Indian Textile Sector

SPARK CAPITAL UNIQUEORNS SERIES COVERAGE
Indian Textile Sector –

Initiating Coverage
Indian Spinners leading the turnaround
03 January 2022
GNANASUNDAR
 sundar@sparkcapital.in
 +91 44 4344 0062
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Indian Textile Sector
Indian Spinners leading the turnaround
“vestis virum facit” meaning “clothes make the man”

INITIATING COVERAGE
The above-mentioned phrase coined ~400 years ago underscores the everlasting obsession that we have with what we wear and how we wear. The 03 January 2022
apparel fashion industry is one of the oldest but has been reinventing itself at a constant pace, defining fashion trends over time. The same, 190
however, cannot be said about Textile and Apparel (T&A) manufacturing. This vintage sector that has been a part of several industrial revolutions
170
across countries has witnessed only a few path-breaking product innovations over time. With the process innovations being minimal, the industry
has always been labour intensive which has prompted the T&A production to migrate towards countries that have lower labour and manufacturing 150
costs. China has been dominating the T&A production since the 2000s. However, the emergence of other low-cost centres such as Bangladesh and 130
Vietnam has reduced the relevance of China. India, one of the key T&A production hubs, has always had the advantage of cheap raw material 110
(cotton) availability. However, the sector has not produced any strong player as regulatory ambiguity has kept the sector’s prospects limited. The
90
emergence of the domestic apparel industry had provided a fillip to the T&A manufacturers of India in the last 5-6 years, but they have not been
competitive in the global T&A trade market compared to Vietnam and Bangladesh. We observe that there are several industry-friendly measures 70
adopted by the Bangladesh and Vietnam governments that provide textile manufacturers in those countries a costing edge. 50
Jun-21
Dec-18
May-19
Nov-21
Mar-20
Aug-20
Jan-21
Oct-19
Having been born and raised in Tirupur, a city that eats, drinks and breathes textiles, the optimism that has emerged of late over the prospects of the
industry in my conversations with friends and family is unmissable. This optimism calls for a detailed examination of the factors driving the current
growth and to peg whether they are structural or cyclical besides finding companies that are best placed to ride this uptrend. Given that the industry S&P BSE Consumer Disc goods
growth drivers are well established, I have structured this report in the form of a question and answer series to understand the changes happening Sensex
in the industry. I realised that several of these questions have always been a part of our family dinner table conversations and this report is
corroborating the same with data helping us understand the ebb and flow of the Indian textile industry. Coverage Companies
CMP TP RECO
▪ The Indian T&A production market is $106bn as of FY21 with ~70% of the demand being driven by the domestic market. India’s T&A exports, which
were steady at $36-38bn since FY15, are anticipated to reach an all-time high of $44bn in FY22 ̶ a source of excitement of late for the sector. We KPR Mill 670 822 BUY
believe the sector can grow at ~16% CAGR over the next 5 years led by higher exports and stable domestic market demand. Vardhman
2,309 2,974 BUY
Textiles
▪ The COVID pandemic has altered the global T&A supply chain with several apparel brands preferring more than one sourcing destination. Further, the
US-China trade war and the subsequent imposition of additional duties on Chinese T&A imports have led to importers in USA scouting for other
destinations such as India. We observe that Made-ups sale in India has been a huge beneficiary of this trend and has witnessed robust offtakes over RESEARCH ANALYSTS
the past 18 months. Bangladesh and Vietnam have been the benefited in the Ready Made Garment (RMG) space on account of importers looking for
GNANASUNDAR
an alternate source beyond China. (Continued…)
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▪ In December 2021, The U.S. President signed into law legislation that bans imports from China's Xinjiang region over concerns about forced labour. As Xinjiang constitutes ~20% of
the global cotton market, the supply readjustment on account of this ban has led to more demand for Indian Cotton and Cotton yarn. We observe that Cotton and Cotton yarn
exports from India have surged at a ~34% CAGR (between April and October) from FY19-21. The USA market is ~15% of the global T&A imports making it one of the key consumer of
the global T&A trade. The USA market is ~21%, ~15% and ~32% of the Knitted RMG, Woven RMG and Made-ups imports which makes this ban more profound on garment
manufacturers. Countries such as China, Bangladesh, Vietnam, Cambodia have become reliant on India for their cotton requirements post the ban leading to Indian cotton exports
skyrocketing in the past 8 months. We note that contribution of yarn has increased among the total cotton exports indicating that countries that have low spindle capacity such as
Bangladesh, Sri Lanka, Cambodia are increasingly picking up cotton yarn from India. We see the cotton players in India enjoying more exports. The fact that Indian yarn is still
cheaper than the global prices indicates the underlying global demand.
▪ Another segment where we have witnessed increasing exports from India is in the Made-ups segment. The underlying demand for home furnishing has significantly increased due to
lockdown led home confinements and the pandemic induced new Standard Operating Procedures (SoPs) which has led to the underlying volume demand improving. India being the
2nd largest supplier of made-ups naturally benefitted on account of Chinese suppliers losing market share.
▪ We have, however, not seen any uptick as yet in Indian Ready-Made Garments (RMG) exports despite India having a raw material availability advantage. On calculation, we decipher
that India has a cost advantage in cheaper raw material availability (ie) Cotton while Bangladesh enjoys lower labour rates and Vietnam enjoys lower lending rates and lower custom
duties on machinery imported for garment. In summation, the cost of production in India is competitive however the favourable treaties that Bangladesh and Vietnam (proposed) in
the European Union market gives them a cost advantage making Indian RMGs uncompetitive.
▪ Additional optimism is emerging with the Government of India (GoI) becoming benevolent towards the T&A industry. Several incentives such as RoSCTL, MITRA, and PLI for the Man-
Made Fibre segment have been announced over the past 12 months. Further, the stance of the GoI on Free Trade Agreements (FTA’s) is also a welcome policy change for the T&A
players. The government since 2014 has been hesitant of signing any new meaningful FTAs, which reflected in Indian T&A sector losing market share to Bangladesh and Vietnam.
However, we see the government being more open to FTAs with the Textile Minister of GoI confirming that several of them could be signed in FY22.
▪ Based on our conversations with players across the spectrum, we note that there is an ambiguity over whether the current cotton prices and the subsequent yarn-cotton spreads
are sustainable, prompting several buyers to be cautious during the current cotton harvest season. With export demand set to prevail and supply increase being limited, we believe
that cotton prices can hold firm over the near-term.
▪ Among the listed textile names, we are excited on the prospects of three segments (1) Cotton Spinners – Vardhman textiles, Ambika Cotton, Nitin Spinners, Sutlej Textiles and
Lakshmi Mills. (2) Made-ups manufacturers - Trident Ltd, Welspun India, Indo Count Industries and Himatsingka Seide and Vertically integrated players – KPR Mill, Gokaldas Exports
and Arvind Mills.
▪ Among the listed peers, we observe that Vardhman Textiles and Gokaldas exports are attractively priced based on their potential earnings upside. From a balance sheet perspective,
KPR Mill and Garware Technologies seem to be the best bets.
SPARK CAPITAL UNIQUEORNS SERIES – INDIAN TEXTILE SECTOR
Indian Textile Sector – Indian Spinners leading the turnaround
Textile exports from India have been robust over the past 7 months and FY22 exports could be the highest in the past 15 years
Total Textiles Exports from India (USD bn)

4.0
17
3.5
What is the reason for the sudden 3.0
37.7
37.5
37.5
36.7
36.7
36.5
excitement about the Indian Textile 2.5
34.4
34.2
33.2
30.9
28.9
2.0
23.8
23.5
22.4
sector stocks?
21.6
19.5
17.9
1.5
14.3
13.5
11.9
11.6
10.4
1.0
0.5
0.0
FY03
FY20
FY01
FY02
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY21
FY22e
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Total Textiles Exports from India (USD bn)
More than 3/4th of the textile export market in India is from The growth of the textile sector has been largely led by
Knitted RMG, Woven RMG, Cotton and Made-ups. increase in exports of Cotton + Cotton yarn and the Made-ups
99%
India’s textile exports have started to
60% rise on the back of increased exports
53%
39% 43% 45% of Cotton and Made-ups, which
14%
together form ~37% of the total
11%
0% textile exports in FY21. Exports of
knitted and woven RMG remain
-5% subdued.
2019-21 CAGR 2020-21
Cotton + Cotton yarn Made-ups Knitted RMG Woven RMG Total
RMG – Ready Made Garments; Source: India EXIM data,

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~70% of the demand for the textile industry is driven by the Incremental share gains in exports market should lead
domestic market while exports form ~30% of the overall pie. to a growth of ~16% CAGR in 5 years (USD bn)
~16% CAGR
250
~12% CAGR
75
What is the Indian textile market 200
structure and how much does exports 34 150
37 37
37 36
contribute to the overall pie? 38 31 160 100 225
29 188
83 90 100 106
73 77.5 75 50 106
50
FY11 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY26E 0

FY21 Domestic Exports FY26E Exports FY26E
India Export Apparel market (USD bn) India Domestic Apparel market (USD bn) growth growth Share gain
(%)
The factors that should lead to rise in The factors that should lead to India gaining share in the
domestic apparel consumption international textile market
‘China Plus One’ has led to several
E-commerce leading to higher Younger demographics' quicker Better availability of skilled man
western countries looking at
offtakes wardrobe turnarounds power in India. The Indian textile industry should be
alternate markets
Resumption of offices/schools The trade tension between US-China able to gain share across product
Price Inflation leading to better Government Initiatives such as PLI
should lead to higher woven
realisations
leading to higher import duty on
and others. categories due to a favorable geo-
demand Chinese apparels.
political scenario. A key catalyst to
The ban of cotton from the earnings could be the potential Free
Increased demand for knit clothing Technology leading to faster
Xingjiang region should benefit Probable Free Trade Agreements
on account of WFHs adaption of fashion trends
Indian cotton yarn exporters Trade Agreements (FTAs) signed by
Given the sourcing advantage,
the Indian government
Salary hikes leading to higher Apparel regaining their lost wallet India’s right to win in the Made-Ups
vertically integrated players should
consumer spending on apparel share being the 2nd largest
gain more tractions
Source: India EXIM data, Spark Capital research This file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 6
China’s share in the global textiles and apparel market has been China has been losing share across finished goods –
declining, but still worth USD250bn as of 2019 Ready-made Garments (RMG) and Made-Ups
34% China's Market Share %

34%
What is the size of China in the Global 33% 33% 33%
38% 40% 40% 42% 42% 42% 43% 42% 41% 41%
Textile trade and what factors are 32% 32% 32%
42%
35% 37% 36% 36% 35% 36% 36% 34% 33%
leading to it losing share in the global 31% 239 236 251 268 255 239 243 254 248 31% 29%
204
market? 171 31%
31%
36% 39% 39% 40% 39% 38% 37% 34% 31% 30% 29%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
China Textile Exports % of global trade
Knitted RMG Woven RMG Made-ups
China Plus One has led to higher duty on Chinese Production cost in China, which was a primary advantage, has waned in the
goods and tax advantages to few other countries past decade as cost across other countries has become competitive.
Textile and Cotton Total of Cost of Production (USD Per KG)
Tariff Rates in EU
Import Duty in USA China China China India Vietnam Banglade
(Vietnam – EU FTA
(Duty paid based on Process
2008 2014 2018 2018 2018 sh 2018 The Chinese Textile and Apparel trade
assumed)
goods imported in2019) has been declining from 2015, we
Spinning Ring 3.3 4.5 3.9 3.0 3.0 3.2
China 10.94% + 7.5% 12% anticipate an accelerated decline as
Texturing 2.2 2.1 1.4 1.5 1.6 1.6
the need for ‘China Plus One’ has
Vietnam 13.3% 0%* Weaving Ring 0.8 1.1 1.0 0.8 0.7 0.9 gained significant momentum post
Knitting Ring 0.8 1.1 0.9 0.7 0.7 0.8 COVID.
India 9.5% 9.6%
Weaving Textured 0.6 0.6 0.5 0.4 0.5 0.5
Bangladesh 10.99% 0% Knitting Textured 0.5 0.5 0.4 0.4 0.4 0.4
* Assuming the benefits that could accrue from EU-Vietnam BTA
Source: India EXIM data, UN Comtrade, OEC and This

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India currently is benefitting in the Cotton + Cotton Yarn segment and in the Made-ups segment
KNITTING/
Which are the categories that India is FIBRE SPINNING YARN (21%) FABRIC (12%) GARMENTING GARMENT (67%)
WEAVING
currently benefitting in the global
Cotton + Cotton yarn ($12bn) Knitted ($17bn) Knitted ($68bn)
textile trade on account of China’s
decline? MMSF + Blended Yarn ($12.1bn) Textile ($7bn) Woven ($66bn)
Manmade Filaments + Synthetic Yarn ($28bn) Woven ($5bn) Made-Ups ($28bn)
India’s Right To Win segments Could become prominent for India if FTAs are signed
Others ($4bn)
Continued China domination
Cotton and Cotton yarn segment exports at an all-time high… …so has been the offtakes across the Made-Ups segment
India Cotton Exports ($ mn) 700 India Made-Ups ($ mn)

800 600 The growth that we are currently
500 witnessing is from the Cotton + yarn
600
400 segment and the Made-Ups segment.
400 300 We see China holding to its advantage
200 in the synthetic segment. Bangladesh
200
100 and Vietnam are benefitting in the
0 0 RMG segment.
Feb-20
Jul-20
Sep-20
Feb-21
Jul-21
Sep-21
Mar-20
Apr-20
Mar-21
May-20
Jun-20
Apr-21
May-21
Jun-21
Nov-19
Dec-19
Nov-20
Aug-20
Dec-20
Aug-21
Jan-20
Jan-21
Oct-20
Oct-21
Jul-20
Jul-21
Dec-19
Apr-20
Jun-20
Dec-20
Jun-21
Nov-19
May-20
Nov-20
Mar-21
Apr-21
May-21
Aug-20
Aug-21
Jan-20
Feb-20
Mar-20
Sep-20
Jan-21
Feb-21
Sep-21
Oct-20
Oct-21
Source: India EXIM data, UN Comtrade and SparkThis

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Western economies have banned usage of any cotton from the Xinjiang region on account of socio-economic reasons
“China has been accused of committing crimes against humanity ▪ US Senate passes Uygur Human Rights Policy
14-05-2020
and possibly genocide against the Uyghur population and other Act
▪ Trump signs Uygur human rights bill into US
mostly-Muslim ethnic groups in the north-western region of 08-06-2020
law
Xinjiang. There are about 12 million Uyghurs, mostly Muslim, living ▪ US issues restrictions on imports of Xinjiang
What is the Xinjiang issue; how has it in Xinjiang, which is officially known as the Xinjiang Uyghur 14-09-2020
cotton, apparel products
altered the global trade? Autonomous Region (XUAR). Xinjiang is a mostly desert region and ▪ Britain introduces new policies to end supply-
02-01-2021
produces about a fifth of the world's cotton. Human rights groups chain links to Xinjiang
have voiced concerns that much of that cotton export is picked by ▪ EU-China investment deal on hold as MEPs
20-05-2021
forced labour, and in 2021 some Western brands removed Xinjiang vote to halt talks
cotton from their supply chains. China has dismissed claims it is 15-11-2021 ▪ EU to ban ‘forced labour’ products
trying to reduce the Uyghur population through mass sterilisations
▪ US Congress passes bill banning imports from
as "baseless", and says allegations of forced labour are "completely 16-12-2021
China's Xinjiang
fabricated” BBC Press Release
The relevance of the ban could be significant as it is ~85% of the We see that the Chinese domestic market is currently large
Cotton produced in China thereby ~22% of the global supply enough to absorb this cotton usage.
Apparel Market (USD bn)
India
25% 85% of the 690
cotton produced The ban on cotton cultivated in the
China in China is from Xinjiang region has led to demand for
26% the Xinjiang Indian cotton and cotton yarn rising
region, thereby
Others translating to 264 235 significantly over the past 18 months
181
26% ~22% of the 106 (about 1 and a half years).
global demand. 78 48 33
United States
Brazil 13%
10% EU-27 United China Japan India Brazil Canada RoW
States
Source: Global Cotton Outlook, UN Comtrade andThis

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India is the 2nd largest producer of cotton after China with ~25% The major importers of Chinese cotton were Bangladesh
share of the production and Vietnam, who were majorly exporting RMG to the
USA and the EU market
17% 16% 17% 18% 17%
3% 4% 4% 4%
3% 5%
11% 10% 4% 3% 4% 4% 5%
Global Cotton scenario and 7% 7% 11% 4%
11% 9% 8% 6%
16% 17% 17% 13% 14%
15% 12%
how is it benefitting India? 10% 13% 13%
27% 10%
21% 22% 23% 23% 9% 10%
25% 16% 19% 20% 20% 20%

23% 22% 24% 25% 15%
2016-17 2017-18 2018-19 2019-20 2020-21 2014 2015 2016 2017 2018 2019
India China United States Brazil Pakistan Australia Turkey Other Bangladesh Vietnam Hong Kong Indonesia Combodia
Of the total cotton exports from India, cotton yarn India cotton + yarn exports naturally heading towards
has seen the highest increase over the past 8 months Bangladesh, China and Vietnam.
350
25% 18% 22% 300
25% 27% 27% 27% 30%
42% 37% 250 India has become the major supplier
33% 24% 200 of the cotton + cotton yarn market,
24% 24% 25% 24% 24%
17% 26% 150
18% benefitting all the players who have
100
50 cotton spun yarn capacities and
46% 51% 49% 50% 49% 49% 48% 54% leading to an upswing in cotton +
40% 44% 0
cotton yarn prices.
Nov-19
Nov-20
Jul-20
Jul-21
Apr-20
May-20
Jun-20
Apr-21
May-21
Jun-21
Dec-19
Feb-20
Mar-20
Aug-20
Sep-20
Dec-20
Feb-21
Mar-21
Aug-21
Sep-21
Jan-20
Jan-21
Oct-20
Oct-21
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*
Yarns Fabrics Cotton Others BANGLADESH CHINA VIETNAM
Source: India EXIM data, UN Comtrade and SparkThis

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Cotton Prices in India have shot up to an all-time high and

Yarn prices have historically increased in tandem with cotton
continue to inch up
prices; however, the current spreads are at an all-time high
20000 300.0
15000 250.0
200.0 119
How long can prices of cotton sustain 10000
94 97 89 85 88 84 105
150.0 66 91 83
82
at current levels? Is this structural? 5000 100.0 71
58
0 50.0
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Dec-16
Dec-17
Mar-18
Dec-18
Dec-19
Dec-20
Mar-21
Dec-21
Mar-17
Sep-17
Sep-18
Mar-19
Sep-19
Mar-20
Sep-20
Sep-21
0.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
INR/qtl Narma Cotton INR/qtl Shankar 6 Cotton Spread Shankar 6 Cotton Price/KG Yarn Carded 40 Price/KG
The spreads, which seemed to be coming off in anticipation Despite the increase in yarn prices, the prices of Indian Yarn
of fresh arrivals, have once again firmed up in Dec. 2021 are the cheapest
150
400
130 The industry participants that we
110
350 interacted with are also not sure in
Rs/Kg
90
70 terms of how long will the prices
50 300
remain at current levels. We could,
30
10 250 however, see Yarn- Cotton spreads
Nov-21
Nov-21
Nov-21
Nov-21
Sep-21
Sep-21
Dec-21
Dec-21
Oct-21
Oct-21
Oct-21
Oct-21
being reset to a newer high even with
Jun-19
Jul-19
Jun-20
Jul-20
Jun-21
Jul-21
Apr-19
May-19
Nov-19
Apr-20
May-20
Nov-20
Apr-21
May-21
Nov-21
Aug-19
Aug-20
Aug-21
Jan-19
Feb-19
Mar-19
Sep-19
Dec-19
Jan-20
Feb-20
Mar-20
Sep-20
Dec-20
Jan-21
Feb-21
Mar-21
Sep-21
Dec-21
Oct-19
Oct-20
Oct-21
correction in cotton price.

