating to an operating margin of 18.40%, down from 19.56% in the previous quarter and significantly below the 20.44% recorded in Q2 FY25. This 204 basis points year-on-year margin compression reflects mounting cost pressures and competitive pricing dynamics in the garment export market.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Jun'25 | 1,766.27 | -0.15% | 212.70 | +3.98% | 18.40% | 12.61% |
| Mar'25 | 1,768.98 | +15.68% | 204.55 | +1.14% | 19.56% | 12.03% |
| Dec'24 | 1,529.22 | +3.32% | 202.25 | -1.34% | 20.60% | 13.78% |
| Sep'24 | 1,480.02 | -8.05% | 205.00 | +0.83% | 20.76% | 14.36% |
| Jun'24 | 1,609.66 | -5.13% | 203.31 | -4.82% | 20.44% | 13.20% |
| Mar'24 | 1,696.72 | +36.69% | 213.61 | +14.19% | 20.61% | 13.14% |
| Dec'23 | 1,241.31 | — | 187.06 | — | 22.85% | 15.74% |
The net profit margin contracted to 12.61% in Q2 FY26 from 13.20% in the year-ago quarter, despite the absolute profit figure improving marginally. This margin erosion stems from multiple factors, including elevated employee costs which rose to ₹188.58 crores from ₹172.84 crores year-on-year, representing a 9.10% increase that outpaced revenue growth.
On a more positive note, the company's interest burden continued to decline, falling to ₹13.90 crores in Q2 FY26 from ₹16.38 crores in Q2 FY25, reflecting improved financial efficiency and successful deleveraging efforts. The tax rate for the quarter stood at 23.79%, slightly higher than the previous year's 20.30%, contributing marginally to the profit growth moderation.
Operational Excellence: Strong Capital Efficiency Despite Headwinds
K P R Mill's operational metrics reveal a company with fundamentally strong business economics, even as it navigates near-term margin pressures. The company's average return on equity of 21.02% over recent years demonstrates superior capital efficiency, indicating management's ability to generate attractive returns for shareholders despite the capital-intensive nature of textile manufacturing.
The company's return on capital employed (ROCE) averaged 24.95% over the assessment period, with the latest figure at 21.24%, substantially above the cost of capital and reflecting efficient asset utilisation. This metric is particularly impressive given the company's significant fixed asset base of ₹2,461.08 crores as of March 2025, representing substantial investments in manufacturing infrastructure.
Balance Sheet Strength: A Fortress Position
K P R Mill's balance sheet reflects exceptional financial health, with shareholder funds of ₹5,002 crores as of March 2025, up from ₹4,358.23 crores in the previous year. The company has dramatically reduced its long-term debt from ₹295.22 crores to just ₹53.83 crores, achieving a net debt-to-equity ratio of -0.02, effectively making it a net cash company. This deleveraging provides significant financial flexibility for future growth investments and enhances resilience during industry downturns.
The company's interest coverage ratio averaged an impressive 22.47 times, indicating more than sufficient earnings to service debt obligations multiple times over. This strong coverage ratio, combined with the minimal debt levels, positions K P R Mill favourably compared to many textile sector peers struggling with leverage concerns.
Operating cash flow generation has been particularly robust, with the company generating ₹1,401 crores in FY25, the highest in its recent history. This represents a substantial improvement from ₹677 crores in FY24, demonstrating enhanced working capital management and operational efficiency. The strong cash generation capability provides the company with resources for organic expansion, technology upgrades, and shareholder returns without relying on external financing.
Margin Dynamics: Understanding the Compression
The margin compression witnessed in recent quarters warrants detailed examination. The operating margin (excluding other income) has declined from a peak of 22.85% in December 2023 to 18.40% in the latest quarter, representing a deterioration of 445 basis points over seven quarters.
Several factors contribute to this trend. Employee costs as a percentage of revenue have increased, reflecting wage inflation and potentially higher staffing requirements to support capacity expansion. The company's employee cost stood at ₹188.58 crores in Q2 FY26, representing 10.68% of revenue, up from 10.74% in Q2 FY25, indicating relatively stable employee cost ratios despite absolute increases.
