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KLRF Ltd

Milling revenue to grow, margins to remain low

Utilisation rate for flour milling to rise with demand

(Rs mn) 1004

904 804 704 604 504 404 304 204 104

474

3.0%

4

FY05

472

4.3%

FY06

746

657

5.9%

2.8%

FY07 FY08 Sales (LHS)

783

847

723

5.2%

6.5%

6.5%

FY09 FY10E FY11F EBITDA margin (RHS)

889

6.0%

FY12F

7%

6%

5%

4%

3%

2%

1%

0%

69%

76%

71%

61%

68%

70%

70%

60

66

74

74

74

74

(MTPA) 84

74

4

74% 74

64

54

44

34

24

14

60

FY05

FY06 FY07 FY08

Capacity (LHS)

FY09 FY10E FY11F

Capacity utilisation (RHS)

FY12F

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Source: Company data, CRISIL Equities estimate

Source: Company data, CRISIL Equities estimate

Too many spinners to spoil the margins in Tamil Nadu

Yarn segment – overcapacity to squeeze margins KLRF’s textile division manufactures cotton yarn which it markets primarily to clothing units in Maharashtra and Tamil Nadu. It exports a small quantity (3-5%) to East Asian countries such as Korea, Malaysia and Singapore. The company has an installed capacity of 29,520 spindles and 2,760 rotors.

The cotton yarn segment is a commodity play with 90% represented by unorganised small-scale units, which inherently restricts the company’s ability to pass on the cotton price increases. Further, the operating rates in Tamil Nadu are constrained by high capacity and the power cuts imposed by the Tamil Nadu Electricity Board.

We expect revenues to grow at a two-year CAGR of 5.8% to Rs 574 mn by FY12 with EBITDA margin of 15.5%.

Higher sales due to higher yarn prices; EBIDTA margin to be constrained

(Rsmn) 604

504

404

463

17%

475

513

17%

552

16%

574

19%

16%

17%

15%

304

13%

204

11%

104

9%

8%

4

7%

FY08

FY09 Sales (LHS)

FY10E FY11F EBITDA margin (RHS)

FY12F

Source: CRISIL Equities

CRISIL Equities

5

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