Yarn Cotton Spread India -Yarn Carded 40s (INR/Kg) China Yarn Prices (INR/Kg)
Source: Bloomberg, CCI, China Yarn Pricing and Spark

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Man-Made Staple Fiber is used in ~70% of the products; we The MSP should act as the floor, current prices however are
see minimal room for cotton losing out further. ~3x the MSP
20000
15000
India 30% 70%
What are the underlying demand
10000
drivers for cotton prices? How are
5000 5400 5500 5775 5975
they holding up? 3150 3850 3950 4000 4050 4110
4270
Global 70% 30%
0
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
0% 20% 40% 60% 80% 100%
MMSF Cotton MSP (INR/Qtl) Shankar 6 (INR/Qtl)
With 3 major cotton growing states going to the elections in the

Underlying demand across US markets has resumed at a
next 3 years, we see minimal intervention from the government
breathtaking pace
to restrain cotton prices
300
200 With underlying demand drivers

holding up and supply likely to be
100 limited at least for a year, we expect
0 cotton prices to remain firm through
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 the year.
Clothing and Clothing Accessories Stores Sales (11 months) (Bn USD)
Furniture and Home Furnishings Stores (11 months) (Bn USD)
Source: US Census Bureau, CCI, election commission

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India is currently ~7% of the global Made-ups market …going by the 2021-22 run rate
and is poised to increase the same…
7% 7% 5,013 5,257 5,012 5,222
7% 6% 6% 6% 7% 7% 7% 4,645 4,586 4,705
7% 7%
6% 6% 6% 7% 7% 7% 7% 7% 3,958
What is happening in the Made-ups 6% 6% 7%
segment? Why is India primed to
benefit from China’s loss in this
38% 40% 40% 42% 42% 42% 43% 42% 41% 41% 42%
segment?
2021-22 (7m)
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
China India Pakistan India Made-Ups (USD mn)
Made-ups exports to the top markets have been gaining …also spurred by an uptick in the underlying volume offtakes
momentum over the past 18 months…
400 India made-ups (Top 3 countries) US Retail Sales: Furniture and Home Furnishings, $mn
14000
300 The Indian Made ups segment has
12000
200 10000 been gaining share over the past 18
8000 months in the USA market on account
100 6000 of additional duties on Chinese
4000
0 2000 products. Should gain further
momentum as China cedes share.
Jun-21
Jul-20
Jul-21
Jun-20
Nov-20
Nov-19
Dec-19
Apr-20
May-20
Apr-21
May-21
Aug-20
Dec-20
Aug-21
Jan-20
Feb-20
Mar-20
Sep-20
Jan-21
Feb-21
Mar-21
Sep-21
Oct-20
Oct-21
May-20
May-17
May-18
May-19
May-21
Jan-17
Sep-17
Jan-18
Sep-18
Jan-19
Sep-19
Jan-20
Sep-20
Jan-21
Sep-21
USA UK GERMANY
Source: India EXIM data, US Census Bureau and Spark Capital

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In the Knitted RMG space, ~1100 bps loss of China has gone to
In the Woven RMG space, ~700 bps loss of China has gone to
Bangladesh (~300bps), Vietnam (~400bps) and Cambodia
Bangladesh (~300bps) and Vietnam (~300bps)
(~400bps)
Knitted Apparels export share (%) Woven Apparels export share (%)
Why is India not able to gain share in 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019
the Ready Made Garments (RMG) China 40% 39% 38% 37% 34% 31% 30% 29%
China 36% 35% 36% 36% 34% 33% 31% 29%
segment? Who has gained on account Bangladesh 6% 6% 7% 7% 8% 8% 9% 9%
of China’s loss? Bangladesh 6% 6% 6% 7% 8% 8% 8% 9%
Vietnam 3% 4% 4% 5% 5% 6% 6% 7%
Vietnam 4% 5% 5% 6% 6% 6% 7% 7%
Turkey 4% 4% 5% 4% 4% 4% 4% 4%
Cambodia 3% 3% 3% 3% 4% 4% 4% 7% India 4% 4% 4% 4% 4% 4% 4% 4%
India 3% 3% 3% 4% 4% 4% 3% 3% Turkey 3% 3% 3% 3% 3% 3% 3% 3%
In the knitted garments segment, Bangladesh has gained in the

EU countries while Vietnam has gained in the USA and Japan We observe a similar pattern across woven garment space
2009-19 2009-19
market China Bangladesh Vietnam Turkey Cambodia India Others market China Bangladesh Vietnam Turkey Indonesia India Others
share loss share loss
United United China’s loss in the RMG segment has
0.7% 0.4% 7.7% 0.1% -0.8% 0.0% -8.1% -6.7% 1.6% 8.2% 0.4% -0.2% 0.2% -3.4%
States States been grabbed by Bangladesh and
Germany -8.4% 5.0% 0.9% -5.2% 2.4% -2.0% 7.3% Germany -10.6% 5.7% 0.7% -1.1% -0.7% -1.2% 7.2% Vietnam. India too has lost
United United share in the RMG segment
-10.4% 5.7% 0.9% -1.8% 2.9% -1.6% 4.2% -15.4% 7.4% 1.9% -0.8% -1.8% -1.7% 10.4%
Kingdom Kingdom over the past 10 years.
France -2.7% 5.4% 2.3% -1.8% 3.5% -0.8% -5.9% France -4.1% 7.1% 2.2% -0.3% 0.0% -1.0% -3.9%
Spain -6.5% 8.4% -0.3% 2.9% 2.1% -0.7% -5.8% Spain -8.2% 10.3% 0.6% 5.4% -0.4% -1.4% -6.3%
Japan -26.9% 4.1% 11.9% 0.1% 3.7% 0.1% 7.0% Japan -24.8% 3.3% 8.4% 0.0% 2.5% 0.2% 10.4%
Source: UN Comtrade and Spark Capital researchThis file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 14
We note that labor rates are the lowest …for both the unskilled and skilled
Vietnam has the lowest import duty…
in Bangladesh… workforce
Hourly Wage Rate (Skilled Person) (USD) Hourly Wage Rate (Skilled Person) (USD) Customs, import tax, etc. (% of machinery price)
Bangladesh China India Vietnam Bangladesh China India Vietnam Bangladesh China India Vietnam
What gives Bangladesh and Vietnam
Spinning 0.8 3.8 1.2 2.0 Spinning 0.3 2.3 0.8 1.1 Spinning 1.0% 10.0% 5.0% 0.0%
an edge over India?
Texturing 1.0 4.3 1.2 1.6 Texturing 0.7 2.3 0.7 1.0 Texturing 8.0% 17.0% 13.0% 0.0%
Weaving 0.9 3.9 1.2 1.9 Weaving 0.6 2.2 0.7 0.9 Weaving 2.0% 2.0% 0.0% 1.0%
Knitting 0.8 4.1 1.0 1.6 Knitting 0.6 2.5 0.8 1.1 Knitting 0.0% 23.0% 12.8% 0.0%
Finishing 0.9 5.5 1.2 1.9 Finishing 0.6 3.0 0.7 0.9 Finishing 2.0% 8.4% 5.0% 0.0%
…as well as a lower lending rate India’s advantage stems from the availability of low-priced
Raw materials
Lending interest rate (%) Raw material cost (USD)
10.2
10.6 Bangladesh China India Vietnam
12.3 10.3
13.3 10.3 India’s biggest advantage of lower raw
13.9 10.0 Cotton (per kg) 1.93 2.51 1.70 1.95
12.8 13.6
12.9
9.7 9.5 9.5 9.5 9.2 material prices should enable India-
17.0
13.5
11.7 10.4 9.5 9.7 9.6 8.3 Polyester POY 75 den (per kg) 1.22 1.12 1.20 1.28 based vertically integrated textile
10.6 10.4 8.7 companies to benefit from the current
7.1 7.0 7.1 7.4 7.7 7.6 Per meter of woven fabric (Cotton) 0.38 0.47 0.33 0.38
5.9 6.6 6.0 6.0 5.6 4.4 4.4 4.4 4.4 4.4 4.4 global cotton supply-constraint issues.
Per meter of knitted fabric 0.46 0.57 0.40 0.46
2000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Per meter of finished woven fabric 0.38 0.48 0.34 0.38
China Vietnam Bangladesh India Per kg of finished knitted fabric 2.00 2.51 1.78 2.02
Source: Bloomberg, IPCC, UN Comtrade and SparkThis

Capital research
file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 15
India has the lowest cost in terms of While MMSF cost advantage gives Weaving process is the cheapest in
natural fibre spinning. China an edge in texturing Vietnam…
Spinning Ring/NE30 (USD Per Kg) Texturing (USD/Kg) Weaving (USD/Kg)
Vietnam Bangladesh China India Vietnam Bangladesh China India Vietnam Bangladesh China India
Waste 0.32 0.32 0.40 0.29 Waste 0.06 0.05 0.05 0.04 Waste 0.07 0.07 0.09 0.06
How is India placed in the cost value
Labour 0.06 0.02 0.09 0.04 Labour 0.04 0.02 0.05 0.03 Labour 0.03 0.00 0.07 0.02
chain in terms of costing?
Power 0.18 0.30 0.38 0.38 Power 0.07 0.09 0.08 0.08 Power 0.07 0.13 0.16 0.16
Aux.Mat 0.11 0.11 0.11 0.11 Aux.Mat 0.03 0.03 0.03 0.03 Aux.Mat 0.05 0.05 0.09 0.08
Capital* 0.29 0.42 0.40 0.39 Capital* 0.15 0.13 0.11 0.13 Capital* 0.11 0.19 0.15 0.14
Raw.Mat 2.02 2.00 2.51 1.78 Raw.Mat 1.28 1.22 1.12 1.20 Raw.Mat 0.38 0.38 0.48 0.34
Total 2.99 3.18 3.91 2.99 Total 1.63 1.54 1.44 1.51 Total 0.72 0.83 1.02 0.80
Vietnam has an edge due to lower …Which have enabled them to be the
…and so does the knitting process cost.
lending rates/favorable import policies.. lowest in terms of cost of production
Knitting (USD/Kg) Finishing Woven (USD/Kg) Finishing Knit (USD/Kg)
Vietnam Bangladesh China India Vietnam Bangladesh China India Vietnam Bangladesh China India We note that the cost of production is
Waste 0.08 0.07 0.09 0.07 Waste 0.10 0.11 0.13 0.09 Waste 0.49 0.48 0.61 0.43 similar in Vietnam, Bangladesh and
Labour 0.02 0.01 0.03 0.01 Labour 0.06 0.06 0.11 0.09 Labour 0.18 0.08 0.32 0.12 India with each of them deriving a
Power 0.04 0.07 0.10 0.10 Power 0.11 0.17 0.22 0.21 Power 0.29 0.44 0.60 0.58 specific cost advantage, trade
Aux.Mat 0.03 0.03 0.03 0.03 Aux.Mat 0.22 0.22 0.26 0.25 Aux.Mat 0.68 0.66 0.69 0.67 agreements.
Capital* 0.07 0.11 0.11 0.10 Capital* 0.15 0.25 0.20 0.20 Capital* 0.43 0.62 0.61 0.59
Raw.Mat 0.47 0.46 0.58 0.41 Raw.Mat 0.38 0.38 0.48 0.34 Raw.Mat 2.02 2.00 2.51 1.78
Total 0.71 0.75 0.93 0.71 Total 1.02 1.19 1.40 1.18 Total 4.09 4.28 5.34 4.17
Source: Bloomberg, IPCC, UN Comtrade and SparkThis

Capital research
file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 16
Vietnam and Bangladesh enjoy FTA in Europe. Trade Agreements that are signed and in effect – Vietnam
Higher RMG sales in the USA are optically inflating
➢ ASEAN Free Trade Area
their taxes in the USA.
➢ ASEAN-Republic of Korea Comprehensive Economic Cooperation Agreement
Textile and Cotton ➢ ASEAN-Japan Comprehensive Economic Partnership
Import Duty in USA Tariff Rates in EU ➢ ASEAN-India Comprehensive Economic Cooperation Agreement
What are the import duties across (2019) – Effectively (Vietnam – EU FTA ➢ ASEAN-Hong Kong, China Free Trade Agreement
Applied Weighted assumed)
countries and why is India Average (%) tariff;
➢ ASEAN-China Comprehensive Economic Cooperation Agreement
➢ ASEAN-Australia and New Zealand Free Trade Agreement
currently at a disadvantage? China 10.94% + 7.5% 12% ➢ Comprehensive and Progressive Agreement for Trans-Pacific Partnership
➢ Viet Nam-European Union Free Trade Agreement
Vietnam 13.3% 0% ➢ Republic of Korea-Viet Nam Free Trade Agreement
➢ Viet Nam-Chile Free Trade Agreement
India 9.5% 9.6%
➢ Japan-Viet Nam Economic Partnership Agreement
Bangladesh 10.99% 0% ➢ Viet Nam-Eurasian Economic Union Free Trade Agreement
➢ Viet Nam-United Kingdom Free Trade Agreement
Trade Agreements that are signed and Trade Agreements that are signed and in effect – India
in effect – Bangladesh ➢ Asia-Pacific Trade Agreement
➢ India-Sri Lanka Free Trade Agreement
➢ India-Singapore Comprehensive Economic Cooperation Agreement
➢ India-MERCOSUR Preferential Trade Agreement
➢ Asia-Pacific Trade Agreement
➢ India-Japan Comprehensive Economic Partnership Agreement India has not signed any meaningful
➢ Preferential Tariff Arrangement-Group of 8 ➢ India-Malaysia Comprehensive Economic Cooperation Agreement
➢ ASEAN-India Comprehensive Economic Cooperation Agreement
trade agreements in the last 8 years
Developing Countries
➢ India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement which is beginning to hurt the
➢ South Asian Free Trade Area ➢ Indo-Nepal Treaty of Trade prospects of Indian textile exports.
➢ EU-Bangladesh Co-operation Agreement ➢ Afghanistan-India Preferential Trading Agreement
➢ Bhutan-India Trade Agreement
➢ India-Chile Preferential Trading Agreement
➢ India-Republic of Korea Comprehensive Economic Partnership Agreement
➢ South Asian Free Trade Area
Source: World bank, ARIC and Spark Capital research

India FTA policy over the past 8 years.
2014 2015 2016-18 2019

What has been the timeline of the
trade agreements signed by India and
why is it changing?
India’s bilateral treaty with India walked out of the
The new government India Signs ASEAN
23EU countries expired RCEP (Regional
announces a review of all (Association of South East
and India did not renew Comprehensive Economic
FTAs signed Asian Nations)
the same. Partnership)
The FTAs that India is currently negotiating and the size of these countries in the overall Textile trade
Knitted RMG imports Woven RMG imports Made-Ups imports (as
Country Agreement Type Market Access to conclude by
(as a % of global) (as a % of global) a % of global)
Australia Free Trade Agreement Sep-21 By the end of 2022 1.4% 1.5% 2.1%
United Kingdom
Comprehensive Free Trade 01-11-2021, next
1HFY22 5.8% 5.4% 4.2%
We see that the Indian government’s
Agreement talks in January 2022
Comprehensive Economic
approach towards FTAs is changing;
UAE Jan-22 Jan-22 1.3% 1.1% 1.2%
Partnership Agreement we see a meaningful non-linear upside
Bilateral Trade and Investment
European union
Agreement (BTIA)
1QCY22 NA 44.3% 46.3% 35.6% to the sector if a few of these trade
Israel Free Trade Agreement Oct-21 Jun-22 0.5% 0.4% 0.4% agreements are to materialize over
Canada Free Trade Agreement Dec-21 Mar-22 2.3% 2.1% 2.4%
the next two years.
GCC Free Trade Agreement Dec-21 NA 3.0% 3.2% 3.5%
Total 58.5% 60.1% 49.5%
Source: MEA, News Reports and Spark Capital This file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 18
The Indian Textile Minister, Mr. Piyush Goyal has urged the textile industry to ‘DREAM BIG’, assures government assistance
India’s minister for commerce and industry, and textiles Piyush Goyal has said that the country’s textile industry should aid $100 billion exports in a quick time. The
government is always open to consider all industry requirements to ensure that targets are achieved. He also said that industries that do not depend on subsidies
thrive much more. The minster said, “We must achieve target of $44 billion of textile exports in 2021-22.”
What gives us confidence that these
trade agreements can be signed over Goyal further stated that PLI Scheme for Textiles & MITRA Parks Scheme are going to benefit the industry in a big way. India has met all its international service
commitments, which have made the country the trusted partner of the world. India is showing signs of robust economic recovery, and total merchandise exports up
the next few years? to November 2021 were recorded at $262 billion. At the meeting convened to review the progress being made by the country’s textile-garment industry, the minister
said that we can no longer be satisfied with small increments; it is time for a quantum jump. Goyal said that exporters must back the expectations of the nation with
their ‘Effort, Expertise & Efficiency’. They should explore new markets. He asked the participants and stakeholders to especially take care of small exporters and
guide them. The minister added that the Indian government aims to provide a conducive ecosystem to explore competitive and comparative advantage. He said that
the upcoming FTAs with different nations will provide new avenues to build trade partnerships. The ministry of textiles has adopted a holistic development model of
the sector supported by infrastructure and cluster development, technical textile mission, performance-linked incentives and a zero rated tax policy on exports to
restore India’s pride in the global textile market.
The tweets from the Textile ministry indicates a change in government’s perspective towards Free trade Agreements
Given that Global Supply Chain is

moving towards ‘China Plus One,’ the
government has increased its pace to
cement India as an alternate supplier.
The Textile minister has indicated the
Indian Textile sector start dreaming
Big and has assured the
Governments' support for
the same.
Source: Twitter, News Reports and Spark Capital This file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 19
Scheme Name Announced in Benefit from Outlay (Rs.bn) Focus Industry Modus Operandi
▪ Setting up of 7 MITRAs encompassing 1000+

Mega Integrated Textile Region and
Oct-21 NA Rs.44.45 All Textile industries acres , greenfield CAPEX to be entitle Rs.5bn
Apparel (MITRA)
while Brownfield projects to get Rs.3bn.
What are the other incentives
Man Made Fibres and
that the government is Performance Linked Incentives (PLI) Sep-21 2025-29 Rs.106.83 ▪ Incentive based on revenue and CAPEX
Technical Textiles
providing to the sector?
Amended Technology Upgradation ▪ Capital Investment Subsidy is provided to
2016 2016-22 Rs.178.22 All Textile industries
Fund Scheme (A-TUFS) benchmarked machinery installed.
Scheme for Integrated Textile ▪ The Government of India grants up to

2005 2017-20 Rs.30 All Textile industries
Parkes (SITP) 40% of the project cost.
▪ PowerTex India is an all-inclusive scheme

Schemes for the development of the Power Loom and Shuttle
2017 2017-20 Rs.0.55bn that's made for the development of the
Power loom Sector(Power-Tex) less looms
power loom sector
▪ Provide demand-driven, placement
Traditional sectors of
MITRA and PLI should drive industry ‘Scheme for Capacity Building in
2017 2017-20 Rs.13bn handlooms, handicrafts,
oriented skilling programme to incentivize
CAPEX. Extension of A-TUFS, a Textile Sector (Samarth) the efforts of the industry in creating jobs in
sericulture and jute
the organized textile
competitive RODTEP and RoSCTL
▪ Scheme to rebate all embedded State and
scheme to enable the producers be The Rebate of State and Central
2019
Until march
NA
Ready Made Garments
Central Taxes/levies for meant for exports
Taxes and Levies (RoSCTL) 2024 and Made-ups
cost-competitive. of made-up articles & garments.
Removed anti-dumping duty on PTA MMF fibre and yarn and ▪ PTA makes up for around 70-80% of a
2020 NA NA
(Purified Terephthalic Acid) also on Acrylic fibre polyester product
National Technical Textiles Mission 2020 2020-24 Rs.14.8bn Technical Textiles ▪ Development of Technical Textiles
Source: Twitter, News Reports and Spark Capital This file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 20
So, how to play this Textile upcycle?
We note that there have been two distinct cycles, a FY05-15 We observe that the revenues of these 25 companies
phase of ~15% CAGR and FY15-21 CAGR of ~1%. correlate to the Indian T&A exports
800 ~1% CAGR
y = 62.882x
R² = 0.9751
India T&A Export Revenues

45000
How was the performance of the 600
40000
listed Textile and Apparel (T&A) 400
35000
30000
($mn)
companies in the last 15 years? 25000
200 20000
15000
0 10000
5000
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
100 200 300 400 500 600 700
Revenues of the top 25 listed T&A companies (Rs.bn) Revenues of the top 25 listed T&A companies (Rs.bn)
The margins though have been through at least 4 distinct The earnings performance of these companies are in line with
cycles in the past 15 years on account of Cotton – Yarn spread their operating profit growth.
120 20%
16% 15% 16% 16% 15% 15% 15% 14% 14% 16%
15% 15%14%14%
100 13%14% 13% 13% 13% 14% 12% 13% 13% 13% 13% 12% 13%
12%13% 13% 12%13% 15% 10%
80 10% The top 25 listed T&A players over the
60 10% 5% 6% 6% 5% 5% 5% 5% 5% past 15 years have outpaced the
3% 4% 5% 3% 4% 4% 4%
40 2% overall exports growth by capitalizing
5%
20 -3% on the domestic market and gaining
0 0% share from the smaller players
FY15
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19
FY20
FY21
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
EBITDA EBITDA margin (%) EBITDA margin (%) PAT margin (%)
Source: Bloomberg, Company Filings, Spark Capital

We note that ~40% of EBITDA has been reinvested in CAPEX The Net Debt/Equity has been declining on account of
needs throughout buybacks by a few large T&A players.
0 80% 250 1.4 1.8

1.4 1.3
-10 200 1.2
How has been the balance sheet 72% 60% 1.1 1.0 1.3
-20 0.8 0.8 0.9 0.8
of these companies across 150
-30 53% 40% 0.6 0.8
the 2 distinct cycles? -40
44% 40% 38% 40% 42% 42% 43% 45% 100
31% 20% 0.3
-50 50
-60 0% 0 -0.2
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Net Debt Net Debt/Equity

CAPEX % of EBITDA
Net Cash on books on the rise despite consistent CAPEX RoE = Flat PAT margins + Lower Asset Turnover + Higher
investments, sustained dividend payouts and buybacks Leverage
37 RoE (%)
34
29 28 14.1% 14.3% 14.1% 13.2%
25 12.8% 12.6%
11.4% 10.5% The top 25 T&A players across the
19 21 20 9.9%
listed space have managed their
13 6.2%
9 9 5.5% balance sheets commendably over the
past 10 years
Cash In Hand (Rs.bn)

Most of the T&A companies across the top 25 display a healthy correlation to the India T&A growth, when calculated on a
15-year CAGR basis.
FY05-20 Correlation with India T&A Exports
88% 89% 90% 90% 91% 92% 93% 94% 94% 95% 97% 98%
How have the 76% 80% 84% 85% 85% 86%
65% 67% 75%
companies performed 31% 34%
compared to the overall
industry growth?
Gokaldas Exports
Nahar Spinning
Sutlej Textiles
Trident Ltd
RSWM Ltd
Filatex India
Bombay Dyeing
Himatsingka Seide
Century Textiles
Nitin Spinners
Indo Count
Ecosphere
KPR Mill
Garware Technical
Indo Rama
Welspun India
Lakshmi Mills
Arvind Ltd
Siyaram Silk
Mayur Uniquoters
Vardhman Textiles
Ambika Cotton
Raymond
Ganesha
Most of the companies have however outperformed the growth of the overall exports over the past 15 years led by
consolidation and domestic market demand
31% FY05-20 Revenue CAGR
25%
22% 19% 19% 19% 18% 17% 14% 13% 11% 11% 11%
8% 8% 8%
The top 25 companies seem to have
6% 6% 5% 3% 1% 1% 0% 0% outperformed the overall exports
considerably on a 15 year CAGR basis.
Vardhman Textiles
Welspun India
Ambika Cotton
Himatsingka Seide
Bombay Dyeing
RSWM Ltd
Ecosphere
Nitin Spinners
Trident Ltd
Sutlej Textiles
Century Textiles
KPR Mill
Garware Technical
Mayur Uniquoters
Lakshmi Mills
Filatex
Siyaram Silk
Indo Rama
Nahar Spinning
Arvind Ltd
Raymond
India Exports
Gokaldas Exports
Indo Count
Ganesha