Margin Sustainability Concerns
The sustained margin pressure over multiple quarters raises questions about pricing power and cost management capabilities. With operating margins declining from over 22% to below 19%, the company faces the challenge of either improving operational efficiency or achieving better realisations in its product mix. The textile and garment sector's competitive nature, particularly in export markets, limits pricing flexibility, making cost optimisation critical for margin recovery.
Gross profit margins have similarly contracted, standing at 19.71% in Q2 FY26 compared to 19.88% in Q2 FY25 and significantly below the 23.95% achieved in December 2023. This suggests that raw material costs and manufacturing expenses have increased relative to selling prices, potentially reflecting cotton price volatility or increased processing costs.
However, the company's ability to maintain absolute profit growth despite margin compression demonstrates volume leverage and operational resilience. The 9.73% year-on-year revenue growth in Q2 FY26 has partially offset margin pressures, allowing net profit to grow by 4.62% year-on-year.
Industry Leadership: How K P R Mill Compares to Peers
K P R Mill occupies a distinctive position within India's garments and apparels sector, ranking as the third-largest company by market capitalisation with ₹36,916 crores. The company's integrated business model, spanning from yarn to finished garments, provides vertical integration advantages that many pure-play garment manufacturers lack.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Dividend Yield (%) | Debt to Equity |
|---|---|---|---|---|---|
| K P R Mill Ltd | 43.19 | 7.12 | 21.02 | 0.48 | -0.02 |
| Trent | 104.60 | 30.33 | 15.22 | 0.11 | 0.23 |
| Page Industries | 58.45 | 31.77 | 43.38 | 1.87 | -0.15 |
| Vedant Fashions | 38.90 | — | — | — | — |
| Trident | 33.47 | 3.16 | 11.73 | — | 0.21 |
| Vardhman Textile | 15.00 | 0.12 | 9.56 | 1.15 | -0.08 |
Compared to peers, K P R Mill demonstrates superior return on equity at 21.02%, significantly outperforming Trident (11.73%) and Vardhman Textile (9.56%), though trailing Page Industries' exceptional 43.38%. This higher ROE reflects K P R Mill's efficient capital deployment and integrated business model advantages.
The company's P/E ratio of 43.19 times positions it at a premium to Trident (33.47x) and Vardhman Textile (15.00x), but at a substantial discount to Trent (104.60x) and Page Industries (58.45x). This valuation differential reflects K P R Mill's positioning between commodity textile players and premium branded apparel companies.
K P R Mill's price-to-book ratio of 7.12 times appears elevated compared to Trident (3.16x) and Vardhman Textile (0.12x), yet remains significantly below the premium valuations commanded by Trent (30.33x) and Page Industries (31.77x). The company's net cash position (debt-to-equity of -0.02) provides a competitive advantage over leveraged peers, offering greater financial flexibility and lower risk.
"K P R Mill's combination of strong ROE, minimal debt, and integrated operations distinguishes it from commodity textile players, though margin pressures require vigilant monitoring."
Valuation Analysis: Premium Pricing Reflects Quality, But Stretched on Growth
K P R Mill currently trades at a P/E ratio of 43.19 times trailing twelve-month earnings, representing a substantial premium to the garments and apparels industry average P/E of 23 times. This 88% premium valuation reflects the market's recognition of the company's quality credentials, integrated business model, and strong balance sheet.
However, when assessed through the lens of growth expectations, the valuation appears stretched. The company's PEG ratio of 18.63 suggests that investors are paying significantly more than the growth rate justifies, with the stock trading at approximately 18.6 times the expected earnings growth rate. This elevated PEG ratio indicates that much of the future growth potential may already be priced into current valuations.
The company's EV/EBITDA multiple of 28.59 times and EV/EBIT of 34.41 times further underscore the premium valuation. These multiples are substantially higher than historical textile sector averages, reflecting investor confidence in K P R Mill's quality and growth prospects, but also leaving limited room for disappointment.
The stock's price-to-book ratio of 7.12 times compares to a book value of ₹146.34 per share, indicating that investors are willing to pay more than seven times the accounting value of the company's net assets. This premium valuation is justified by the company's consistently strong ROE above 20%, but requires sustained profitability to maintain.
Dividend yield stands at a modest 0.48%, with the company paying ₹2.50 per share in its latest dividend. The dividend payout ratio of 20.97% suggests conservative distribution policies, with management retaining substantial earnings for reinvestment in growth opportunities. While the low yield may disappoint income-focused investors, it reflects the company's growth orientation and capital allocation priorities.