2/3rd of the companies have outperformed the industry EBITDA growth over the past 15 years
36% FY05-20 EBITDA CAGR

32%
26%
21% 20% 17% 17% 15% 14% 14% 13% 13% 11% 9% 8% 8% 7% 7% 6%
How has been the profitability 3% 1% 0%
-5%
across these 15 years?
Nahar Spinning
Gokaldas Exports
Trident Ltd
Bombay Dyeing
Himatsingka Seide
Nitin Spinners
Indo Count
Garware Technical
RSWM
Century Textiles
KPR Mill
Welspun India
Average
Filatex
Sutlej Textiles
Vardhman Textiles
Arvind
Lakshmi Mills
Ganesha Ecosphere
Mayur Uniquoters
Siyaram Silk
Ambika Cotton
Raymond
KPR mill has an attractive margin profile and has demonstrated the highest growth over the past 15 years.
Average EBITDA margin (%)
22% 21% 21% 20% 18% 18% 17% 16% 15% 14% 14% 14% 12% 12% 11% 11% 11% 11% 10% 9%
7%
We observe that cotton and cotton
7% 6% 5% spun yarn players have typically
enjoyed a higher margin profile in
comparison to the other T&A players.
Ganesha Ecosphere
Indo Count
Bombay Dyeing
Himatsingka Seide
Nitin Spinners
KPR Mill
Garware Technical
Welspun India
Century Textiles
Average
Sutlej Textiles
RSWM
Trident
Vardhman Textiles
Arvind
Filatex
Lakshmi Mills
Indo Rama
Mayur Uniquoters
Siyaram Silk
Ambika Cotton
Nahar Spinning
Raymond
Gokaldas Exports
To benefit
To benefit
Vertically from Technical
Company Exports from Made- Yarn Fabric Garment Made-Ups Textiles Others
Integrated Cotton Textiles
ups exports
exports
Which are the companies Himatsingka Seide 97% ✓  ✓ 0% 0% 0% 100% 0% 100% 0%
poised to gain from exports growth

Indocount 94% ✓  ✓ 0% 0% 0% 100% 0% 100% 0%
Welspun 85% ✓  ✓ 0% 0% 0% 89% 0% 89% 11%
over the next 5 years? Gokaldas Exports 77%    0% 0% 95% 0% 0% 95% 5%
Ambika Cotton 70%  ✓  61% 39% 0% 0% 0% 100% 0%
Trident 64% ✓ ✓ ✓ ✓ 0% 0% 55% 0% 82% 18%
Garware 59%     0% 0% 0% 99% 99% 1%
Nitin Spinners 59%  ✓  67% 26% 0% 0% 0% 94% 6%
Arvind 46% ✓ ✓  0% 49% 30% 0% 0% 79% 21%
Vardhman 43% ✓ ✓  66% 30% 0% 0% 0% 99% 1%
KPR 38% ✓ ✓  38% 10% 36% 0% 0% 85% 15%
Sutlej 33% ✓ ✓  95% 0% 0% 5% 0% 100% 0%
Our preference of companies RSWM 31%  ✓  82% 15% 0% 0% 0% 98% 2%
Sangam India 28% ✓ ✓  52% 41% 2% 0% 0% 95% 5%
Players with an exposure to the cotton + Alok industries 27% ✓ ✓ ✓ 53% 15% 1% 18% 4% 99% 1%
yarn segment and Made-ups to be near- Indorama Synthetics 23%    67% 0% 0% 0% 0% 97% 3%
term beneficiaries, Vertically integrated Raymond 19%    0% 46% 37% 0% 0% 82% 18%
players to be the Lakshmi Mills 16% ✓ ✓  82% 14% 0% 0% 0% 96% 4%
long-term bet Century Textiles 16% ✓   2% 0% 0% 19% 0% 21% 79%
Filatex 13%    100% 0% 0% 0% 0% 100% 0%
Siyaram Silks 9% ✓   0% 0% 0% 0% 0% 99% 1%
Ganesha Ecosphere 7%    99% 0% 0% 0% 0% 99% 1%
Grasim Industries 3%    0% 1% 0% 0% 0% 10% 90%

Made-ups
Cotton + Cotton Yarn Vertically Integrated
(All are vertically integrated)
Which are the companies

Cotton + Capacity
poised to gain from exports growth Spindles
Yarn (as a
Garments
Capacity
Company Capacity Company as a % of
over the next 5 years? (mn)
% of FY21 Bed
Towels
Rugs and % of (mn pcs PA)
sales
revenues) Linen Carpets FY21
(TPA)
Vardhman (MMPA) (MSqMt) sales
1.2 66%
Textiles
KPR Mill 115 36%
Trident 0.6 27% Welspun
90 80000 10 89%
India
RSWM 0.5 82%
Nahar Spinning 0.5 NA Arvind Ltd 120 38%

Indocount 90 NA 100%
Sutlej 0.4 95%
Cotton & Cotton Spun Yarn – Vardhman Textiles, Alok Industries 0.4 53% Vardhman
0.1 Negligible
Trident 43 90000 55% Textiles
Trident, RSWM, Nahar Spinning, Sutlej Textiles,
Alok Industries, KPR Mill, Nitin Spinners KPR Mill 0.4 38%
Nitin Spinners 0.3 67%

Made-ups – Welspun India, Indocount, Trident, Himatsingka
61 25000 100% Alok Industries 20 1%
Himatsingka Seide. Seide
Sangam India 0.2 52%
Lakshmi Mills 0.1 82%

Sutlej 10 NA 5% Nahar Spinning
14.6 NA
Ambika Cotton 0.1 61% Mills

Revenue (Rs.bn) EBITDA (Rs.bn) PAT (Rs.bn) EPS (Rs.bn)
FY20 FY21 FY22e FY23e CAGR FY20 FY21 FY22e FY23e CAGR FY20 FY21 FY22e FY23e CAGR FY20 FY21 FY22e FY23e CAGR
KPR Mill 35,302 35,302 45,869 53,466 15% 6,660 8,245 10,633 12,430 23% 3,980 4,977 7,237 8,538 29% 11.6 14.5 21.0 24.8 29%
Vardhman Textiles 61,399 61,399 87,653 96,158 16% 7,575 7,673 21,145 20,208 39% 4,045 3,729 14,012 13,170 48% 71.6 66.0 248.0 233.1 48%
Arvind 48,861 48,861 78,257 87,341 21% 7,441 4,336 7,418 8,910 6% 1,440 -284 2,218 3,421 33% 5.6 -1.1 8.6 13.2 33%
Indo Count Industries 23,490 23,490 30,965 34,530 14% 2,648 3,604 4,894 5,604 28% 1,655 2,270 3,364 3,810 32% 8.4 11.5 17.0 19.3 32%
Trident 45,306 45,306 65,396 70,931 16% 9,297 8,387 14,874 16,376 21% 3,853 3,372 7,984 9,318 34% 1 1 2 2 34%
Welspun India 65,941 65,941 90,011 99,323 15% 10,498 13,489 16,327 19,101 22% 5,067 5,569 7,482 9,362 23% 5 6 7 9 23%
Himatsingka Seide 21,975 21,200 31,643 37,051 19% 4,178 3,016 5,536 6,731 17% 131 -529 2,082 3,003 184% 1 -5 21 30 184%
Raymond 34,465 34,465 52,267 61,597 21% 6,886 -478 5,662 7,358 2% 2,430 -3,404 1,031 2,038 -6% 36 -51 15 31 -6%
Garware Technical Fibres 9,531 10,346 12,060 13,757 13% 1,759 2,044 2,357 3,171 22% 1,394 1,552 1,781 2,472 21% 68 75 86 120 21%
Gokaldas Exports 12,819 11,455 57,230 71,508 77% 672 1,015 5,267 7,902 127% 304 265 650 968 47% 7 6 15 23 47%
P/E (Rs.bn) EV/EBITDA (Rs.bn) EV/SALES (Rs.bn) RoE (%)
FY20 FY21 FY22e FY23e FY20 FY21 FY22e FY23e FY20 FY21 FY22e FY23e FY20 FY21 FY22e FY23e
KPR Mill 51.0 40.7 28.0 23.8 30.5 24.6 19.1 16.3 5.8 5.8 4.4 3.8 20.6 24.4 25.6 24.5
Vardhman Textiles 31.2 33.9 9.0 9.6 18.9 18.7 6.8 7.1 2.3 2.3 1.6 1.5 9.9 6.5 19.1 15.3
Arvind 20.2 -102.4 13.1 8.5 6.6 11.3 6.6 5.5 1.0 1.0 0.6 0.6 3.5 -0.6 7.8 10.7
Indo Count Industries 30.6 22.3 15.0 13.3 19.3 14.2 10.4 9.1 2.2 2.2 1.6 1.5 7.5 22.1 23.2 20.8
Trident 72.5 82.9 35.0 30.0 30.1 33.4 18.8 17.1 6.2 6.2 4.3 4.0 11.3 9.6 21.6 20.8
Welspun India 28.0 25.5 19.0 15.2 15.0 11.7 9.7 8.3 2.4 2.4 1.8 1.6 17.6 16.3 19.8 20.8
Himatsingka Seide 151.7 -37.6 9.6 6.6 10.0 13.9 7.6 6.2 1.9 2.0 1.3 1.1 1.0 -4.0 14.5 17.9
Raymond 16.5 -11.8 38.8 19.6 8.2 -117.8 9.9 7.6 1.6 1.6 1.1 0.9 9.1 -13.3 4.8 8.7
Garware Technical Fibres 47.4 42.5 37.1 26.7 35.7 30.7 26.6 19.8 6.6 6.1 5.2 4.6 20.2 20.4 20.0 23.1
Gokaldas Exports 38.1 43.7 17.8 12.0 29.5 19.6 3.8 2.5 1.5 1.7 0.3 0.3 13.0 10.3 9.2 11.1
Net Debt (Rs.bn) Net Debt/Equity (Rs.bn) Working Capital Days (Rs.bn) Total Asset Turnover (Rs.bn)
FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
KPR Mill 6,040 7,465 5,793 3,087 0.38 0.42 0.31 0.13 122 159 168 185 1.2 1.2 1.1 1.1
Vardhman Textiles 9,812 13,390 11,509 14,132 0.19 0.23 0.19 0.21 234 263 279 332 0.8 0.8 0.7 0.6
Arvind 32,606 26,230 25,599 20,732 0.80 0.92 0.93 0.75 101 18 50 53 1.1 0.8 1.0 0.7
Indo Count Industries 3,584 2,574 1,983 2,681 0.37 0.26 0.20 0.21 185 186 172 179 1.2 1.2 1.3 1.2
Trident 27,305 23,444 19,277 14,437 1.00 0.79 0.64 0.43 145 157 164 160 0.7 0.9 0.8 0.8
Welspun India 26,966 26,910 27,834 23,062 1.02 0.94 0.91 0.62 139 134 138 133 0.7 0.8 0.8 0.8
Himatsingka Seide 20,015 24,224 25,609 21,920 1.63 1.70 1.88 1.67 177 200 251 128 0.6 0.5 0.4 0.4
Raymond 13,544 17,408 21,786 15,712 0.72 0.85 0.88 0.72 144 139 164 -99 1.0 1.0 0.9 0.5
Garware Technical Fibres 1,151 532 22 -1,932 0.21 0.08 0.00 -0.24 44 46 98 47 1.0 1.0 0.8 0.8
Gokaldas Exports 4,550 3,695 3,938 4,000 3.48 1.54 1.74 1.38 147 150 138 152 1.2 1.4 1.5 1.2
Source: Company Filings, Bloomberg estimates and Spark
This file Capital research from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50
was downloaded Page 28
Vardhman Textiles and Gokaldas exports seem to have the From a RoE perspective, KPR mill and Garware Technical fibre
highest earnings projections over the next 2 years are the superior names
35
35
Garware Tech Trident
30
30 Trident
25 Garware Tech
Who are the standout players KPR Mill 25 KPR Mill
FY23 P/E
20 Welspun 20
available at reasonable valuations?
FY23 P/E
15 Welspun
Indo Count 15
Gokaldas Exp Gokaldas Exp Indo Count
10 10
Arvind Arvind Vardhman Tex
Vardhman Tex
5 5
0 0
10% 20% 30% 40% 50% 60% 10 15 20 25 30
FY20-23 EPS CAGR FY23 RoE (%)
Lower Net Debt/Equity further indicates the balance sheet From an Asset Turnover perspective, KPR mill, Indo Count and
strength that KPR and Garware Tech possess. Gokaldas exports seem to be having a higher demand as of FY21
35.0
35.0
30.0 Trident
30.0 Trident Garware Tech KPR mill seems to be the obvious play
Garware Tech 25.0
25.0 KPR Mill
KPR Mill within the sector given the balance sheet
FY23 P/E
20.0 strength that it posses. Gokaldas exports

FY23 P/E
20.0
Gokaldas Exp 15.0 Welspun and Vardhman Textiles to benefit in the
15.0 Welspun Indo Count Exp
Gokaldas
Indo Count Vardhman
10.0 Vardhman Tex Arvind
10.0
Arvind current cycle from being a vertically
Tex
5.0
5.0 integrated player and a cotton spun
0.0 0.0 player, respectively.
-0.50 0.00 0.50 1.00 1.50 0.60 0.80 1.00 1.20 1.40
Net Debt/ Equity Total Asset Turnover
Source: Company Filings, Spark Capital This file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 29
KPR Mill Limited
Initiating Coverage – ‘Finest Fabric in town’
KPR Mill Limited CMP Target Price Rating
Rs. 670 Rs. 822 BUY
“Over time, the skill with which a company’s managers allocate capital has an enormous impact on the enterprise’s value.” —Warren Buffett INITIATING COVERAGE
We initiate coverage on KPR Mill Limited (KPR) with a BUY rating and a TP: Rs.822, implying a ~23% upside from the CMP. The ability to sustain 3 January 2022
earnings growth across industry cycles and a solid balance sheet justify KPR’s premium valuations. KPR has delivered an impressive ~12% revenue Industry Textiles
and ~36% earnings CAGR over the past 9 years despite the underlying growth of the industry being subdued. Having personally witnessed several Key Stock Data
textile companies in the Tirupur region shutting down either on account of aggressive CAPEX or not upgrading to the changing needs of the Bloomberg KPR IN
customers, we acknowledge that KPR has been one of the few vertically integrated companies that has not only managed to outgrow the industry Shares o/s 344mn
but also maintain an impeccable balance sheet through judicious capital allocation. The management’s strive for consistent growth through Market Cap Rs. 230bn ($3bn)
expansion albeit without stretching the balance sheet is the moat of KPR. The company has rightfully migrated away from the commoditised yarn 52-wk High-Low Rs. 699-166
business and commenced focussing on the garments business from FY14, which is currently paying rich dividends in terms of stable margins and 3m ADV Rs. 310mn ($4mn)
superior capital efficiencies. We believe these investments that KPR had done strategically over the last decade make them one of the best placed to Index NA
capitalize on the current turnaround of the Indian Textile and Apparel (T&A) exports demand. Strategic investments in the Sugar plant should also F&O No
witness good traction over the medium-term given the high demand for ethanol on account of fuel blending needs. We believe the company can
Latest Shareholding (%)
deliver ~19% revenue CAGR and ~22% earnings CAGR over the next 3 years, taking the EPS to Rs.26.5 by FY24.
Mar 21 Jun 21 Sep 21
Revenue growth: Our ~19% revenue CAGR (FY21-24) estimate is driven by ~25% CAGR in the garment business and ~56% CAGR in the ethanol business. Promoters 74.7 74.7 74.7
In the garment business, we believe the growth would be driven by the volumes from the new facility at Chengapally. We have assumed for the company Institutions 17.5 17.2 16.5
to undertake another round of expansion of the garment facility by FY24. The strength of KPR in the garment business is KPR’s liaison with marquee Public 7.8 8.1 8.8
apparel manufacturers, its ability to expand capacities when needed and the cost & quality advantage that KPR has from being a vertically integrated Pledge - - -
player. These factors have enabled KPR to increase its share within the overall Knitted RMG exports from India to ~3% from ~0.6% in 9 years. With the
ethanol demand for blending needs from the OMCs likely to grow at ~30% CAGR, we have factored in for KPR’s new facility to reach full utilization by Stock Performance (%)
FY26, driving volumes. The fabric and yarn external sales could be subdued due to increased usage for captive consumption (garments). KPR yarns are 1m 3m 12m
sold at a premium given their superior quality and we note that KPR is one of the largest yarn makers in the Tirupur region. The underlying demand for KPR 31.6 57.1 283.3
Sensex 1.0 -0.9 21.7
yarn in the international market remains strong, which in our opinion should drive another year of good pricing-led growth of the yarn segment.
Margin drivers: We have forecasted an EBITDA CAGR of ~20% from FY21-24 driven by the change in product mix towards the stable garments segment
and higher contribution from ethanol segment. KPR margins historically exhibit a strong correlation to the yarn-cotton spreads. Stable margins of 23-25% RESEARCH ANALYSTS
in the garments should provide KPR stability from the vagaries of cotton and yarn prices. Sale of higher value-added products in the garments business GNANASUNDAR
should aid in meeting inflationary cost pressures. The yarn business margins are at a lifetime high of ~30%, which we believe would get adjusted sundar@sparkcapital.in
downwards as the yarn-cotton price spreads begin to dwindle in the near to medium-term. We note that ~28% of the other operating expenses are fixed +91 44 43440062
in nature, enabling KPR to enjoy some operating leverage in the medium-term. Debt repayment in FY24 should also lead to financial leverage, aiding
overall profitability. We have projected a ~22% PAT CAGR from FY21-24.
KPR Mill Limited
Continuation…
Capital Allocation: As per our projections, KPR can generate a cumulative FCF of Rs. ~7.3bn post factoring in a new CAPEX of Rs.10bn over the next 3 years. It should be noted that KPR has
undertaken a CAPEX of Rs.~20bn, deployed working capital funding of Rs.~8bn, disbursed Rs.~7bn back to shareholders and paid Rs.~6bn of interest predominantly through internal
accruals over the past 9 years. KPR has not shied away from taking debts, when needed, to fuel growth plans but has been judicious in committing to only one expansion project at a time.
We note that debt on books has always been at prudent levels despite having an interest rate subsidy. As per our projections, the company should have net cash of Rs.~3.4bn by FY24. KPR
sells yarn in the domestic market only on a cash basis which enables it to have a controlled receivable days profile. Inventory days are short as KPR buys at regular intervals at prescribed
prices through arrangements with traders.
Earnings catalysts: (1) Any Free Trade agreements that could get signed by the Government of India (GoI) (2) India T&A exports uptick momentum (3) Incentives and new projects
announced by the GoI such as the establishment of a MITRA park in Tamil Nadu, (4) Cotton – Yarn price spread & (5) Announcements on ethanol blending and sugar exports.
Risks: (1) India T&A exports slumping on account of another lockdown, (2) Volatility in yarn prices impacting the underlying demand and (3) Competing countries such as Vietnam and
Bangladesh getting more incentives in the European Union market.
Environmental, Social, and Governance Analysis: From an environmental perspective, KPR has installed windmills from which they procure ~40% of their electricity requirements. Sugar
Plant also gives them Co-Gen power. The company has installed an exclusive Effluent Treatment Plant (ETP) in Perundurai and recycles ~95% of the water discharged. The company adheres
to all required norms set by the pollution boards. From a social perspective, nearly 85% of the total workforce is women. The company recruits people predominantly from the states of
Bihar, Jharkhand and Uttar Pradesh. All the employees undergo safety & skill training every year and there are no recognised trade unions. From a governance perspective, we note that
50% of the board is represented by independent directors. The audit committee has two independent directors and one non-independent director. The three directors in the audit
committee have been associated with the company since 2008. The statutory auditor was changed in FY17 as part of the mandatory rotational policy.
Valuation: We have factored in a revenue and PAT CAGR of ~19% and ~22% from FY21-24 and value the stock at ~30x FY24EPS of Rs. 27 to arrive at our TP: Rs. 822. From a 3-year
perspective, we believe the stock has ~58% upside on the back of ~16% & ~18% revenue/PAT CAGR (FY21-26) and valuing the stock at 30x FY26E EPS.
FINANCIAL SUMMARY
Year Revenues (Rs. mn) EBITDA (%) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA (x) RoE (%)
FY21 35,302 23% 5,153 15 44.7 28 24.4%
FY22E 45,271 25% 7,828 23 29.4 21 25.4%
FY23E 51,340 24% 7,784 23 29.6 19 20.4%
FY24E 59,250 24% 9,107 26 25.3 16 19.4%
KPR Mill Ltd| Initiating Coverage| Rating: BUY | TP: 822
Corporate Factsheet
▪ KPR Mill is one of the largest vertically integrated textile companies in India with presence across Yarn, Fabrics, Garments, Sugar and Ethanol. The company was founded in 1984 and is
Company Background
headquartered in Coimbatore, Tamil Nadu.
▪ K P Ramasamy is the Founder, Mentor and Chairman of ‘KPR Group’. He made a humble beginning as a Power loom cloth Manufacturer in 1971.With the able and emphatic support of his
Promoter Background younger brothers, his journey expanded from Textile to Sugar, Power, Automobiles and Education creating the Textile Empire ‘KPR Group’. His drive towards eco- friendly environment
installed several windmills at Tamilnadu and established Co-gen cum Sugar Plant at Karnataka to source green power.
▪ Mr. K P Ramasamy- Chairman, Mr. K P D Sigamani –Managing Director, Mr. P Nataraj – Managing Director Designate, Mr. E K Sakthivel- Executive Director, Mr. C R Anandakrishnan- Executive
Board Of Directors Director, Dr. K Sabapathy- Independent Director, Mr. K N V Ramani – Independent Director, Mr. G P Muniappan – Independent Director, Mr. A M Palanisamy – Independent Director, Mr. C
Thirumurthy – Independent Director, Dr. S Ranganayaki – Independent Director, Mr. P Selvakumar – Independent Director,
▪ Worldwide Responsible Apparel Production Certificate (WRAP), Ethical Trade Initiative (ETI), Global Organic Textile Standard (GOTS), OEKO-TEX – Certification, International Association for
Certifications Research and Testing, Ministry of Commerce and Trade, International Organization for Standardization (ISO), TUV-SIMA (The Southern India Mill’s Association), Social Accountability
International (SAI)
Key Product Segments ▪ Garment - ~36% of revenues, Yarn - ~36% of revenues, Fabric - ~10% of revenues, Sugar - ~9% of revenues , Ethanol- ~4% of revenues, Cotton Waste - ~2% of revenues, Automobiles and
(FY21) Automobile Service Income- ~1% of revenues, Others- ~2%
▪ Yarn - Colour Melange, Slub Yarn, Injection Slub (Cotton, Poly Cotton & Melange) BCI, Organic, CMIA and REEL yarn , Fabric- ~Single Jersey, Interlock, 1 x 1 Rib, 2 x 1 Rib, 3 Thread Fleece, 2
Key Product Offerings
Thread Fleece, Pique polo, Single Jersey with Spandex yarn – all/ alternate feeder & Collar and Cuff. Garment - Casual wear, Sports wear, Active wear, Sleep wear, Work wear.
Key Export Clients ▪ Decathlon, H&M, M&S, Primark, Kmart, ASDA, Walmart.
Manufacturing Processes
▪ Spinning, Knitting, Garmenting, Processing, Fabric Printing
presence
▪ Yarn- 100000MT, Viscose Yarn- 4000MT, Fabric- 40000MT, Garments- 157Mn. Pieces, Processing- 25000MT, Fabric Printing- 7500 MT, Windmills- 62MW, Co- Gen production- 40 MW, Sugar
Manufacturing Capacity
Production 10000 TCD, Ethanol- 130 KLPD
▪ Sathyamangalam- Spinning, Karumathampatti- Spinning, Compact Spinning, P/C, Melange & Color Melange, Neelambur- Spinning & Knitting, Arasur- Spinning, Knitting & Garmenting, Tirupur-
Manufacturing Units
Garmenting, Tirunelveli, Tenkasi, Theni & Coimbatore- Windmills, Perundurai- Processing & Fabric Printing, Bijapur- Co-gen cum sugar, Thekkalur- Garmenting, Ethiopia- Garmenting
International vs
▪ 65% Domestic , 35% Exports, Key Export Markets – Europe – ~54%, USA – ~25%, Others – ~21%
Domestic revenues
▪ Quantum Knits Pvt. Ltd.(100% subsidiary), K P R Sugar Mills (100% subsidiary), Galaxy Knits Ltd. (100% Subsidiary), Jahnvi Motor Pvt. Ltd. (100% Subsidiary), K P R Sugar and Apparels Ltd. (100%
Corporate Structure
Subsidiary), K P R Exports PLC (100% Subsidiary), K P R Mill PTE Ltd. (100% Subsidiary).
▪ Bank of Baroda, IDBI Bank Ltd. , Union Bank of India, Bank of India, ICICI Bank Ltd., Citi Bank, HDFC Bank Ltd., The Federal Bank Ltd., Standard Chartered Bank, Punjab National Bank, The Hong
Corporate Bankers
Kong and Shanghai Banking, Corporation Ltd.
Auditors ▪ Statutory Auditors - M/s. B S R & Co LLP
Source: Company filings, Spark Capital This file was downloaded from Spark Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 33
Timeline and Manufacturing footprint
Plant Locations Timeline

2021-22 ▪ New Sugar and Ethanol Capacity to commence - 75000 tones of Sugar and 60mn liters of Ethanol.
2021-22 ▪ Garment facility enhanced by 42 mn pcs (Chengapally) taking the total garment capacity to be 157 mn pcs
2020 ▪ Vortex Viscose Yarn capacity of 4000 MT at Neelambur
2020 ▪ Knitting facility of 13000 MT at Karumathampatti
2019 ▪ Retail segment : ‘FASO’ 100% Organic Cotton Men’s inner wear Sports wear and Athleisure
Sathyamangalam
2019 ▪ Brown field garment expansion by 10 Mn garments in existing facilities
Karumathampatti 2018 ▪ Established 10 Million Garment manufacturing unit at Mekelle, Ethiopia
Perundurai
2017 ▪ Established new Eco-friendly Processing capacity with Advanced Technology – 9000 MT
Neelambur Tirupur 2016 ▪ Established New green field garment facility of 36 Mn garments at Thekkalur
Thekkalur
Arasur 2014 ▪ Expanded Garment capacity at Arasur by 10 Mn garments,
Coimbatore
2012 ▪ Co-gen cum Sugar Plant at Karnataka - 30 MW & 5000 TCD capacity
2012 ▪ Value-added product Mélange yarn.16,128 spindles at Karumathampatti.
2011 ▪ Modernization & expansion of 21,216 spindles at Sathyamangalam
2010 ▪ Exclusive value-added Compact Spinning unit of 1,03,680 spindles at Karumathampatti & Windmills
Tirunelveli
Tenkasi 2008 ▪ Fabric Processing Unit at SIPCOT, Perundurai 9,000 MT per annum with Effluent Treatment Plant
Theni 2007 ▪ IPO at a premium. Shares Listed at Bombay & National Stock Exchanges, India
2006 ▪ Private Equity participation by leading US Corporate ‘Brandot Investments’ & Two others - $ 25 Mn
2005 ▪ New facility at Arasur 1,00,800 spindles; Knitting facility, Garment Unit and Windmills
2003 ▪ Spinning unit at Neelambur with 50,784 spindles; Knitting facility & Windmill
Spinning Garmenting Compact Marketing 2001 ▪ Spinning mill at Karumathampatti with 30,240 spindles; Knitting facility & Windmill for captive use
1995 ▪ First spinning unit at Sathyamangalam with 6,000 spindles. Increased to 30,240 spindles by 1999
Knitting Processing Melange Windmills 1989 ▪ Knitted garment export at Tirupur
1984 ▪ Maiden business at Coimbatore, India
Segmental Classification
Yarn, Cotton Waste and Fabric and Processing and Automobile and Automobile
SEGMENT Garment Sugar, Ethanol and Co-gen Power
Accessories Fabrication Income Service Income
Knitted garments for men, women and Authorized dealers of AUDI cars in
Compact yarn, Combed yarn, Carded Single jersey (also with lycra/spandex),
children out of 100% conventional Sugar along with Green energy viz ., Co- Coimbatore and Madurai Region. Harley
Key Offerings yarn, Mélange yarn, Polyester Cotton, interlock, rib, 2 and 3 thread fleece,
cotton, organic cotton, cotton blends Gen Power. Davidson dealership has been
Viscose Yarn and Grindle Yarns. pique polo, flat bed collar
and fair-trade cotton discontinued from FY21
FY21 Revenues (Rs.mn) Rs.~13.3bn. Rs. ~3.4bn. Rs. ~12.5bn. Rs. ~4.8bn. ~Rs.~0.44bn.
Revenue Contribution (%) ~39% of Revenues ~10% of Revenues ~36% of Revenues ~14% of Revenues ~1% of Revenues
5 year Revenue CAGR ~3% ~-5% ~16% ~17% ~-18%
Sugar- ~85423 MT
Volumes Produced (FY21) ~76 Mn. KGs ~18 Mn. KGs ~85 Mn. Pcs Power- ~102.8 Mn. Units NA
Ethanol- 23373 KL
Steady State Margins (%) ~18-20% ~18-20% ~23-25% Sugar – ~20%, Ethanol – ~30% NA
Co-gen Production- 40MW, Sugar

Yarn-100000 Mt, Viscose Yarn- Fabric- 40000MT, Processing-
Capacity Garments- 157 Mn. Pcs., Production- 10000TCD, Ethanol- 130 NA
4000MT 25000MT, Fabric Printing- 7500 MT
KLPD
Sathyamangalam,
Location Neelambur, Arasur, Perundurai Arasur, Tirupur, Perundurai Bijapur, Karnataka Coimbatore
Karumathampatti, Neelambur
% of captive consumption 28% 56% NA Power- 42% NA
The domestic knitwear fabric The domestic knitwear garments Exports, Europe – 54%, USA-25%, Sugar - Export and Domestic Cities of Coimbatore and Madurai,
Key end markets
market in Tirupur market in Tirupur Others – 21% Ethanol – Oil Marketing Companies Tamil Nadu
Textile Segment Value Chain
FIBRE YARN FABRIC GARMENT
➢Garmenting
➢Spinning/ Compact
➢Knitting ➢Processing
Spinning
➢Fabric Printing
Capacity
Fabric (MT) 40000

Yarn (Mn MTPA) ~0.1 Processing (MT) 22000 MT
Cost of cotton 35% of revenues Processing (MT) 22000
Viscose Yarn (MTPA) 4000 Garment (Mn Pcs) 157 Mn. Pcs
Fabric Printing (MT) 7500
Locations
Sathyamangalam
Karumathampatti Neelambur Thekalur
Neelambur Arasur Tirupur

Arasur Karumathampatti Arasur
Chengapally
Revenue Contribution (FY21) ~39% ~10% ~36%
Charting the history – What was driving growth and margins of KPR Mill?
We observe that quantum of export sales, prices of cotton and the subsequent yarn spread along with capacity expansion to be the key drivers of growth and margins historically
The garment
Sudden emergence orders started
In a challenging, bouncing back
Revenues were of COVID-19
increasingly cost- from the
Turnaround in driven by volume pandemic
sensitive pandemic. The
Price stability and Europe & U.S, growth in most of impacted the
environment, focus GST caused a Industry witnessed
adequate increase in Cost of The decline in the Segments. growth. Chinese
on Garment, the The cotton prices difficult market a shift in demand
availability of Production and cotton price over Expanded activities yarn demand
prospective textile were stable, new scenario. Enhanced from formal wear
Cotton, increased Compliance issues 15%, created an the Garment saw subdued due to US-
segment, has garmenting facility garment facility to casual wear.
demand for Yarn in various equivalent adverse good traction. China trade war.
prompted commissioned. aided growth
~32% growth in and Fabrics both at competing impact on Yarn &
~28% growth in expansion.
Exports however domestic and Countries Fabric prices.
Exports and Higher yarn prices steeply international
capacity utilization declined. Market
of ~90%. 33.8 33.5 35.3
28.2 30.2
23.7 25.7 26.0
16.6
10.5 12.7
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Revenue (Rs.bn)
KPR Revenues have been driven by export growth and Yarn prices… …while we calculate a high correlation of ~79% between Yarn- Cotton spread and KPR EBITDA
margins.
42% 27%
32% 23% 23% 23% 154

31%
21% 20%
21% 18% 19% 18% 19%
18% 17%
12% 16%
8% 8% 14%
7% 5% 105
1% 95 93 96 92
-1% 87 86 87 85
83
71 71
56
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
KPR Export growth (%) Yarn Carded Price Increase/Decrease (%) Revenue growth (%) KPR EBITDA margin (%) Yarn 40s - Shankar 6 Cotton Price Spread (Rs/Kg)
Source: Company filings, Bloomberg, CCI, Spark Capital

Earnings Forecast Snapshot – We forecast a revenue and PAT CAGR of ~19% and ~22% respectively over the next 3 years
KPR revenues to increase at a ~19% CAGR over the next 3 years and by ~15% CAGR over next 5 years This growth to be led by the garments segment and ethanol segments. Garments and Ethanol segments
to increase by ~25% and ~32% CAGR over the next 3 years.
15% CAGR 7% 1% 4% 6% 3% 4% 4% 4% 4%
9% 9%
7% 7% 9% 13% 16% 19% 19% 20%
14% 8% 6% 14%
16% 8% 6%
72.5 5% 5% 5% 5%
19% CAGR 67.0
59.2 46% 41% 28% 26%
39% 35% 31%
51.3 47% 37%
45.3 45%
33.8 33.5 35.3
28.2 30.2
40% 42% 45% 45%

35% 38% 35% 38%
25% 29%
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
Revenue (Rs.bn) Garment Yarn Fabric Sugar & Ethanol Others
Source: Company filings, Spark Capital Source: Company filings, Spark Capital
Gross margins should correct over a 3-year phase as we believe the current Yarn- Cotton spreads are Operating leverage, coupled with lower interest expenses, to enable PAT increase at a higher CAGR
not sustainable over a 3-year period. than revenues.
18% CAGR
44.4% 44.5% 43.0%
40.7% 42.5% 42.0% 42.0%
39.6% 39.1% 40.1%
22% CAGR
23.5% 25.3% 23.8% 24.0% 23.9% 23.9%

20.0% 19.0% 18.1% 18.6%
11.9
10.8
17.3% 15.7% 16.2% 16.5% 9.3
14.6% 15.2%
10.2% 11.2% 7.8 7.8
9.6% 9.9%
5.2
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e 3.3 3.8
2.9 2.9
Gross Margin (%) EBITDA Margin (%) PAT Margin (%)

FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
KPR revenue growth to be driven by the garments segment that promises stable margins and better capital efficiency.
#1 GARMENT #2 FABRIC #3 YARN #4 SUGAR # 5 ETHANOL #6 MARGINS/RATIOS #7 VALUATIONS/RISKS #8 ESG
KPR garment revenues to increase at a ~25% CAGR over next 3 years and by ~16% CAGR over the next 5 This growth to be led by ~19% and ~16% CAGR in volumes between FY21-24 and between FY21-26
years. respectively. Price increases to be led by increase in value added products
45% 45% 166

40% 42% 157 161
38% 38% 148 152
35% 35% 130 134
120 125
29% 114
25%
29.8 32.7
185 197
24.6 157
20.4 134
17.2 116
11.7 12.7 12.5 94 98 93
8.7 58 76
6.9
Garment Segment Revenues (Rs.bn) % of overall sales Garments Sold (mn pcs) Rs/Piece
We have assumed for an additional capacity of 40mn units in the garmenting facility to come up in Given the better margins and capital efficiency, Garment seems to be the most logical segment to
FY24. invest on.
Garment Fabric Yarn Sugar Ethanol

100%
94% Capex 2500 2500 2500 2000 3000
81% 85% 81% 86%
80% 80%
74% Revenues 6000 4000 5000 2000 3000
61%
Asset Turn 2.4 1.6 2.0 1.0 1.0
197 197 197 EBITDA margin (%) 24% 20% 20% 20% 30%
157 157
115 115 115 Depreciation 250 250 250 200 300
95 95
RoCE (without considering WC) 36% 17% 23% 8% 15%
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e Working Capital 1800 1200 1500 600 900
RoCE (Post WC) 21% 11% 14% 6% 12%
Capacity (mn pcs) Utilization (%)
Exciting underlying demand growth drivers and KPR's supply chain capabilities should enable them deliver strong growth in the garments segment
KPR is currently only ~3% of the Indian knitted RMG exports and Indian RMG exports are only ~3% of "Our core business is textile and in textile particularly we are focusing in the last five years the
the global trade, indicating the humongous underlying opportunity. value addition product that is the garment that is meant for export. Every two years, we are
expanding our garment capacity either Greenfield or Brownfield.” KPR Management
➢ The COVID pandemic has
led to shutdown of smaller ➢ China Plus one as China is Location
Yarn - Fabric Garment Value added Sugar Ethanol Co-Gen Windmill
garment makers on account ~30% of Knitted RMG Spinning Knitting (mn pcs) (TPA) (TCD) (KPLD) (Mw) (Mw)
Processing-
of working capital crunch 13478 exports. 2021 Chengapally 42
3000TPA
➢ Several apparel players ➢ Probable Free Trade 2020 Karnataka 10000 230 47
preferring to shorten the agreements by the Viscose -
supply chain post COVID, government 2020 Neelambur
4000
preferring vertically ➢ Current raw material 2020 Karumathampatti 13000
integrated suppliers. inflation scenario making
12 457 Processing-
➢ KPR's superior quality and vertically integrated players 2019 Brownfield 10
4000
the promise of delivery in India more competitive. 2019 Karnataka 5000 130 10
KPR Garment Sales India Knitted Global Knitted
timeline ➢ Government initiatives to
(Rs.bn) Garment Exports Garment Trade 2018 Ethiopia 10
➢ KPR's cost advantage being (Rs.bn) (Rs.bn) develop the industry. Processing-
vertically integrated. 2017 Perundurai
9000
2017 Perundurai Printing-7500
2016 Thekkalur 36
KPR's share within India's overall knitted RMG exports has been on the increase over the past 9 years. 2015 Thekkalur 12
2014 Arasur 10
3.0% 2013 Karnataka 5000 30
2.7%
2.3% 2012 Karumathampatti 16608
2.1% 2011 Sathyamangalam 21216
1.5% 2010 Karumathampatti 103680 62
1.1% 1.2% 2008 Perundurai 9000
0.8% 0.8% 0.9%
0.7% 0.6% 2005 Arasur 100800 26
2003 Neelambur 50784
2001 Karumathampatti 30240
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 1HFY22 1999 Sathyamangalam 30240
KPR garment sales (Rs. Mn.) KPR Garment Sales/ India Knitted RMG Exports 1995 Sathyamangalam 6000
Source: India EXIM data, Company filings, Spark Capital Source: Company filings, Spark Capital
We see KPR further consolidating its presence in the Indian Knitwear exports at the expense of standalone garment manufacturers
KPR garment segment revenues are predominantly driven by The top 10 customers contribute to more than ~70% of revenues. We understand that the garment industry is in the process of
exports. EU and the USA together contributes to ~70% of the No single customer contributes to more than ~10% of revenues. consolidation and the reasons that we picked from the Tirupur market
export revenues.
➢ Working Capital crunch for smaller players due to COVID
➢ GST Impact as products across the value chain have a differential rate
➢ Most of the spinning mills have done forward integration.
Europe, 49% ➢ The supply to the domestic market is happening only on cash
➢ None of the smaller players wants to take the risk of high yarn prices on their
Domestic, Balance Sheet
Export 92%,
8%
➢ Rationing of yarn supply has impacted several smaller garment makers
USA, 23%
Asia, 19% ➢ Global chains have started preferring integrated players for batch orders.
➢ COVID has forced several buyers to keep the value chain smaller.
➢ The cost of capital for smaller players is higher than for large players.
➢ With limited innovation in the industry, the efficiency scale of larger players
seem to be the only advantage.
Source: Company filings, Spark Capital Source: Company filings, Spark Capital Source: Industry Filings, Spark Capital
The orderbook over the past 6 quarters has been on the rising Realisation per piece has been improving and should further The GST change (proposed) at Yarn could be detrimental to the
trend buoyed by the underlying export demand. increase as the contribution of value-added offerings increase. smaller garment makers.
161 166
148 152 157 Prevailing GST New GST
7,500 134
7,000 130 125 130
120 114
6,000 5,750
5,400 Cotton 5% 5%
4,800
Yarn 5% 12%
Fabric 12% 12%

FY16
FY17
FY18
FY19
FY20
FY21
FY22e
FY23e
FY24e
FY25e
FY26e
1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22
Garment 12% 12%
Order Book (Rs.mn) Garment realisation per piece (Rs.)
Source: Company filings, Spark Capital Source: Company filings, Spark Capital Source: Company filings, News Reports, Spark Capital
The Fabric segment revenues should be flat as majority of production is diverted towards captive consumption
Fabric segment revenues to be flat despite strong underlying demand due to limited supply capabilities We see the utilization to gradually increase over the medium term largely led by the demand from…
4.4 72%
68% 69%
3.6 62%
3.4 3.3 3.5 56%
3.1 3.2 51%
15.5% 48%
2.6 44% 45%
1.9 34%
1.8
9.6%
8.5%
6.8% 6.3%
5.8% 5.3% 5.6% 5.2% 5.0% 27 27 27 40 40 40 40 40 40 40
Fabric Segment Revenues (Rs.bn) % of overall sales Capacity (mn pcs) Utilization (%)
…captive consumption of garments We have factored in for a volume CAGR of ~4% and ~3% from FY21-24 and from FY21-26 respectively.
10.3
10.1
40% 36% 35% 9.9
50% 46% 43% 9.7
9.5
8.9
57% 60% 64% 65%
50% 54%
FY21 FY22e FY23e FY24e FY25e FY26e FY21 FY22e FY23e FY24e FY25e FY26e
Captive Consumption (%) External Volumes (%) Fabric Segment Volumes (mn MT)
The yarn segment revenues to increase primarily on pricing; volumes towards captive consumption should increase
Yarn segment revenues to rise at ~11% CAGR and ~8% CAGR in FY21-24 and FY21-26 respectively Volumes to remain flat from FY22 levels while we have factored in for ~2% annual rise in realisations
43% 44% 43%

281 287 292
38% 270 275
35% 36%
32% 241 230
29% 222 218
26% 24% 190
63
59 60 60 60 60 60 60
58
53
12.1 13.2 14.5 12.7 12.2 16.2 16.6 16.9 17.3 17.7
Yarn Segment Revenues (Rs.bn) % of overall sales Yarn Volumes (mn kgs) Rs. (Kgs)
Volume growth from sale to external customers to be lower on account of increase in captive We believe ~90%+ utilization would be maintained in the yarn segment over the next 5 years.
consumption for the garmenting facilities.
96% 95% 99% 100%

94% 92% 95%
81% 86%
61% 60% 76%
70% 70% 72% 70% 70% 66% 63%
74%
100 100 100 100 100 100 100
34% 37% 39% 40%

27% 30% 30% 28% 30% 30% 90 90 90
Captive Consumption (%) External Sales (%) Capacity (mn pcs) Utilization (%)
KPR is one of the prominent supplier in the Tirupur market commanding a premium pricing for their yarn quality
Domestic yarn market sales happen only on cash basis making it vital for KPR’s working capital needs. Several industry participants have acknowledged that the yarn supplied by KPR mill is at a premium to
the market price given that they supply a superior quality yarn.
241
FY20 revenues (Rs.mn) Overall Domestic Export
230
Yarn 12,673 10,112 2,561 222
218 218
Fabric 1,487 1,217 270
200
Garments 12,711 2,063 10,648 213 215
204 202
Total 26,870 13,392 13,478 200
177
Receivables 4,092 FY16 FY17 FY18 FY19 FY20 FY21
Days O/S 111 KPR Yarn realisation (Rs/Kg) Yarn Carded 40S Market Price
Garment exports from Tirupur have been rangebound in past 5 years, in line with overall India exports. KPR Mill is one of the prominent cotton spinners supplying to the Tirupur market
Total Estimated Installed Spindle Capacity (mn)