Shareholding Pattern: Promoter Stake Reduction Raises Questions
The shareholding pattern reveals significant changes in ownership structure over recent quarters, with promoter holding declining from 70.68% in March 2025 to 66.31% by September 2025. This 4.37 percentage point reduction over two quarters represents a substantial stake dilution that warrants investor attention.
| Quarter | Promoter % | QoQ Change | FII % | MF % | Insurance % | DII % |
|---|---|---|---|---|---|---|
| Sep'25 | 66.31% | -1.21% | 6.45% | 17.53% | 1.51% | 0.35% |
| Jun'25 | 67.52% | -3.16% | 6.55% | 16.74% | 1.76% | 0.49% |
| Mar'25 | 70.68% | — | 6.25% | 14.84% | 1.49% | 0.15% |
| Dec'24 | 70.68% | — | 6.15% | 15.09% | 1.46% | 0.15% |
| Sep'24 | 70.68% | — | 5.60% | 15.52% | 1.68% | 0.13% |
The promoter stake reduction has been accompanied by increasing institutional participation. Mutual fund holdings have risen from 14.84% in March 2025 to 17.53% by September 2025, representing a gain of 2.69 percentage points. This sequential increase across multiple quarters suggests growing institutional confidence in the company's long-term prospects.
Foreign institutional investor (FII) holdings have remained relatively stable, fluctuating between 5.60% and 6.55% over the past five quarters, currently standing at 6.45%. The modest FII participation reflects the company's mid-cap status and limited global investor awareness compared to larger textile exporters.
Insurance company holdings have shown minor fluctuations, declining from 1.76% in June 2025 to 1.51% in September 2025. The relatively low insurance participation suggests limited institutional conviction from this investor category, possibly reflecting concerns about sector cyclicality or company-specific factors.
Importantly, the company maintains zero promoter pledging, a positive indicator of financial health and promoter confidence. The absence of pledged shares eliminates concerns about forced selling during market downturns and reflects the promoters' strong financial position.
Stock Performance: Significant Alpha Generation Over Long Term
K P R Mill's stock has delivered exceptional long-term returns, though recent performance has been more subdued. Over the past year, the stock has gained 11.55%, comfortably outperforming the Sensex's 5.94% return and generating positive alpha of 5.61 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.22% | -1.38% | -0.84% |
| 1 Month | -2.65% | +2.77% | -5.42% |
| 3 Months | -0.71% | +3.01% | -3.72% |
| 6 Months | +0.94% | +3.67% | -2.73% |
| YTD | +4.66% | +6.81% | -2.15% |
| 1 Year | +11.55% | +5.94% | +5.61% |
| 2 Years | +30.81% | +29.67% | +1.14% |
| 3 Years | +83.69% | +36.93% | +46.76% |
| 5 Years | +606.62% | +105.48% | +501.14% |
| 10 Years | +1202.13% | +214.31% | +987.82% |
The longer-term performance becomes progressively more impressive, with the stock generating 83.69% returns over three years compared to the Sensex's 36.93%, delivering alpha of 46.76 percentage points. The five-year return of 606.62% represents a more than seven-fold increase in shareholder wealth, vastly outperforming the market's 105.48% gain.
However, near-term performance has been lacklustre. The stock has declined 2.65% over the past month whilst the Sensex gained 2.77%, resulting in negative alpha of 5.42 percentage points. This recent underperformance reflects concerns about margin pressures and valuation stretched-ness following the strong multi-year rally.
The stock currently trades 25.35% below its 52-week high of ₹1,395.40, achieved earlier this year, but remains 37.28% above its 52-week low of ₹758.80. This positioning suggests the stock is in a consolidation phase after a significant run-up, with technical indicators pointing to a mildly bullish trend.
With a beta of 1.20, K P R Mill exhibits higher volatility than the broader market, amplifying both gains and losses relative to benchmark movements. The stock's volatility of 39.61% over the past year, compared to the Sensex's 12.45%, places it in the "high risk, medium return" category, suitable for investors with higher risk tolerance.