FY21 248 1.1
0.8
0.7 0.6
FY20 273 0.5 0.5
0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2
FY19 277
Nahar Spinning
KPR Mills
Alok Industries
RSWM
Nitin Spinners
Sportking India
Manufacturers
Indo Count
Trident Group
Himatsingka
Sintex Ltd.
Welspun Group
Pallava Group
Vardhman
SSM Group
International
Industries
FY18 241
Textiles
Ltd.
Aarti
Sagar
100 120 140 160 180 200 220 240 260 280 300
Garment Exports from Tirupur (Rs.bn)
Source: TEA, Company filings, Spark Capital Source: Website, Credit reports, Company filings, Spark Capital
KPR has started rationing yarn supply and has limited supply to dealers/distributors in the recent past
“As of today, we don’t get enough supply of yarn

from KPR, they have cut down the supply to the “We have been buying yarn from KPR mill for
“A lot of members of the association who had set- more than a decade, we have noticed that the
up garment units in Ethiopia are scampering for market by half. The larger garment manufacturers
still get some supply from them but smaller ones fabric and subsequent garment made from that
garment capacity today, smaller units are getting yarn has got lower defects, thereby there is a
a lot of sub-contract orders from larger players” are not getting”
premium for their yarn”
Comments from Tirupur Export Association (TEA) Small garment manufacturer based in Tirupur
Small garment manufacturer based in Tirupur
“Smaller units churn is an ongoing process, mostly

“We trade cotton yarn, with a large portion of it
the units would remain idle until a season like the
being exported, the demand is healthy, our
current one emerges, labor cost is being manged
orderbooks are full for the next 8 months, buyers
in the market, no one really overpays another,
are willing to pick it up at any price”
larger ones such as KPR provide added benefits ”
Cotton yarn trader in Tirupur
Comments from Tirupur Export Association (TEA)
Scuttlebutt
Notes
“We started our business at the same time as KPR
“A few key customers of us actually mandate “We supply spare parts for the garment machines mill with similar spindles capacity, today they are
procuring cotton only from KPR mill if not that KPR has, they have been one of the most 3 times larger than us, we have seen that they are
vertically integrated, which makes them a key part delightful groups to work with in terms of very clearly focussed and do not expand in a
of the Tirupur garmenting eco-system” payments. They procure everything through one hurry. We have tried poaching their clients, it
Large Garment manufacturing group, Tirupur order from the HO” works for a short time.”
Garment Machinery Supplier, Tirupur Large Garment manufacturing group, Karur
Source: Industry Notes and Spark Capital

Sugar segment revenues to increase on the back of increase in exports
Sugar segment revenues to increase at ~18% CAGR from FY21-24, contributing to ~8.4% of revenues Growth to be led only by volume growth uptick; expect realisations to remain flat over the next 3 years
8.7% 8.4%
7.8% 8.2% 8.2% 39
7.5% 36 36 36 36 36 36
7.0% 7.1%
5.9% 5.8%
24 24
22
5.5 5.9 153 166

5.0 139
4.0 112
3.1 3.2 88 91 85 89
2.1 2.0 2.5 65
1.7 33
Sugar Segment Revenues (Rs.bn) % of overall sales Sugar Production (000 MT) Rs. (Kgs)
As per our projections, the sugar capacity (post enhancement) should reach full utilization by FY26 The growth to be driven by demand from exports
Sugar Production FY 18 FY 19 FY 20 FY 21 FY 22e
India 34,309 34,300 28,900 33,760 34,700
101% 100% World 1,94,222 1,79,158 1,66,469 1,80,124 1,81,082
98% 95% 99%
93% Sugar Consumption
85% India 26,500 27,500 27,000 28,000 28,500
73% 68% World 1,73,458 1,73,041 1,70,743 1,71,100 1,74,545
Sugar Exports
India 2,236 4,700 5,800 7,200 7,000
37% 165 165 165 165 World 65,795 57,771 53,148 62,688 63,117
Sugar Imports
90 90 90 90 90 90
India 2,071 1,300 900 1,000 1,000
World 56,010 53,758 52,954 55,166 54,226
Closing Stock
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e India 14,214 17,614 14,614 14,174 14,374
World 51,908 53,211 48,062 48,756 45,657
Capacity (000 MT) Utilization (%)
Source: Company filings, Spark Capital Source: Global Sugar B/S, Spark Capital
Ethanol demand to be driven by the OMCs increasing their consumption for blending needs
Ethanol segment revenues forecasted to increase by ~56% over next 3 years led by volume growth… We have assumed all of the ethanol to be picked up by the Oil Marketing Companies (OMCs) at the
prescribed fixed rate.
10.6% 59
9.6%
9.0% 59 59 59 59 59
6.7%
4.9%
4.0% 57 1,30,634
7.7 1,08,862
6.4 90,718
5.4
0.4% 3.5 58,528
0.1 1.4 2.2 2,106 23,600 37,760
FY20 FY21 FY22e FY23e FY24e FY25e FY26e FY20 FY21 FY22e FY23e FY24e FY25e FY26e
Ethanol Segment Revenues (Rs.bn) % of overall sales Sales to OMCs (KL) Rs. (Kgs)
The utilization to inch up and reach full capacity by FY26. Co-Gen power generated to be supplied to the grid post captive usage of ~45%.
5.4 5.6 5.6 5.6 5.6 5.6 5.6

5.3 5.2
1,00,000 1,00,000 1,00,000 1,00,000 0.7
0.6
99% 0.5
3.3 0.4
83% 0.4 0.4
49% 80% 0.4 0.3
69% 0.3
40,000 40,000 40,000
45% 0.1
11%
FY20 FY21 FY22e FY23e FY24e FY25e FY26e FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
Capacity (000 MT) Utilization (%) Co Gen Sold (Mw) Rate per MW
Ethanol requirement for blending needs to increase at a ~35% CAGR over the next 5 years
Ethanol demand from OMCs for blending needs hae increased at As per the government estimates, the demand from the OMCs as per the blending norms Price of procurement to remain flat
a ~36% CAGR over the past 7 years prescribed could increase at a ~35% CAGR over next 6 years over the 5 years
Quantity Supplied (Ethanol) and %Blending Trends Ethanol demand projection Ethanol MSP
Ethanol Supply Blending %age PSU
Qty Supplied (mn Lit) Requirement of
Year OMCs Projected Petrol Sale Projected Petrol Ex-mill Ethanol
Ethanol Supply Year Blending (in %) ethanol for blending RM Source
2013-14 380 1.53% (MMT) Sales (Mn. litres) Price (Rs./litre)
in Petrol (mn litres)
2014-15 674 2.33% 2019-20 24.10 34130 5.00 1730 B-Heavy 57.61
2015-16 1114 3.51% 2020-21 27.70 39080 8.50 3320 C-Heavy molasses 45.69
2016-17 665 2.07% 2021-22 31.00 43740 10.00 4370
Sugar/Sugar Syrup 62.65
2017-18 1505 4.22% 2022-23 32.00 45150 12.00 5420
2018-19 1886 5.00% Damaged Food
2023-24 33.00 46560 15.00 6980 51.55
Grains/ Maize
2019-20 1730 5.00% 2024-25 35.00 49390 20.00 9880
2020-21 3320 8.50% 2025-26 36.00 50800 20.00 10160 Surplus Rice (FCI) 56.87
Source: Niti Aayog, Spark Capital Source: Niti Aayog, Spark Capital Source: Niti Aayog, Spark Capital
Ethanol usage for blending, which are at ~41% currently, should increase to ~75% by 2025-26 Capacities are projected to double up from current levels to meet up
the demand.
Ethanol demand projection (mn ltrs)
Ethanol Capacity Augmentation (mn Litres)
Ethanol For Blending For other uses Total
Blending(i
Supply Year Grain Molasses Total
Grain Sugar Total n %) Grain Sugar Total Grain Sugar Total
Year
2019-20 2580 4260 6840
2019-20 160 1570 1730 5 1500 1000 2500 1660 2570 4230
2020-21 2600 4500 7100
2020-21 420 2900 3320 8.5 1500 1100 2600 1920 4000 5920
2021-22 3000 5190 8190
2021-22 1070 3300 4370 10 1600 1100 2700 2670 4400 7070
2022-23 3500 6250 9750
2022-23 1230 4250 5420 12 1700 1100 2800 2930 5350 8280
2023-24 2080 4900 6980 15.0 1800 1100 2900 3880 6000 9880 2023-24 4500 7250 11750
2024-25 4380 5500 9880 20.0 1900 1100 3000 6280 6600 12880 2024-25 7000 7300 14300
2025-26 4660 5500 10160 20 2000 1340 3340 6660 6840 13500 2025-26 7400 7600 15000
Source: Niti Aayog, Spark Capital Source: Niti Aayog, Spark Capital
COGS is ~60% of the overall revenues and Cotton is the key raw material
The key cost components are COGS and employee cost, ~90% of the overall costs, for KPR Given that yarn prices move in tandem with cotton prices, the company has a stable gross margin
profile. Margins have steadily increased as garment segment revenues have increased
20.0% 19.0% 18.1% 18.6% 23.5% 44.4%
40.3% 38.7% 39.6% 39.1% 40.1% 40.7%
9.9% 9.9% 11.3% 11.8% 33.1% 34.3%
11.2%
29.5%
60.4% 60.9% 59.9% 59.3% 55.6% 16

14 14
11 12
9 10
7 8
4
FY17 FY18 FY19 FY20 FY21
COGS Employee Cost Power and fuel Consumption of Stores FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Machinery Repair Freight and Forwarding Other Expenses EBITDA Gross Profit Gross Margins
Within the raw materials consumed, Cotton is ~60% of the overall cost. Yarn, Fabric & Polyester We calculate a ~78% correlation between Yarn – Cotton Spread and Gross profits of KPR
procured for the garment segment and Sugarcane for ethanol and sugar are the other key cost drivers.
5,713
7% 13% 13% 10% 4,636 4,733
4% 20% 4,240
5% 6% 8%
15% 8% 3,671 3,749 3,517 3,765 146.3 147.2
10% 14% 17% 3,346 3,294 144.3
2% 2% 3% 3,095
4% 18%
2,539
4% 110.9
69% 67% 94.5 90.7
64% 62% 85.6 83.4
50% 74.9 80.1
70.1 73.1
FY17 FY18 FY19 FY20 FY21 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22 2QFY22
Cotton Dyes and Chemicals Yarn, Fabric and Polyester Production exp
Gross Profit (Rs.bn) Yarn 40- Shankar 6 Spread
Trims, Packing and Others Parts Purchase Sugarcane
KPR’s superior margins a function of their high garment sales and structural cost containment initiatives
We observe the cost advantage that KPR possesses is sustainable as it is structural in nature.
% of sales (Cumulative of FY16-FY21)

Other General & Selling &
Name Raw Materials (%) Power & Fuel Employee Miscellaneous EBITDA (%)
Manufacturing Administration Distribution
KPR mill 59.1% 3.7% 10.8% 3.6% 0.8% 1.6% 0.5% 19.9%
Welspun 45.0% 3.0% 10.9% 13.7% 3.0% 4.5% 0.9% 19.0%
Ambika 63.4% 4.4% 5.8% 3.1% 0.8% 2.8% 0.6% 19.0%
Trident 46.9% 8.9% 12.1% 6.7% 2.0% 4.1% 1.1% 18.3%
Himatsingka 52.2% 4.3% 10.4% 7.4% 4.3% 3.0% 0.6% 17.9%
Garware 30.1% 3.5% 13.9% 22.2% 5.1% 7.2% 0.1% 17.9%
Vardhman 52.3% 10.3% 8.5% 7.9% 0.3% 2.6% 2.3% 15.8%
Nitin 61.7% 10.8% 6.1% 3.6% 0.5% 3.2% 0.1% 14.0%
Indocount 53.5% 3.8% 6.0% 17.4% 1.3% 3.6% 3.1% 11.4%
Arvind 47.4% 6.4% 12.6% 14.8% 3.5% 3.2% 2.0% 10.0%
RSWM 57.2% 11.4% 12.5% 4.2% 2.5% 3.7% 0.7% 7.8%
Nahar 62.4% 11.7% 9.7% 5.6% 0.3% 2.4% 0.8% 7.2%
Raymond 43.6% 3.6% 15.1% 12.4% 7.1% 8.4% 3.5% 6.3%
Gokaldas 49.6% 1.9% 32.9% 3.6% 4.7% 1.8% 2.3% 3.2%
Source: ACE Equity data, Company filings, Spark Capital

With ~28% as fixed other expenses, we envisage a bit of operating leverage to accrue
We have factored in for employee cost to increase at a ~15% CAGR and ~11% CAGR from FY21-24 and We observe that ~70% of other operating costs are variable in nature, fixed costs are ~28% of other
from FY21-26 respectively. expenses.
Nature of Line
11.8% Other Expenses (Rs.bn) FY17 FY18 FY19 FY20 FY21
11.3% 11.2% Item
9.9% 9.9% 10.0% 10.1% 9.7% 9.6% Manufacturing Expenses
9.4%
Power and fuel Variable 0.99 1.10 1.32 1.26 1.25
Consumption of packing materials Variable 0.35 0.40 0.42 0.41 0.51
Repairs and Maintenance
Building Fixed 0.05 0.05 0.06 0.08 0.06
Machinery Fixed 0.49 0.60 0.82 0.59 0.56
2.8 3.0 3.8 3.9 3.9 4.5 5.2 5.7 6.3 6.9 Others Fixed 0.05 0.05 0.05 0.05 0.09
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e Insurance Fixed 0.02 0.03 0.03 0.03 0.05
Administration Expenses
Employee Cost (Rs.bn) Employee Cost/ Sales
Legal and professional charges Fixed 0.03 0.03 0.02 0.03 0.02
Source: Company filings, Spark Capital Rent Fixed 0.03 0.03 0.03 0.03 0.04
Rates and taxes Variable 0.02 0.08 0.02 0.03 0.02
We have factored in for other expenses to increase at a ~15% CAGR and ~10% CAGR from FY21-24 and Payment to auditor Fixed 0.00 0.00 0.00 0.00 0.00
from FY21-26 respectively. Travelling and conveyance Fixed 0.07 0.10 0.07 0.08 0.06
10.8% Corporate Social Responsibility (CSR) Variable 0.05 0.06 0.07 0.08 0.10
10.2% 10.4%
9.7% 9.7% 9.2% Donations Fixed 0.03 0.03 0.10 0.03 0.00
9.1% 8.8% 8.7% 8.6% Foreign exchange loss (Net) Variable 0.00 0.01 0.02 0.00 0.00
Impairment loss on financial assets Fixed 0.00 0.00 0.01 0.18 0.03
General expenses Fixed 0.05 0.05 0.06 0.08 0.06
Selling Expenses
Freight and forwarding Variable 0.24 0.24 0.29 0.27 0.29
2.7 3.1 3.6 3.5 3.4 4.2 4.7 5.2 5.8 6.2 Sales commission Variable 0.13 0.13 0.13 0.12 0.23
Other selling expenses Variable 0.12 0.00 0.11 0.15 0.06
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e Variable Expenses (% of other expenses) 70% 68% 65% 66% 72%
Fixed Expenses (% of other expenses) 30% 32% 35% 34% 28%
Other Expenses (Rs.bn) as a % of Sales
The EBITDA margin to migrate towards a stable zone of 23-25%
EBITDA to increase at ~19% CAGR and at ~13% CAGR from FY21-24 and from FY21-26 respectively. Cotton prices and subsequent yarn prices to remain at current levels, translating to EBITDA for KPR
y = 0.0362x + 29.599
25.3% 180.0
23.5% 23.8% 24.0% 23.9% 23.9% R² = 0.6784
Yarn – Cotton Price spread

20.0% 160.0
19.0% 18.1% 18.6%
140.0
120.0
16.0 17.3
14.2 100.0
11.4 12.2
8.3 80.0
5.6 5.7 6.1 6.2
60.0
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e 40.0
1000 1500 2000 2500 3000 3500 4000
EBITDA (Rs. Bn.) EBITDA Margins
EBITDA (Rs.bn)
Source: Company filings, Spark Capital Source: Bloomberg, CCI, Company filings, Spark Capital
Interest costs are at subsidised levels on account of the incentives provided by the state governments EBITDA to increase at ~21% CAGR and at ~15% CAGR from FY21-24 and from FY21-26 respectively
14.0 17% 20%

8.6% 16% 16% 16%
7.9% 12.0 15% 15%
6.8% 10.0 15%
6.4% 11%
10% 10% 10%
4.9% 5.0% 5.0% 5.0% 5.0% 5.0% 8.0
10%
6.0 11.9
0.6 10.8
0.5 0.5 0.5 4.0 9.3
0.5 7.8 7.8 5%
0.3 0.4 0.4
2.0 5.2
0.2 0.1 2.9 2.9 3.3 3.8
0.0 0%
Interest Expenses Interest Expenses as a % of Gross Debt
PAT PAT Margins
The balance sheet to become even more envious in 3 to 5 years
We note the balance sheet would be ~1/3rd of CASH by FY26… …taking the net cash levels to Rs.20.2bn We have assumed for working capital to increase in tandem with
revenue growth
6% 10% 9% 10.0 0.40 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
14% 17% 22% 0.31
32% 5.0 0.30
42% 39% 36% 5.8 6.0
34% 36% 0.0 3.0 3.0 0.20 Debtor Days 45 33 33 33 33 33 33
36% 0.19 -3.5
33% 0.10
-5.0 0.13 -11.3
0.08 0.00
-10.0 -20.9 Inventory Days 78 94 94 94 94 94 94
50% 43% 50% 47% 43% -0.10
38% 32% -15.0 -0.07 -0.20
-20.0 -0.20 -0.30 Creditor Days 14 13 15 15 15 15 15
FY20 FY21 FY22e FY23e FY24e FY25e FY26e
-25.0 -0.30 -0.40
FY20 FY21 FY22e FY23e FY24e FY25e FY26e Cash Conversion
Net Block Investments 108 115 112 112 112 112 112
Days (x)
Working Capital (Ex Cash) Cash & Liquid Investments Net Debt (Rs.bn) Net Debt/ Equity (x)
Source: Company filings, Spark Capital Source: Company filings, Spark Capital Source: Company filings, Spark Capital
We have projected for 2 expansion in the garment segment and 1 The FCF on a steady state basis can be Rs.5bn per year RoE to seem optically weaker due to cash build-up on books
in the sugar and ethanol segment
132% 150%
CAPEX (Rs.bn)
25%
24% 25%
73% 71% 72% 78% 100% 24%
44% 21% 25% 20% 22%
-2.0 -2.2 -2.3 50%
-3.0 -2.9
5.0 3.8 3.4 6.6 7.8 9.3 20% 20% 19% 19%
-4.3 0% 17%
-2.7
15%
-35% -50%
FY20 FY21 FY22e FY23e FY24e FY25e FY26e FY20 FY21 FY22e FY23e FY24e FY25e FY26e
-8.8
FY20 FY21 FY22e FY23e FY24e FY25e FY26e FCF (Rs.bn) FCF/PAT (%) RoE (%) RoIC (%)
Cash Flow to remain robust over the next 5 years; the management could undertake another big CAPEX
KPR has funded all its cash expenses through internal accruals. Debts have been raised when needed to fund expansions.
Total Total (FY22-

Rs.mn FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
(FY12-20) 26e)
Cash flow from operations 1,805 3,876 4,484 4,563 4,896 5,873 5,865 6,448 6,657 8,626 53,094 11,431 12,220 14,223 16,034 17,310 71,218
Less: Tax -232.8 -254.6 -411.7 -601.2 -864.5 -963.8 -1050.7 -1336.7 -1144.1 -1563.6 -8,424 -2,651 -2,637 -3,150 -3,667 -4,042 -16,147
Total 1,573 3,621 4,073 3,961 4,031 4,910 4,815 5,112 5,513 7,063 44,670 8,780 9,583 11,073 12,367 13,268 55,071
Working Capital 1,039 -1,476 146 -860 -1,984 -139 -2,555 -4,452 2,370 -473 -8,384 -2,771 -1,862 -2,427 -2,371 -1,705 -11,135
CAPEX -2465 -2535 -2240 -1274 -1974 -1983 -419 -852 -2924 -2828 -19,494 -8,754 -4,279 -2,036 -2,158 -2,288 -19,516
Other Investments 48 36 401 251 -95 7 -124 161 96 -2656 -1,875 695 461 645 800 1,033 3,633
Dividend -138.6 -50.6 -320.7 -327.6 -647.4 -51.9 -66.6 -65.4 -376.8 -309.6 -2,355 -516 -430 -430 -602 -688 -2,667
Interest -470.8 -1195 -1100.9 -812.4 -629.8 -636.8 -519.5 -471.2 -476.4 -327.9 -6,641 -393 -480 -380 -180 -80 -1,513
Buy Backs 0 0 0 0 0 -970.2 0 -1081.4 -2633.1 0 -4,685 0 0 0 0 0
Total Exp -1,988 -5,220 -3,114 -3,023 -5,330 -3,775 -3,683 -6,761 -3,945 -6,594 -43,433 -11,739 -6,591 -4,629 -4,511 -3,728 -31,197
Debt (inclusive of repayments) 464 2063 -462 -1377 626 -1037 -1317 2085 -691 -1307 -953 3,500 0 -4,000 -4,000 0 -4,500
Internal Accruals 1524 3158 3576 4400 4704 4812 5000 4676 4636 7901 44,386 8,239 6,591 8,629 8,511 3,728 35,697
Net Debt on Books 6,527 7,593 7,483 6,390 7,649 6,374 5,751 7,464 5,793 2,994 -3,533 5,953 2,961 -3,483 -11,339 -20,880 -26,833
Source: Company filings, Spark Capital
Valuations to zoom to a higher zone over the medium term
KPR is currently trading at the highest-ever multiple… Given the change in income profile and the subsequent balance sheet, we believe the stock will no
longer warrant its erstwhile multiples
800
700 30x P/E Multiple No. of days % of of no. of Cumulative traded %of Cumulative no.
600 25x range traded days no. of days of days
500 20x under 5x 0 0% 0 0%
CMP (Rs.)
400
15x
300 5 - 7x 43 3% 43 3%
10x
200
5x 7 - 9x 58 5% 101 8%
100
0 9 - 11x 337 27% 438 35%
Jun-20
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Sep-20
Dec-20
Jun-21
Dec-21
Sep-17
Sep-18
Sep-19
Sep-21
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
11 - 13x 272 22% 710 57%
13 - 15x 183 15% 893 72%
…well above its 5 year +2sd levels 15 - 17x 161 13% 1054 85%
30.0 17 - 19x 81 7% 1135 92%
25.0 19 - 21x 50 4% 1185 96%

+2 SD, 20.6
20.0
+1 SD, 16.9 21 - 23x 40 3% 1225 99%
15.0
Avg., 13.1
23 - 25x 4 0% 1229 99%
10.0
-1 SD, 9.3
5.0 -2 SD, 5.6 25 - 27x 5 0% 1234 100%
-
27 - 29x 3 0% 1237 100%
Jun-21
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Jun-20
Aug-20
Apr-17
Aug-17
Oct-17
Apr-18
Aug-18
Oct-18
Apr-19
Aug-19
Oct-19
Dec-19
Apr-20
Oct-20
Dec-20
Apr-21
Aug-21
Oct-21
Dec-21
Feb-17
Feb-18
Feb-19
Feb-20
Feb-21
Total 1237 100% 1237 100%
Risks
Threat of another
Government KPR losing out key
lockdown impacting Further incentives to
intervention in pricing clients on account of KPR’s inability to
apparel sector competing countries
of cotton or yarn competitors source good quality
offtakes in the in the European union
impacting the cotton- undercutting on cotton consistently
domestic and market,
yarn spread pricing
international markets.
USA allowing the The management’s Inability to increase its

Regulations in the
usage of Xingjiang failure to incur CAPEX value added offerings Cash burnout in the
ethanol market in
cotton resulting in across the textile impacting garment non-textile business
terms of pricing.
cotton prices crashing. value chain segment revenues
ESG Parameters – Environmental Aspects
Increase in electricity consumption over the last few years has The % of consumption from its own windmills has been lower Increase in per unit of consumption per KG has declined in the
been lower than the volume growth. in the last 2 years. past few years.
Purchase of units
Consumption per unit
Energy Consumption FY17 FY18 FY19 FY20 FY21
2.62 2.55 2.69 2.71
40% 36% 37% 2.48
Electricity 216 395 451 98 210 53% 51%
Electricity from 3rd 1.35 1.23

1.13 1.13 1.15
884 847 1,162 1,439 1,530
party
43% 60% 55% 0.28
33% 0.24 0.23 0.23 0.23
38%
Diesel generator 1 4 4 3 3
9% 16% 17% FY17 FY18 FY19 FY20 FY21

4% 8%
Windmill 1,228 1,295 1,093 863 1,016
FY17 FY18 FY19 FY20 FY21 Per kg of yarn
Per kg of fabric
Total 2,329 2,541 2,710 2,403 2,759
Electricity Electricity from 3rd party Diesel generator Windmill Electricity consumed/ garment production
The windmill capacity of ~61.92mw is located in Tirunelveli, KPR produces sugar along with Green energy, Co-Gen Power at KPR has all the necessary approvals from regulatory authorities
Tenkasi, Theni & Coimbatore its plant in Vijayapur district, Karnataka and also has an exclusive effluent treatment plant.
42.3 CERTIFICATIONS
FY17 61.92 FY17
12.9
85.7 ISO - 14001: 2015 Certifications for Environment Management Systems
FY18 61.92 FY18
26.1
107.6
FY19 61.92 FY19
29.5 OEKO-TEX - for environment friendly operations
94
FY20 FY20
61.92 27
103 Global Organic Textile Standard (GOTS) – for organic cotton products
FY21
FY21 61.92 43
Windmill Capacity (MW) Co-gen Power Generated (mn units) Captive Consumption SA 8000: 2014 for Social Accountability Management Systems
ESG Parameters – Social Aspects
Median employee payout has been on decline in past 5 years The promoter and director salary increase has been higher Number of employees has increased in line with new capacities
than the median increase.
272.4 39%
2,53,115 250.9 20,027
18,631 19,469
2,23,644
2,04,353 2,02,578 1,96,575
181.3 26%
153.9 13,424
144.5 10,995
22%
4%
2783 3002 3807 3944 3937 3%

FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Employee cost (Rs.mn) Employee cost/ No. of Employees (Rs.) Promoter and director salary as a % of MRE No. of Employees Increase (%)
Women employees are the predominant part of the workforce All the employees have gone through skill and safety training There is no employee union recognised by the management
comprising of ~85% of the workforce. and the company has noted of zero manufacturing fatalities and the company has been devoid of any disruptions by thee
over the past 5 years employees until now.
16,956 16,247 16,937

91% Safety and Skill training FY17 FY18 FY19 FY20 FY21
10,868
8,637
85% % of employees as part of
83%
Permanent employees 100% 100% 100% 100% 100%
81% management recognized NA NA NA NA NA
79% employee union
Permanent women
FY17 FY18 FY19 FY20 FY21 100% 100% 100% 100% 100%
employees
No. of Women Employees As a % of Total
ESG Parameters – Governance Aspects
The current board members have been part of the board for at The board has an equal representation of the independent and Independent directors are present across all the committees
least 6 years non-independent directors.
Associated Nomination Corporate

BOD Composition Stakeholders Risk
since BOD Composition FY15 FY16 FY17 FY18 FY19 FY20 FY21 Audit and Social
Relationship Management
Committee Remuneration Responsibility
Committee Committee
K.P. RAMASAMY Chairman 2003 Independent Committee Committee
7 6 6 6 6 6 6
KPD SIGAMANI Managing Director 2003 Directors
Independent
P. NATARAJ Managing Director designate 2003 2 3 2 1 1
Non- Independent Directors
E.K SAKTHIVEL Executive Director 2016 5 5 6 6 6 6 6
Directors
C.R. ANANDAKRISHNAN Executive Director 2006 Non-
Independent 1 0 1 3 2
Dr. K. SABAPATHY Director 2007 Total 12 11 12 12 12 12 12 Directors
K.N.V. RAMANI Director 2008
G.P. MUNIAPPAN Director 2008 Total 3 3 3 4 3
Women Director 1 1 1 1 1 1 1
A.M. PALANISAMY Director 2010
C. THIRUMURTHY Director 2011
Dr. S. RANGANAYAKI Director 2015 There has been no complaints from any
The Audit committee members have been unchanged over the past 5 years
P. SELVAKUMAR Director 2015 stakeholders in the past 5 years.
Audit As a director Consumer Stakeholder

Stakeholder
FY17 FY18 FY19 FY20 FY21 Complaints Complaints
Complaints
The Audit committee comprises of 2 independent directors and Committee since
1 non-independent directors. Mr. G.P.
Muniappan
Mr. G.P.
Muniappan
Mr. G.P.
Muniappan
Mr. G.P.
Muniappan
Mr. G.P.
Muniappan Since 2008
2021  
Audit Committee FY17 FY18 FY19 FY20 FY21
Name of
(Chairperson) (Chairperson) (Chairperson) (Chairperson) (Chairperson)
2020  
Independent Directors 2 2 2 2 2 Committee
member
Dr. K.
Sabapathy
Dr. K.
Sabapathy
Dr. K.
Sabapathy
Dr. K.
Sabapathy
Dr. K.
Sabapathy
Since 2007 2019  
Non- Independent
1 1 1 1 1 2018  
 
Directors Mr. P Nataraj Mr. P Nataraj Mr. P Nataraj Mr. P Nataraj Mr. P Nataraj Promoter MD
2017
Nomination and Remuneration Stakeholders Relationship Corporate Social Responsibility

Audit Committee Risk Management Committee
Committee Committee Committee
Board members Mr. G.P. Muniappan ( Chairperson) Mr. G.P. Muniappan ( Chairperson) Dr. K. Sabapathy (Chairperson) Mr. K.P. Ramasamy (Chairperson) Mr. P. Nataraj (Chairperson)
composition in various Dr. K. Sabapathy Dr. K. Sabapathy Mr. G.P. Muniappan Mr. KPD Sigaman Dr. K. Sabapathy
committees
Mr. P Nataraj Dr. S. Ranganayaki Mr. P. Nataraj Mr. P. Nataraj Mr .P.L.Murugappan
Dr. S. Ranganayaki
(In Rs.mn) 2017 2018 2019 2020 2021

Capital and other
commitments Contingent liabilities and commitments 1262 1511 2403 609 917
as % of net worth 10% 10% 13% 3% 4%
(In Rs.mn) 2017 2018 2019 2020 2021

Corporate Social Amount Required to be spent 39 48 56 69 73
Responsibility Spend Amount Spent 47 60 74 83 99
Amount Spent/ Required 119% 124% 132% 120% 136%
(In Rs.mn) 2017 2018 2019 2020 2021

Audit fee 1 2 1 2 3
Audit Fees
For other services 0 0 0 0 0
Total % of sales 1 2 2 2 3
2017 2018 2019 2020 2021

Auditors
Statutory Auditors Deloitte Haskins & Sells M/s. B S R & Co LLP M/s. B S R & Co LLP M/s. B S R & Co LLP M/s. B S R & Co LLP
Source: Company Filings and Spark Capital Research

Key Managerial Person Salary and Remuneration Dividend Payout Buyback of shares
Director Designation 2017 2018 2019 2020 2021
700 636 35% Director 2016 2017 2018 2019 2020 2021
Mr. K.P.Ramasamy Chairman 89.7 87.3 117.2 57.2 57.2
600 30% 30%
Mr. KPD Sigamani Managing Director 89.7 87.3 117.2 57.2 57.2
500 26% 25%
Managing Director
Mr. P.Nataraj 89.7 87.3 117.2 57.2 57.2 22% 377 Buyback 0.19 1.28 1.29 0.05 3.75 na
designate 400 20%
310 310
Mr. AnandakrishnanExecutive Director 2.4 2.4 2.4 2.4 2.2 265
300 183 15%
Mr. E.K. Sakthivel Executive Director 1.8 1.8 1.8 1.8 1.8 Price 660 660 810 810 702 na
200 11% 10% 10%
Mr. D.Geeta KMP 0.6 0.6 0.6 0.6 0.6 67 65
100 46 6% 5%
Total 273.9 266.7 356.4 176.4 176.2 2% 2% 2%
0 0% Value of Buyback
122 848 1,043 39 2,633 na
% of employee Cost 11.5% 10.2% 11.3% 5.6% 5.5% FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 (Rs.mn)
% of PAT 9.5% 9.2% 10.6% 4.7% 3.4% Dividend Paid (Rs.mn) % Payout
We observe no alarming related party transactions over the past 5 years.
Rs.mn Respective Line % of overall

Nature of Transaction Company Nature of Relationship FY17 FY18 FY19 FY20 FY21 item FY17 FY18 FY19 FY20 FY21
Lease Rent Paid Mr. K.P. Ramasamy KMP 0.019 0.019 0.019 0.019 0.019 Rent 0.1% 0.1% 0.1% 0.1% 0.1%
Lease Rent Paid Mr. KPD Sigamani KMP 0.019 0.018 0.018 0.018 0.018 Rent 0.1% 0.1% 0.1% 0.1% 0.0%
Lease Rent Paid Mr. P. Nataraj KMP 0.018 0.018 0.018 0.018 0.018 Rent 0.1% 0.1% 0.1% 0.1% 0.0%
Lease Rent Paid Total 0.056 0.055 0.055 0.055 0.055 Rent 0.2% 0.2% 0.2% 0.2% 0.1%
Trade Payable Mr. K.P. Ramasamy KMP 54.600 48.100 69.900 23.800 32.100 Trade payables 3.3% 1.9% 3.1% 1.8% 2.6%
Trade Payable Mr. KPD Sigamani KMP 53.800 50.300 69.400 23.200 31.200 Trade payables 3.2% 2.0% 3.1% 1.8% 2.6%
Trade Payable Mr. P. Nataraj KMP 56.800 49.500 68.800 19.700 29.000 Trade payables 3.4% 1.9% 3.1% 1.5% 2.4%
Trade Payable Mr. C.R. Anandakrishnan KMP 0.000 0.000 0.000 0.000 0.200 Trade payables 0.0% 0.0% 0.0% 0.0% 0.0%
Trade Payable Mr. E.K. Sakthivel KMP 0.000 0.000 0.000 0.100 0.000 Trade payables 0.0% 0.0% 0.0% 0.0% 0.0%
Trade Payable Total 0.000 147.900 208.100 66.800 92.500 Trade payables 0.0% 5.8% 9.4% 5.1% 7.6%
Donations M/S K.P.R. Charities Enterprise owned by KMP 30.000 30.000 0.000 0.000 0.000 CSR 64.5% 50.0% 0.0% 0.0% 0.0%
Corporate Social Responsibility M/S K.P.R. Charities Enterprise owned by KMP 60.000 46.500 0.000 0.000 0.000 CSR 129.0% 77.5% 0.0% 0.0% 0.0%
Corporate Governance - Directorship of the promoters across other companies
Director Name Corporate Name Obligation of Contribution (Rs. Crore) Date of Incorporation E-filing Status Appointment Date Cessation Date
KPR INFO SOLUTION PRIVATE LIMITED 0.3 12-Oct-21 Active 12-Oct-21 -
KPR SUGAR AND APPARELS LIMITED 294.1 01-Oct-20 Active 01-Oct-20 -
K P R CEMENTS PRIVATE LIMITED 0.1 04-Oct-11 Active 04-Oct-11 -
K P R AGRO FARMS PRIVATE LIMITED 0.1 05-Oct-11 Active 05-Oct-11 -
K P R HOLDINGS PRIVATE LIMITED 0.1 05-Oct-11 Active 05-Oct-11 -
Mr. K P Ramasamy JAHNVI MOTOR PRIVATE LIMITED 19.3 29-Aug-11 Active 29-Aug-11 -
QUANTUM KNITS PRIVATE LIMITED 1 03-Jun-09 Active 03-Jun-09 -
K.P.R. DEVELOPERS LIMITED 90 21-May-08 Active 21-May-08 -
GALAXY KNITS LIMITED 0.5 24-Jul-12 Active 24-Jul-12 -
K.P.R. SUGAR MILL LIMITED 58.3 03-Mar-06 Active 03-Mar-06 -
SHIVASHAKTI SUGARS LIMITED 258.6 21-Apr-95 Active 27-Sep-07 10 -Jun-10
KPR INFO SOLUTION PRIVATE LIMITED 0.3 12-Oct-21 Active 12-Oct-21 -
CONFEDERATION OF INDIAN TEXTILE INDUSTRY 0 01-Feb-67 Active 01-Feb-67 -
KPR SUGAR AND APPARELS LIMITED 294.1 01-Oct-20 Active 01-Oct-20 -
K.P.R.TEX MILL PRIVATE LIMITED 90 12-May-93 Amalgamated 12-May-93 -
K P R CEMENTS PRIVATE LIMITED 0.1 04-Oct-11 Active 04-Oct-11 -
K P R AGRO FARMS PRIVATE LIMITED 0.1 05-Oct-11 Active 05-Oct-11 -
K P R HOLDINGS PRIVATE LIMITED 0.1 05-Oct-11 Active 05-Oct-11 -
Mr. Palanisamy Nataraj
JAHNVI MOTOR PRIVATE LIMITED 19.3 29-Aug-11 Active 19-Sep-12 -
QUANTUM KNITS PRIVATE LIMITED 1 03-Jun-09 Active 03-Jun-09 -
K.P.R. DEVELOPERS LIMITED 90 21-May-08 Active 21-May-08 -
GALAXY KNITS LIMITED 0.5 24-Jul-12 Active 24-Jul-12 -
K.P.R. SUGAR MILL LIMITED 58.3 03-Mar-06 Active 03-Mar-06 -
THE COTTON TEXTILES EXPORT PROMOTION COUNCIL 0 04-Oct-54 Active 26-Sep-17 21-Sep-19
SHIVASHAKTI SUGARS LIMITED 258.6 21-Apr-95 Active 27-Sep-07 10-Jun-10
KPR INFO SOLUTION PRIVATE LIMITED 24.98 24-Feb-1986 Active 6-Aug-2021 -
GLOBUSE GALAXY DEVELOPERS PRIVATE LIMITED 0.01 19-Feb-2021 Active 15-Mar-2021 -
KPR SUGAR AND APPARELS LIMITED 0.01 4-Mar-2021 Active 4-Mar-2021 -
K P R CEMENTS PRIVATE LIMITED 0.02 16-Oct-1997 Active 14-Dec-2020 -
K P R AGRO FARMS PRIVATE LIMITED 0.01 24-Jul-2019 Active 30-Oct-2019 -
K P R HOLDINGS PRIVATE LIMITED 6.08 12-Jan-1983 Active 4-May-2018 -
Mr. K P Sigamani
JAHNVI MOTOR PRIVATE LIMITED 0.01 19-Oct-2011 Active 9-Oct-2017 -
QUANTUM KNITS PRIVATE LIMITED 0.02 6-Sep-2011 Active 31-Mar-2017 -
K.P.R. DEVELOPERS LIMITED 0.01 3-Apr-1996 Amalgamated 23-Mar-2006 -
GALAXY KNITS LIMITED 0.01 29-Jun-2004 Active 8-Aug-2006 9-Jul-2007
K.P.R. SUGAR MILL LIMITED 2.71 20-Feb-2006 Active 20-Feb-2006 16-Jun-2008
SHIVASHAKTI SUGARS LIMITED 0.50 25-May-2011 Strike Off [Struck off under section 248(5)] 25-May-2011 -
Source: Company Filings and Spark Capital Research KPR mill and its subsidiaries
Financial Summary
Abridged Financial Statements
Rs. mn FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
Profit & Loss
Revenue 28,166 30,246 33,840 33,526 35,302 45,271 51,340 59,250 66,975 72,530
Gross profit 11,144 11,836 13,564 13,654 15,672 20,146 22,076 25,181 28,129 30,463
EBITDA 5,633 5,743 6,118 6,219 8,296 11,431 12,220 14,223 16,034 17,310
Depreciation 1,494 1,399 1,311 1,371 1,467 1,254 1,779 2,036 2,158 2,288
EBIT 4,139 4,345 4,806 4,849 6,829 10,177 10,440 12,187 13,876 15,022
Other Income 275 151 369 365 388 695 461 645 800 1,033
Interest expense 645 516 489 497 328 393 480 380 180 80
Exceptional items 0 0 0 0 0 0 0 0 0 0
PBT 3,769 3,980 4,686 4,717 6,889 10,479 10,421 12,451 14,495 15,975
Reported PAT (after minority interest) 2,868 2,904 3,349 3,767 5,153 7,828 7,784 9,301 10,828 11,934
Adj PAT 2,868 2,904 3,349 3,767 5,153 7,828 7,784 9,301 10,828 11,934
EPS (Rs.) (Adjusted) 8.3 8.4 9.7 10.9 15.0 22.8 22.6 27.0 31.5 34.7
Balance Sheet
Net Worth 12,860 15,700 17,902 18,659 23,502 30,814 38,168 47,039 57,265 68,510
Deferred Tax 442 486 567 474 430 430 430 430 430 430
Total debt 6,851 6,190 8,213 7,406 6,101 9,601 9,601 5,601 1,601 1,601
Other liabilities and provisions 801 33 29 69 47 47 47 47 47 47
Total Networth and liabilities 20,953 22,408 26,710 26,607 30,080 40,892 48,246 53,117 59,343 70,588
Gross Fixed assets 16,009 16,543 16,949 20,143 20,903 29,657 33,937 35,973 38,131 40,419
Net fixed assets 13,062 12,226 11,358 13,196 12,539 20,039 22,539 22,539 22,539 22,539
Capital work-in-progress 21 2 124 64 286 286 286 286 286 286
Intangible Assets 12 9 9 18 17 17 17 17 17 17
Current Investments 0 120 0 70 2,334 2,334 2,334 2,334 2,334 2,334
Cash and bank balances 476 318 748 1,542 773 1,314 4,306 6,750 10,606 20,146
Loans & advances and other assets 443 249 690 593 2,265 2,265 2,265 2,265 2,265 2,265
Net working capital 6,940 9,485 13,780 11,124 11,866 14,637 16,499 18,926 21,297 23,001
Total assets 20,954 22,408 26,710 26,607 30,080 40,892 48,246 53,117 59,343 70,588
Capital Employed 19,710 21,889 26,115 26,064 29,603 40,415 47,769 52,640 58,866 70,111
Invested Capital (CE - cash - CWIP) 19,213 21,450 25,242 24,388 26,210 36,480 40,842 43,269 45,640 47,345
Net debt 6,374 5,751 7,464 5,793 2,994 5,953 2,961 -3,483 -11,339 -20,880
Cash Flows
Cash flows from Operations (Pre-tax) 5,873 5,865 6,448 6,657 8,626 11,431 12,220 14,223 16,034 17,310
Cash flows from Operations (post-tax) 4,771 2,260 659 7,883 6,589 6,009 7,721 8,646 9,996 11,564
Capex 1,983 419 852 2,924 2,828 8,754 4,279 2,036 2,158 2,288
Free cashflows 2,787 1,841 -193 4,959 3,762 -2,745 3,441 6,609 7,838 9,276
Free cash flows (post interest costs) 2,150 1,322 -664 4,483 3,434 -3,138 2,961 6,229 7,658 9,196
Cash flows from Investing -1,977 -542 -691 -2,828 -5,484 -8,059 -3,819 -1,391 -1,359 -1,255
Cash flows from Financing -2,696 -1,903 467 -4,178 -1,944 2,591 -910 -4,810 -4,782 -768
Total cash & liquid investments 476 438 748 1,612 3,107 3,648 6,640 9,084 12,940 22,481
Source: Company data, Spark Capital Research
Financial Summary
Growth ratios
Revenue 8.3% 7.4% 11.9% -0.9% 5.3% 28.2% 13.4% 15.4% 13.0% 8.3%
EBITDA 20.0% 2.0% 6.5% 1.7% 33.4% 37.8% 6.9% 16.4% 12.7% 8.0%
Adj PAT 36.1% 1.2% 15.3% 12.5% 36.8% 51.9% -0.6% 19.5% 16.4% 10.2%
Margin ratios
Gross 39.6% 39.1% 40.1% 40.7% 44.4% 44.5% 43.0% 42.5% 42.0% 42.0%
EBITDA 20.0% 19.0% 18.1% 18.6% 23.5% 25.3% 23.8% 24.0% 23.9% 23.9%
Adj PAT 10.2% 9.6% 9.9% 11.2% 14.6% 17.3% 15.2% 15.7% 16.2% 16.5%
Performance ratios
Pre-tax OCF/EBITDA 104% 102% 105% 107% 104% 100% 100% 100% 100% 100%
OCF/IC (%) 25% 11% 3% 32% 25% 16% 19% 20% 22% 24%
RoE (%) 24% 20% 20% 21% 24% 25% 20% 20% 19% 17%
RoCE (%) 17% 16% 15% 16% 19% 20% 17% 19% 19% 17%
RoCE (Pre-tax) 23% 22% 22% 20% 26% 31% 25% 26% 26% 25%
RoIC (Pre-tax) 22% 21% 21% 20% 27% 32% 27% 29% 31% 32%
Fixed asset turnover (x) 1.76 1.83 2.00 1.66 1.69 1.53 1.51 1.65 1.76 1.79
Total asset turnover (x) 1.34 1.35 1.27 1.26 1.17 1.11 1.06 1.12 1.13 1.03
Financial stability ratios
Net Debt to Equity (x) 0.5 0.4 0.4 0.3 0.1 0.2 0.1 -0.1 -0.2 -0.3
Net Debt to EBITDA (x) 1.1 1.0 1.2 0.9 0.4 0.5 0.2 -0.2 -0.7 -1.2
Interest cover (x) 7 4 1 16 20 15 16 23 56 144
Inventory days 69 77 109 78 94 94 94 94 94 94
Working capital days 92 97 142 108 115 112 112 112 112 112
Valuation metrics 670
Fully Diluted Shares (mn) 74 74 73 71 69 344 344 344 344 344
Market cap (Rs.mn) 2,30,514 2,30,514 2,30,514 2,30,514 2,30,514 2,30,514 2,30,514 2,30,514 2,30,514 2,30,514
P/E (x) 80 79 69 61 45 29 30 25 21 19
P/OCF(x) 48 102 350 29 35 38 30 27 23 20
EV (Rs.mn) (ex-CWIP) 2,36,867 2,36,263 2,37,854 2,36,243 2,33,221 2,36,180 2,33,188 2,26,744 2,18,888 2,09,348
EV/ EBITDA (x) 42 41 39 38 28 21 19 16 14 12
EV/ OCF(x) 50 105 361 30 35 39 30 26 22 18
FCF Yield 1.2% 0.8% -0.1% 2.2% 1.6% -1.2% 1.5% 2.9% 3.4% 4.0%
Price to BV (x) 18 15 13 12 10 7 6 5 4 3
Dividend pay-out (%) 1.6% 2.3% 2.0% 10.0% 6.0% 6.6% 5.5% 4.6% 5.6% 5.8%
Dividend yield (%) 0.1% 0.1% 0.1% 0.7% 0.7% 0.2% 0.2% 0.2% 0.3% 0.3%