Investment Thesis: Quality Company at Premium Valuation
K P R Mill presents a compelling investment case built on several strong pillars. The company's excellent quality grade, reflecting consistent financial performance over multiple years, provides confidence in management's execution capabilities and business model sustainability.
The company's five-year sales growth of 16.94% and EBIT growth of 19.44% demonstrate consistent expansion capabilities. Average ROCE of 24.95% and ROE of 21.02% indicate superior capital efficiency, with the company generating attractive returns well above its cost of capital.
The balance sheet strength, characterised by minimal debt (debt-to-EBITDA of 0.73) and net cash position (net debt-to-equity of -0.02), provides significant financial flexibility. The company's ability to generate operating cash flow of ₹1,401 crores in FY25, the highest in recent years, demonstrates strong cash generation capabilities.
However, the investment case is tempered by valuation concerns. The "very expensive" valuation grade reflects the stock's elevated P/E of 43 times, substantially above the sector average of 23 times. The PEG ratio of 18.63 suggests limited upside potential at current prices unless the company can significantly accelerate growth or improve margins.
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Exceptional ROE: Average return on equity of 21.02% demonstrates superior capital efficiency and profitability, significantly above sector peers
- Robust Cash Generation: Operating cash flow of ₹1,401 crores in FY25 provides financial flexibility for growth investments and shareholder returns
- Minimal Debt: Net cash position with debt-to-equity of -0.02 eliminates financial risk and provides strategic flexibility
- Vertically Integrated Model: End-to-end manufacturing from yarn to garments provides margin stability and operational control
- Strong Interest Coverage: EBIT-to-interest ratio of 22.47 times indicates robust debt servicing capability
- Zero Promoter Pledging: Absence of pledged shares reflects strong promoter financial health and eliminates forced selling risk
- Growing Institutional Interest: Mutual fund holdings increased from 14.84% to 17.53%, indicating rising institutional confidence
KEY CONCERNS ⚠
- Sustained Margin Compression: Operating margins declined from 22.85% to 18.40% over seven quarters, raising sustainability concerns
- Elevated Valuation: P/E of 43x and PEG ratio of 18.63 suggest limited upside potential at current prices
- Promoter Stake Reduction: Promoter holding declined 4.37 percentage points over two quarters to 66.31%
- High Volatility: Beta of 1.20 and volatility of 39.61% indicate significant price fluctuations
- Export Market Dependency: Global demand weakness and competitive pressures in garment exports pose revenue risks
- Rising Employee Costs: Employee expenses growing faster than revenue, pressuring profitability
- Limited Pricing Power: Competitive textile market constrains ability to pass through cost increases
Outlook: What to Watch
POSITIVE CATALYSTS
- Margin Recovery: Any improvement in operating margins back towards 20%+ levels would significantly enhance profitability
- Export Demand Revival: Global economic recovery driving increased garment export orders
- Capacity Utilisation: Higher utilisation of existing infrastructure improving operating leverage
- Raw Material Stabilisation: Cotton price moderation reducing input cost pressures
- Value-Added Products: Shift towards higher-margin product categories enhancing realisation
RED FLAGS
- Further Margin Erosion: Operating margins falling below 18% would signal fundamental challenges
- Continued Promoter Selling: Additional stake reduction could signal insider concerns
- Revenue Growth Deceleration: Top-line growth falling below 5% YoY indicating demand weakness
- Working Capital Deterioration: Reversal of strong cash flow generation seen in FY25
- Global Recession Risks: Economic downturn in key export markets impacting order books
The Verdict: Quality Business, But Wait for Better Entry
Score: 71/100
For Fresh Investors: Consider accumulating on dips below ₹950-980 levels. The current price of ₹1,041.70 offers limited margin of safety given the elevated P/E of 43x. Wait for a 8-10% correction to build positions in this quality business with strong fundamentals.
For Existing Holders: Continue holding with a long-term perspective. The company's excellent quality credentials, strong balance sheet, and consistent cash generation justify retention despite near-term margin pressures. Consider partial profit-booking above ₹1,200 to lock in gains.
Fair Value Estimate: ₹1,150-1,200 (10-15% upside from current levels), based on 38-40x FY26 estimated earnings of ₹30 per share, assuming margin stabilisation and sustained revenue growth.
Note: ROCE = (EBIT - Other Income) / (Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. All investments carry risk, including the potential loss of principal.