Crystal Ball Gazing
KPR revenues are likely to grow at ~16% CAGR over the next five years led by ~21% growth in the garment segment and ~41% growth in the Ethanol segment. EBITDA margins to
expand on account of higher contribution from garment segment and ethanol segment. The volatility of margins to Cotton –Yarn spread to reduce in the long-term due to lesser
contribution from yarn segment. Assuming an exit multiple of 30x on our FY26E EPS of Rs. 35 and a cumulative dividend of Rs. 6/share.
Garment and Ethanol segment to contribute to ~57% of Higher EBITDA from value added sales should lead to better We have assumed an exit multiple of 30x; we believe multiples
revenues Vs ~40% current contribution margins and improve Asset Turnover. can inch upwards further if performance is sustained.
FY12-FY14 FY14-FY17 FY17-FY21 FY21-FY26E FY12-FY14 FY14-FY17 FY17-FY21 FY21-FY26E Implied P/E multiple FY26E EPS (Rs.) Price target
Revenues CAGR 19.7% 5.9% 6.3% 15.5% RoE (%) 10.3% 14.7% 16.8% 18.5%
28 35 971
Gross Margin 34.3% 36.4% 40.8% 42.8% RoCE (%) 13.1% 20.7% 21.9% 20.4%
30 35 1054
EBITDA CAGR 27.1% 10.1% 12.1% 15.4% RoIC (%) 6.6% 12.0% 15.9% 23.5%
EBITDA margin 18.4% 18.2% 19.8% 23.9% Average 1 yr fwd
EPS CAGR 59.2% 26.5% 19.6% 18.3% PE (x) 4.4 5.9 12.7 14.0
Total Asset Turnover (x) 1.0 1.4 1.3 1.1 EV/EBITDA (x) 3.9 4.3 7.8 9.3
Total WC days 76 79 111 112 Peak 1 yr fwd
Pre-tax OCF/EBITDA (%) 102% 105% 105% 100% PE (x) 7.8 11.8 19.6 28.0
Post Tax OCF as a % of IC 21% 21% 19% 20% EV/EBITDA (x) 5.5 7.2 10.7 19.8
Debt/EBITDA 1.0 0.7 0.3 -0.1
Total
Entry = Rs. 670 EPS CAGR of ~18%, exit Return of
Cumulative Dividends: Rs.6
@ 30x FY23E EPS multiple of 30x on FY26E EPS 58%

VARDHMAN TEXTILES
Initiating Coverage – ‘The Ace Spinner’
VARDHMAN TEXTILES CMP Target Price Rating
Rs. 2,309 Rs. 2,974 BUY
“Patience, persistence and perspiration make an unbeatable combination for success.” Napoleon Hill INITIATING COVERAGE
We initiate coverage on Vardhman Textiles (VTEX) with a buy rating and a TP: Rs.2974. With its humongous capacity of 1.2mn yarn Spindles, VTEX 03 January 2022
should be a natural beneficiary of the current uptrend being witnessed in volumes and pricing of cotton yarn. The fact that several other players Industry Textiles
have failed to either scale up or sustain operations at even half the capacity of VTEX illustrates the management’s capabilities. In a widely Key Stock Data
fragmented industry, we opine VTEX’s capacity acts as a significant moat as the size enables them to have better procurement price (VTEX procures Bloomberg VTEX IN
~4% of cotton produced in India) and the balance sheet strength enables them to procure the best available cotton during the peak harvest season Shares o/s 58mn
and utilise them through the year. By virtue of having one of the best cotton yarns in the country, it not only commands premium pricing in the Market Cap Rs. 134bn ($2bn)
domestic market but also a preferred supplier for several prominent global apparel brands. Having struck a deal with the apparel brands, the 52-wk High-Low Rs. 2,420-971
fabric/garment manufacturers for those brands (either domestic or international) pick up yarn from VTEX, ensuring consistent volumes. The 3m ADV Rs. 395mn ($5mn)
woven fabric segment of VTEX catering to the formal wear segment should witness revenue picking up over the next three years. Index NA
Yarn: The prominent question on the near to medium-term prospects of VTEX is hinged on the Cotton - Yarn price spread. We opine that the Cotton - F&O No
Yarn price spread would sustain at least over the next 3 years as the demand increase is estimated to outpace supply. A global cotton supply Latest Shareholding (%)
readjustment due to the USA banning usage of cotton produced at the Xinjiang region of China has led to an increased demand for Indian cotton, Mar-21 Jun-21 Sep-21
leading to increase in cotton prices. India EXIM data over the past 12 months indicate that the Ready-Made Garment (RMG) manufacturers, who Promoters 63.3 63.2 63.2
supply to the USA market from countries such as China, Bangladesh and Vietnam, have increased the cotton yarn procurement from India to adjust Institutions 25.8 25.7 25.6
their supply. We observe that India has exported more cotton yarn to countries such as Bangladesh, Sri Lanka and Cambodia who have limited Public 10.9 11.1 11.2
spindles capacities. Given that the underlying demand is set to sustain over the medium-term, we see no issues in terms of demand for Indian cotton Pledge
or cotton yarn. The volume of this demand over the next two years should outpace any supply increase. We have projected for VTEX yarn segment
Stock Performance (%)
revenues to increase at ~24% CAGR from FY21-24 and at ~15% CAGR from FY21-26.
1m 3m 12m
Fabric: The fabric segment that comprises of the sale of grey (unprocessed) fabric and processed fabric should limp its way back to recovery over the VTEX 18.0 26.1 115.8
medium-term. Armed with a 200mn meter capacity of grey fabric and ~176mn meter capacity of processed fabric, the production in these facilities, Sensex 1.0 -0.9 21.7
currently at 80-85%, should reach 100% over the next 5 years. The underlying demand for the processed fabric is the formal wear segment. We
acknowledge that the underlying demand is currently weak and anticipate a gradual recovery in volumes in the medium-term. We envision three
RESEARCH ANALYSTS
growth drivers from a medium-term perspective for this segment of VTEX. (1) Increase in global formal wear demand is leading to a pickup in fabrics
volume. (2) Indian RMG players gaining share from competitors such as Bangladesh and China, resulting in higher demand for Indian woven fabrics. (3) GNANASUNDAR
Domestic demand for formal wear is increasing which leads to higher woven RMG demand. Given that VTEX has a superior and higher availability of sundar@sparkcapital.in
yarn, we expect VTEX growth in the fabrics segment to be superior to the industry due to consolidation. We have factored in for a revenue CAGR of +91 44 43440062
13% from FY21-24 supported by 7% volume CAGR. VTEX does have a small presence in the garment segment (capacity of ~1.8mn shirts per year), but
the management has ruled out any forward integration from fabrics as the garment segment is labour intensive.
Vardhman Textiles
Continuation…
Margins: Given that raw materials are ~61% of the overall costs and cotton is ~80% of the raw material costs, we observed ~53% correlation between the cotton-yarn spread and VTEX
gross margins, further altering the correlation between VTEX gross margins and ‘current Yarn prices - harvest season cotton prices spread’, we observed a ~75% correlation. We observe
that the VTEX buys a majority of its cotton during the harvest season and converts them into yarn throughout the year. We observe that cotton prices and the subsequent yarn spreads
have remained steady until December. VTEX has begun to approach this season on a pragmatic basis in terms of cotton procurement. However, due to superior quality, cotton supply
cannot be assured for an entire year and we anticipate VTEX to buy cotton inventory during this cotton harvest season.
Capital allocation: As per our projections, VTEX can generate a cumulative FCF of Rs. ~21bn post factoring in a new CAPEX of Rs.21bn and maintenance CAPEX of Rs.17bn over the next 5
years. It should be noted that VTEX has undertaken a CAPEX of Rs.~49bn, deployed working capital funding of Rs.~23bn, disbursed Rs.~11bn back to shareholders and paid Rs.~14bn of
interest predominantly through internal accruals over the past 10 years. Net Debt has been reduced by Rs.5.3bn in the aforementioned period. We note that VTEX has not shied away
from taking debts, when needed, to fuel growth plans but has been judicious in its expansion. VTEX sells yarn in the domestic market only on a cash basis which enables it to have a
controlled receivable days profile. Inventory days are high as VTEX has historically had a policy of buying cotton during the harvest season and utilizing it throughout the year.
Earnings catalysts: (1) Prices of cotton and the subsequent yarn prices post the harvest season in February 2022, (2) European Union countries also banning the usage of Xingjian cotton
(3) India T&A exports uptick momentum (4) Incentives and new projects announced by the GoI such as the establishment of a MITRA park.
Risks: (1) Cotton price crashing (2) Higher shift towards MMSF on account of higher yarn prices (3) Delay in commissioning of new yarn CAPEX facility and (4) Any government
intervention in terms of cotton pricing.
Environmental, Social, and Governance analysis: From an environmental perspective, VTEX has installed effluent treatment plants across their units and ensure zero water discharge.
The company’s CSR activity is incentivising the cultivation of organic cotton. ~18% of the raw materials procured by the company were from renewable/ethical sources in FY20. The
company adheres to all required norms set by the pollution boards. From a social perspective, nearly 34% of the total workforce is women while ~13% of the employee base comprises
of contractual employees. All the employees undergo safety & skill training every year and there are no recognised trade unions.
Valuation: We have factored in a revenue and PAT CAGR of ~21% and ~50% from FY21-24 and value the stock at ~12.5x FY24EPS of Rs. 242.7 to arrive at our TP: Rs. 2974. From a 3-year
perspective, we believe the stock has ~55% upside on the back of ~14% & ~31% revenue/PAT CAGR (FY21-26) and valuing the stock at 12.5x FY26E EPS.
Financial Summary
Year Revenues (Rs. mn) EBITDA (%) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA (x) RoE (%)
FY21 61,399 13.3% 4,099 72.5 32 18 7%
FY22E 90,269 23.5% 14,030 243.3 9 7 18%
FY23E 99,007 22.0% 13,617 236.2 10 7 15%
FY24E 1,07,674 21.3% 13,717 237.9 10 7 14%
Vardhman Textiles| Initiating Coverage| Rating: BUY | TP: 2974
Corporate Factsheet
▪ Vardhman Group is a textile group based in Ludhiana, Punjab, India. Vardhman Group was established in 1965. The group is engaged in manufacturing and trading of Yarn and Processed Fabric, Sewing Thread,
Company Background
Acrylic fibre and Alloy steel. Vardhman group was incorporated in 1962 as Vardhman Spinning & General Mills (VSGML). The company was promoted by Mr.VS Oswal and Mr. RC Oswal.
▪ Mr. Shri Paul Oswal is the Chairman and Managing Director of the Company. With over 48 years of experience in textiles industry while being associated with Vardhman Group, he has led Vardhman Textiles to
Promoter Background achieving accelerated growth in yarn manufacturing capacity, fabric weaving plants and yarn & fabric processing facilities in the country. For his extensive contribution to the trade & industry, he was bestowed the
Padma Bhushan Award by the Government of India in the year 2010.
▪ Mr. S.P. Oswal- Chairman & MD, Ms. Suchita Jain –Vice chairperson and Joint MD, Mr. Sachit Jain – Non- Executive director, Mr. Neeraj Jain- Joint Managing Director and Executive Non- Independent Director, Mr.
Board Of Directors
Prafull Anubhai- Independent Director, Mr. A K Kundra- Independent Director, Mr. S K Bijlani- Independent Director, Mr. Parampal Singh- Independent Director, Ms. Harpreet Kaur Singh – Independent Director.
▪ Mr. S.P. Oswal- Chairman, Vardhman Group, Ms. Suchita Jain –Vice Chairman & Joint Managing Director (VTXL), Mr. Neeraj Jain - Joint Managing Director & Head (Yarn Business), Mr. B.K.Choudhary - Managing
Management Team
Director (Vardhman Acrylics Limited) and Director (Operations) - Vardhman Fabrics (a unit of Vardhman Textiles Ltd.), Mr. Rajeev Thapar – Chief Financial Officer (Vardhman Group)
Key Product Segments

▪ 3 Major Product Categories –Yarn - ~66% of revenues, Fabric -~30% of revenues, Acrylic Fiber - ~3% of revenues , Others- ~1% of revenues
(FY21)
▪ Yarn - Core Spun Yarn, Slubs, Cellulosic, Vortex Yarn, Special Blended Yarn, Sustainable Yarn, Grey Acrylic, Dyed Acrylic, Fancy Spun Yarn, Fancy Structured Yarn, Hand Knitting Yarn, Packaged Dyed Yarn, Mélange /
Key Product Offerings Heather Yarn (Brand Rangoli), Gassed Mercerise, Polyester Cotton, Cotton Yarn, Compact Yarn. Fabric - Tops, bottoms, outer wear for men and women, Fabrics suitable for casual, formal and regular wear, Solids,
Yarn Dyed, Print, Dobbies and various and performance finishes
Key Clients ▪ Calvin Klein, Carhartt, Tommy Hilfiger, Ann Taylor, GAP, Kohl’s, Louis Philippe, Marks and Spencer, S. Oliver, Uniqlo, VanHeusen, Walmart, Raymond, H&M, Target, Arrow, Allen Solly, C&A, PVH
Manufacturing Processes ▪ Spinning, Weaving, Processing, Yarn (Acrylic Fiber), Dyeing, Garmenting (Subsidiary), Sewing Threads (Subsidiary), Steel (Subsidiary)
Manufacturing Capacity ▪ Processed Fabric – 176mn Meters PA, Grey Fabric – 200mn Meters PA, Yarn – 1.2mn Spindles, Number of looms – 1544, Garment – 1.8mn shirts per annum.
Manufacturing Units ▪ Fiber – Jhagadia. Spinning – Ludhiana, Baddi, Malerkotta, Mandideep, Satlapur, Hoshiarpur. Weaving – Baddi, Budhni. Garments – Ludhiana. Threads – Hoshiarpur, Ludhiana, Perundurai, Vizag
International vs Domestic
▪ 54% Domestic , 46% Exports – Predominantly to Bangladesh and Sri Lanka
revenues
▪ VMT Spinning Company Limited (VMT) (100% subsidiary), VTL Investments Limited (VTL) (100% subsidiary), Vardhman Acrylics Limited (VAL) (71% Subsidiary), Vardhman Nisshinbo Garments Company Limited
Corporate Structure (VNGL) (~100% Subsidiary), Vardhman Yarns and Threads Limited (VYTL) (11% Associate), Vardhman Special Steels Limited (VSSL) (24% Subsidiary), Vardhman Spinning & General Mills Limited (VSGM) (50%
Subsidiary).
Corporate Bankers ▪ State Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, CITI Bank
Auditors ▪ Statutory Auditors - Deloitte Haskins & Sells, LLP, Secretarial Auditor - M/s. Ashok K Singla & Associates. Cost Auditor - M/s. Ramanath Iyer & Company

Segmental Classification
SEGMENT Yarn Grey Fabric Processed Fabric Acrylic Fiber
Velegante, Preprensa, Worry Free, Liquid

Core Spun Yarn, Slubs, Cellulosic, Vortex Yarn, Finish, P4 Finish, Stay White & Fresh, Gr&De,
GSM - Shirting - 60 – 180, Bottom - 180 – 400. Provides fibers from Single Fibre Denier of 1.2
Key Offerings Special Blended Yarn, Sustainable Yarn, Grey Easy Care, Stain repellent, Airwash, UV
Blends, 100% Cotton, Cotton Stretch, Cotton to 15 across Non-Shrinkable, High Shrinkable,
Acrylic, Dyed Acrylic, Fancy Spun Yarn, Fancy protection, Anti microbial, Stain release,
blends with PET, Tencel, Modal, Linen etc. Medium Shrinkable and Very High Shrinkable.
Structured Yarn, Hand Knitting Yarn Biomagica, Quick dry, Water repellent,
Aroma, Aloevera
FY21 Revenues (Rs.mn) Rs.~40.4bn. Rs. ~18.1bn Rs.~2.1bn.
Revenue Contribution FY21 (%) ~66% of Revenues ~30% of Revenues ~3% of Revenues
5 year Revenue CAGR (2017-21) ~4% ~-2% ~-1%
Volumes Produced (FY21) ~203mn kgs ~155mn metres ~100mn metres NA
Capacity (FY21) ~256mn kgs ~200mn metres ~176mn metres ~20000 MTPA
Utilization (%) ~79% ~78% ~57% ~28%
% Captive Consumption ~33% ~66% NA ~28%
Ludhiana, Baddi, Malerkotta, Mandideep,

Location Baddi, Budhni Jhagadia
Satlapur, Hoshiarpur
Key end markets (Exports) ~49% ~48% Less than1 %

Textile Segment Value Chain
FIBRE YARN FABRIC GARMENT
Vardhman Value
Chain ➢ Garmenting
➢ Spinning/ Compact
➢ Knitting ➢ Processing
Spinning
➢ Fabric Printing
The key clients instruct the garment/fabric manufacturers to procure the

necessary raw material from Vardhman Textiles, VTEX then supplies to the
manufacturers as per the instructions from the key clients. Payments are done by
the manufacturers while the orders are placed by the key clients.
Top Clients
Calvin Klein GAP Calvin Klein Calvin Klein
GAP Kohl’s Carhartt Carhartt
FABRIC GARMENT
Louis Philippe Louis Philippe Tommy Hilfiger Tommy Hilfiger
Marks and Spencer Marks and Spencer Ann Taylor Ann Taylor
VanHeusen S. Oliver GAP GAP
H&M Uniqlo Kohl’s Kohl’s
Arrow VanHeusen Louis Philippe Louis Philippe ➢ Garmenting
Armani Exchange Walmart Marks and Spencer Marks and Spencer Customer Value ➢ Knitting ➢ Processing
Hugo Boss Raymond S. Oliver S. Oliver Chain ➢ Fabric Printing
Peter England H&M Uniqlo Uniqlo
Ralph Lauren Target VanHeusen VanHeusen
Zara Arrow Walmart Walmart
United Colours of
Allen Solly Raymond Raymond
Benetton
Pepe Jeans C&A H&M H&M
JC Penny Target Target
Big Bazaar Arrow Arrow
Allen Solly Allen Solly
C&A C&A
PVH
Charting the history – What has driven the growth and margins of Vardhman Textiles?
Capacity expansion, exports, domestic apparel demand and prices of yarn have been the key growth catalysts over the past 10 years
Yarn segment has
Increased sales Growth in sales volumes performed well, the
volumes due to the due to the This decline was Our revenue Growth was subdued fabric segment could
The lockdown
commissioning of commissioning of new primarily due to increased, owing due to some teething not fully recover out
imposed due to the
new capacities, capacities, an increase subdued yarn prices. to increased issues in GST refunds of COVID-19
The ban on the Most Indian yarn COVID-19 pandemic
Exports growing proportion in the proportion of Further, exports also domestic sales, against exports, Healthy situation. Low
exports of cotton manufacturers significantly
increased ~32% of value-added value-added products in decreased owing to new product resulting in major growth in demand of formal
yarn in January, 2011 experienced high impacted production
this year while products, superior the sales mix, a the prevailing launches, shifting textile players downstream wears because of
seriously impacted demand from and sales, resulting
the yarn prices yarn realisation heartening increase in volatility in the to more value- resorting to domestic industry and restricted movement
the industry and domestic as well in subdued
moved in a wide consequent to the exports, which partly global economic and added products market, creating an robust inflow impacted underlying
there was as export market, performances in the
range for the Chinese cotton cum cushioned a subdued business and widened over-supply situation of orders growth.
accumulation of mainly from last quarter.
first half of the yarn policy and a domestic market. environment. global footprint.
inventory till end of China. depreciated rupee.
year.
March, 2011.
57.4 56.1 56.9 58.5 64.1 63.3 57.9

51.7
36.1 39.2 41.6
Standalone Revenue (Rs.bn)
VTEX Revenues have been driven by export growth and Yarn prices… The correlation of VTEX EBITDA margins to yarn-spread is ~80% given that VTEX has ~2/3rd of its
revenues from the yarn segment
140% 25% 136 150
Standalone EBITDA margin (%)
Yarn – Cotton Spread (Rs/kg)

120% 20%
100% 19% 19% 130
20%
80% 20% 17% 16%
60% 98 110
31% 117 14% 14% 13%
40% 24% 15% 110
9% 6% 11% 10% 11% 90
20% -2% 1% 3% -1% 99
-8% 12%
0% 10% 85 83 70
-20% 75 75 77
-40% 5% 66 50
VTEX Export Growth (%) Yarn Carded Price Increase/Decrease (%) Revenue growth (%) Standalone EBITDA margins (Rs.bn) Yarn 40s - Shankar 6 Cotton Price Spread (Rs/Kg)
Source: Company filings, Bloomberg, CCI, Spark Capital

Earnings Forecast Snapshot – We forecast a revenue and PAT CAGR of ~21% and ~50% respectively over the next 3 years
VTEX revenues to increase at ~21% CAGR over next 3 years and by ~14% CAGR over the next 5 years. This growth would be led by the yarn segment. Yarn segment revenues to increase by ~24% and ~15%
CAGR between FY21-24e and FY21-26e respectively
14% CAGR
26% 25% 24% 24% 25%

30%
34% 35% 37%
21% CAGR 34%
114 116 66% 70% 71% 72% 72% 72%

99 108 58% 58% 58%
90 54%
60 62 69 67 61
Revenue (Rs.bn) Sale of Yarn Sale of Fabric Acrylic Fibre Others (Sale of scrap, waste etc)
The all-time gross margins of FY22 not sustainable as we see Yarn – Cotton spreads not to be The one-time bump up in FY22 should lead to overall PAT seemingly higher by ~51% over 3 years and
sustainable at current levels. by ~33% CAGR over 5 years
60% 54.0% 31% CAGR
51.4% 52.0% 51.0% 51.0% 52.0%
47.7% 47.2% 46.9%
50% 45.5%
18 50% CAGR 16
40% 15
16 14 14 14
30% 23.5% 14
19.9% 22.0% 21.3% 21.2% 21.7%
17.4% 12 10
20% 14.5% 13.9% 13.3% 10
7
8 6
10% 16.3% 15.5% 6
13.8% 12.7% 13.0% 13.7% 6
9.3% 10.6% 4
8.6% 6.7% 4
0%
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e 2
0
Gross Margin EBITDA Margin PAT Margin
Yarn segment revenues are anticipated to increase at a ~24% CAGR over the next 3 years led by ~13% increase in volumes
#1 YARN #2 FABRIC #3 ACRYLIC FIBRE #4 GROSS MARGINS # 5 EBITDA MARGINS #6 BALANCE SHEET/CF #7 VALUATIONS #8 ESG
Yarn segment revenues to grow at ~24% CAGR and ~15% CAGR over FY21-24 and FY21-26 respectively The volumes are anticipated to increase at ~13% CAGR over 3 years and by ~9% CAGR over 5 years
500
100 70% 71% 72% 72% 72% 80%
66% 369 373 377 380 384
58% 58% 58% 70% 400
80 54% 315 314
60% 284
275 262
50% 300
60
40%
40 200
30%
20% 100
20
35 34 40 39 40 63 70 77 82 83 10% 203 207 209 215 210 257 275 292 302 302
0 0% 0
Yarn Segment sales (Rs. Bn.) % of Overall Sales Yarn Sales (Mn. Kgs) Rs/Kg
External sales anticipated to be more than ~2/3rd of the revenues. We have factored in for a capacity expansion from current 1.2mn spindles to 1.45mn spindles in FY24
350 120%
100% 98% 98% 97%
300 94%
100%
62% 63% 60% 58% 80%
67% 66% 68% 70% 71% 71% 250
80%
200
60%
150
40%
40% 42% 100
38% 37% 33% 34% 32% 30% 29% 29%
50 20%
256 256 280 309 309 309
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e 0 0%
FY21 FY22e FY23e FY24e FY25e FY26e
Captive Consumption (%) External Sales (%) Capacity (Mn. Kgs) Utilization (%)
The demand for cotton yarn to be driven by exports over the next 3 years
VTEX yarn segment revenues had a higher demand from exports in Domestic apparel segment revenues yet to return to pre COVID Cotton exports from India sustaining at higher levels in last 7
FY21, which is anticipated to further increase levels, gauging ABFRL revenues as a proxy months…
900
25.6
22.8 23.0 800
20.7 20.6 20.0 700
19.2 18.2 17.8
600
500
10.2
7.7 400
25.9 25.5
19.8 22.7 21.7 20.6 300
3.2
12.2 12.4 13.9 13.7 200
100
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
0
VTEX Cotton Yarn Exports (Rs.mn) VTEX Cotton Yarn Domestic Sales
Jul-19
Jul-17
Jul-18
Jul-20
Jul-21
Apr-17
Apr-18
Apr-19
Apr-20
Oct-20
Apr-21
Jan-18
Jan-19
Jan-20
Jan-21
Oct-17
Oct-18
Oct-19
Oct-21
(Rs.mn)
FY17 FY18 FY19 FY20 FY21 Aditya Birla Fashion and Retail Sales (Rs.bn) Cotton Exports ($bn)
Source: Company filings, Spark Capital Source: Company filings, Spark Capital Source: EXIM data, Spark Capital
…primarily led by increase in exports to Bangladesh The cotton exports under the HS Code: 52 indicates increased yarn With USA banning ~80% of the Chinese cotton, demand for Indian
exports in the last 8 months cotton from the RMG exports market on the rise.
350 Others, 38% Others, 20%
300 25% 25% 18% 22%
27% 27% 27% 30%
42% 37% India, 25% BANGLADESH EU, 59%
250
200 24% 25% 33% 24% China, 38%
24% 24% 24% USA, 21%
150 17% 26%
18%
100 Cotton + yarn Imports Woven RMG exports
50
51% 49% 50% 49% 49% 48% 54%
0 40% 46% 44% Others, 26% Others, 50%
Jul-20
Jul-21
Nov-19
Apr-20
May-20
Jun-20
Sep-20
Nov-20
Apr-21
May-21
Jun-21
Aug-20
Aug-21
Dec-19
Jan-20
Feb-20
Mar-20
Dec-20
Jan-21
Feb-21
Mar-21
Sep-21
Oct-20
Oct-21
India, 36% SRI LANKA

EU, 13%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022* China, 39% USA, 37%
BANGLADESH PR CHINA P RP VIETNAM SOC REP
Yarns Fabrics Cotton Others Cotton + yarn Imports Woven RMG exports
Source: EXIM data, Spark Capital Source: EXIM data, Spark Capital Source: EXIM data, Spark Capital
We anticipate Cotton –Yarn Price Spread to sustain over the medium term
We forecast VTEX realisations to be on a higher trajectory from We note that VTEX yarn prices have moved in tandem with the The market prices of the Yarn continue to be on the rise despite the
FY22, increase since then to be just at ~1% CAGR Yarn 40s and Yarn 30s carded price historically fresh cotton season harvest arrivals
369 373 377 380 384 y = 0.7452x - 6.4935 350
400 310
R² = 0.8136
Yarn 40s Carded Price (Rs/Kg)

350 315 314 290
291 284 300
300 259 255 263 256 275 262 270
250
250 250
200
230
150
210 200
100
50 190
150
0 170
Apr-20
Apr-19
Jun-19
Jun-20
Apr-21
Jun-21
Dec-20
Aug-21
Feb-19
Aug-19
Dec-19
Feb-20
Aug-20
Feb-21
Dec-21
Oct-19
Oct-20
Oct-21
FY12
FY19
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
FY22e
FY23e
FY24e
FY25e
FY26e
150
250 300 350 400
VTEX Yarn Realisation (Per KG) VTEX Yarn Price realisation (Rs/Kg) Yarn Carded 30s (Rs/Kg) Yarn Carded 40s (Rs/Kg)
Source: Company filings, Spark Capital Source: EXIM data, Spark Capital Source: CCI, Bloomberg, Spark Capital
The spreads are at an all-time high and we anticipate them to The fact the Indian yarn prices are still cheaper, despite strong rise VTEX realisations are higher because of ~50% export contribution
sustain over the near to medium-term. in last 24 months, indicate a strong underlying global demand and the premium of VTEX yarn in the domestic market.
300
400 369
250 400
119 350 315 314
200 350 291
275 284 284
94 97 89 85 88 84 105 300 259 255 263 256 262
150 66 91 83
82
71 300 250 214 204 213 215
100 58 190 194 200 202
200 176 177
50 250
Nov-21
Nov-21
Nov-21
Nov-21
Sep-21
Sep-21
Dec-21
Dec-21
Oct-21
Oct-21
Oct-21
Oct-21
0 150
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22e
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
VTEX Yarn Realisation (Per KG) Yarn 40s Count (Per KG)
Spread Shankar 6 Cotton Price/KG Yarn Carded 40 Price/KG India -Yarn Carded 40s (INR/Kg) China Yarn Prices (INR/Kg)
Source: CCI, Bloomberg, Spark Capital Source: CCI, Bloomberg, Spark Capital Source: CCI, Bloomberg, Spark Capital
Vardhman Textiles has a definite moat being the largest player in the market in terms of revenue and procurement terms
VTEX has an advantage of being the largest established player in the spinning segment, with more than ~70% of the production being sold to VTEX is ~4% of India’s Cotton+ Yarn (HS Code: 52) exports
external clients
Total Estimated Installed Spindle Capacity (mn) 25 4.4% 5.0%
1.1
20 3.3% 4.0%
0.8
0.7 0.6 2.6%
0.5 0.5 15 2.4% 2.5% 3.0%
0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 10 20 2.0%
12 12 14 14
5 1.0%
Alok Industries
Nitin Spinners
Trident Group
Manufacturers
RSWM
Sportking India
Indo Count
KPR Mills
Himatsingka
Sintex Ltd.
Vardhman
SSM Group
Nahar Spinning
Pallava Group
Welspun Group
International
Industries
Textiles
Ltd.
Aarti
Sagar
0 0.0%
VTEX Yarn Exports (Rs.bn) % of India Cotton Exports

Source: Company filings, Company Website Spark Capital Source: EXIM data, Spark Capital
The size gives them an advantage in terms of procurement; we Given that they procure the cotton largely during the flush season, ~18% of RM cost in FY20 comprised of certified organic varieties,
calculate that they procure ~4% of total cotton production. they have inventory days upto 6 months making them preferred supplier for many global apparel players
200
VTEX cotton consumption as a % of total cotton Consumption of renewable raw material (in Rs.mn)
produced in India
150
5.0% FY19 FY20 FY21
4.0% Organic 1250 1290 120
100
3.0% BCI 3500 4930 868
2.0% 50 Recycled Cotton 0 6 31
1.0% Recycled Polyester 223 218 616
0.0% 0 Total 4973 6443 1635

% of RM Costs 14% 18% 5%
Inventory Days
Source: CCI, Spark Capital Source: Company filings, Spark Capital Source: Company filings, Spark Capital
Fabric segment revenues are anticipated to increase at ~13% CAGR over the next 3 years led by ~7% increase in volumes
We have forecasted the fabric segment revenues to increase ~13% CAGR and ~10% CAGR from We anticipate price increases to be inflationary; volume increase to happen primarily in the processed
FY21-23e and from FY21-26e respectively fabric segment
37% 250 139 146 160
35.0 34% 34% 35% 40% 133
125 127 122 126 140
35% 117 115 120
30.0 30% 200
26% 30% 120
25.0 25% 24% 23% 24%
25% 150 100
20.0
20% 80
15.0 28.6 100 191 203 197 197 196 196 196 60
24.3 24.7 24.8 26.0 27.3 15% 177 170
21.2 23.7 158
10.0 20.7 18.1 10% 40
50
5.0 5% 20
0.0 0% 0 0
Fabric Revenues (Rs.bn) % of sales Volume (mn mtr) (External Only) Price Per Meter (Rs.)
Processed fabric production to pick up as demand for woven clothing begins to pick up gradually We forecast utilizations to be ~100% in 5 years; company has enough capacity till then to meet demand
250 400 120%

207 95% 97% 100%
198 198 198 198 198 350 91% 88% 93% 89% 92%
188 85% 100%
200 175 175 176 300
158 168
155 149 68% 80%
141 138 250
150 123 131
117 200 60%
100
100 150 40%
100
50 20%
50
0 0%
0 FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
Total Capacity (mn mtr) Production (mn mtr) Utilization (%)
Grey Fabric Production Processed Fabric Production
We forecast the volume growth to be limited in the fabrics segment with grey fabric capacities being fully utilized by FY23
Processed Fabric segment volumes to increase at ~16% CAGR and ~12% CAGR from FY21-23e and from ..the current capacities should support the forecasted growth over the next 5 years
FY21-26e respectively…
200 97% 95% 100% 110%
200 37% 50% 90%
87% 85%
40% 80% 79% 90%
75%
150 30% 150
20% 57% 70%
9% 8% 6% 6%
6% 2% 5% 5%
10% 100 50%
100 176 176 176 176 176 176 176 176
0%
140 30%
-10% 120
50
50 -27% -20% 10%
118 121 132 138 101 138 149 158 168 176 -30%
0 -10%
0 -40% FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
Processed Fabric Capacity (mn mtrs) Utilization (%)
External Processed Fabric Volumes (mn mtrs) % growth
We see majority of the grey fabric production to be utilized for internal requirement of producing We anticipate that capacity utilization will reach ~100% in the current FY; we don’t expect VTEX to
processed fabric increase capacity unless demand for processed fabric picks up.
250
250 103% 120%
94% 99% 99% 99% 99% 99%
200 200 88% 88% 100%
38 28 20 78%
65 59 47
59 80%
150 59 50 150
57 60%
100 100 200 200 200 200 200 200 200 200 200 200
163 173 181 40%
135 145 142 154
120 126 50
50 103 20%
0 0 0%
Grey Fabric Internal Consumption (mn mtrs) Grey Fabric External Consumption (mn mtrs) Grey Fabric Capacity (mn mtrs)
The underlying demand for woven fabric to remain subdued over the near term
The underlying demand for fabrics produced by VTEX is ‘Formal As per our calculations, fabrics demand is ~50% from exports and The demand across exports and domestic market weak due to demand
Wear’ clothing. ~50% from domestic market. for formal wear failing to pick-up post the pandemic
Fabric Exports
12.3 12.6 12.0 12.1
11.2 11.2
Exports (~48% of revenues) Domestic (~52% of revenues) 9.5 10.0 9.5 46% 47%
Market 8.6 49% 49% 52%
Garment manufacturers in Garment manufacturers in

Customers
Bangladesh & Sri Lanka India
54% 53% 51% 51% 48%
Domestic Woven clothing
RMG exports from these
Demand Drivers segment demand,
countries
Woven RMG exports from India VTEX Fabric Exports Revenues (Rs.bn) VTEX Fabric Domestic Revenues FY17 FY18 FY19 FY20 FY21
(Rs.bn)
Underlying
Need for Formal Wear Exports as a % of fabric sales Domestic as a % of fabric sales
Demand FY17 FY18 FY19 FY20 FY21
Source: Company filings, Spark Capital Source: Company filings, Spark Capital Source: Industry Filings, Spark Capital
VTEX fabric exports as a % of overall exports was lower in FY21 on The domestic formal wear market to be driven by Men as… …Women’s formal wear market is minuscule in India
account of lower offtakes in woven fabric category
Share of Share of
Market Size
Market Size Share of Share of Women's Wear Share Casual Formal
0.51% Men's Wear Share (Rs.bn)
(Rs.bn) Casual Wear Formal Wear Wear Wear
0.46% Shirts 29% 570 60% 40% Western Casuals 10% 180 100% 0%
0.43% 0.42%
0.39% Winter Wear 4% 70 90% 10%
Trousers 23% 450 30% 70%
Denims 12% 240 100% 0% T-Shirts 3% 50 100% 0%
2700 T-Shirts 7% 140 100% 0% Denims 3% 50 100% 0%
2626 2646 2464 2225 Winter Wear 7% 140 70% 30% Western Formals 2% 40 0% 100%
Suits 5% 100 65% 35% Sarees + Blouses 47% 860 100% 0%
Ethnic Wear 7% 140 100% 0% SKD 18% 330 100% 0%
Innerwear 7% 140 100% 0% Innerwear 8% 150 100% 0%
FY17 FY18 FY19 FY20 FY21 Others 3% 60 100% 0% Others 5% 90 100% 0%
India T&A exports % of VTEX fabric exports 1980 1360 620 1820 1773 47
Source: Company filings, Spark Capital Source: IPO DRHPs, Spark Capital Source: IPO DRHPs, Spark Capital
Increasing preference for casual wear is visible in the market; market participants believe the heightened casual wear demand is transient
The projected growth of formal wear in the domestic market is Aditya Birla Fashion Limited, a prominent player in the formal wear India as a sourcing nation for Woven RMG has also been ceding share
projected to be in high single digits only segment in India, has called for increasing salience of Casual Wear to other countries, keeping the domestic demand subdued
sales in his lifestyle brands portfolio
25 70% 4.4% 4.3% 4.3% 4.3%

21.6 59% 4.2%
60% 55%
4.2% 4.1% 4.1%
20 46% 4.0% 4.0% 4.1%
50%
14.3 4.0%
15 40%
3.8%
30% 3.8%
10 3.7%
20% 3.6%
5 1.8 10%
1.0 3.4%
0 0%
Men Women 1QFY21 FY21 1QFY22 3.2%
FY20 FY25e 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ABFRL Lifestyle brands (Casual wear share %)
Source: ABFRL Company filings, Spark Capital Source: ABFRL Company filings, Spark Capital Source: EXIM data, Industry Filings, Spark Capital
India woven RMG exports have declined not only because of losing The utilization commentary from the management indicates that demand for formal wear has picked up but has not hit peak as yet
share but also on account of underlying demand weakness
3QFY21 4QFY21 1QFY22 2QFY22
1000
800 “In any case, Q3 and Q4 are high season “Fabric also -- as the Q started improving, so slowly “For the fabric business, last couple of quarters “On the fabric right
for Indian textiles because of the the fabric also started picking up the capacity have been a big roller coaster. Quarter in, quarter now we are started
600 production takes place for spring and utilizations, and because earlier when the lockdown out, how (inaudible) sometimes there are peaks, reaching almost 65% to
summer retail. So good order placement that happened, most of the people were working sometime they will vanish. Last year, Q4 we 70% utilisation, you can
400 happened. And same thing happened from home and all the markets were closed, we were almost recovered from pandemic and we were -- I mean if you look at
with our operations also. So that is why, back to utilization drop because we are there near the full capacity utilization, but then we've the quarter -- second
200 as Neeraj ji mentioned, that our capacity primarily into the woven fabric which is more of a got hit by the second wave of pandemic starting quarter was surely less
utilization is now touching at about 85%. formal fabric -- formal there. As things are becoming from April, somewhat in the last week of March. but last one month --
0 We see that in the times to come, if the better towards the month of October, November, Major retail markets in India were shutdown. one and half and every
Jul-18
Jul-19
Jul-20
Jul-17
Jan-19
Jan-20
Jul-21
Apr-17
Jan-18
Apr-18
Apr-19
Apr-20
Jan-21
Apr-21
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
market remains the same, there is no big December, Jan, we also started improving the fabric People were not moving out and the shops were month is improving 3%,
threat coming from the lockdowns and utilizations also, and from -- as close as 20 lakh, 30 also closed. There is pent-up demand. We also 4%, 5%. So as of now
the vaccine rollout is smooth. So we see lakh meters we improved almost about 120 lakh, 130 have sufficient orders, so sequentially, we are It'll be close to about
that in the times to come, the capacity lakh meters also in demand for March or so, which is seeing quarter two to be better than Q1 as far as 65% to 70%. “
India Woven RMG Exports (USD mn) utilization will further improve”. almost like 80%, 85% of our overall capacity.” capacity utilization is concerned. “
Source: EXIM data, Company filings, Spark Capital Source: Company filings – Conference Call transcripts, Spark Capital
Acrylic Fiber to remain small for VTEX over the medium term
What is Acrylic Fiber? Acrylic Fibre is ~3% of overall revenues and is projected to grow at ~28% of revenues is consumed internally
~16% CAGR over the next 3 years (only external)
Acrylic fibers are synthetic fibers made from a polymer (polyacrylonitrile)
Typical comonomers are vinyl acetate or methyl acrylate. DuPont created the 5.0 6% 6% 3.0 55% 60%
first acrylic fibers in 1941 and trademarked them under the name Orlon. It 48%
4.0 4% 5% 2.5 50%
was first developed in the mid-1940s but was not produced in large quantities 4%
until the 1950s. Strong and warm acrylic fiber is often used for sweaters and 3% 3% 4%
3.0 3% 3% 3% 3% 3% 2.0 40%
tracksuits and as linings for boots and gloves, as well as in furnishing fabrics 26% 28% 28% 28%
3% 1.5 30%
and carpets. 2.0
2% 2.5
It is manufactured as a filament, then cut into short staple lengths similar to 1.0 1.8 20%
wool hairs, and spun into yarn. Some acrylic is used in clothing as a less 1.0 1%
0.5 0.9 1.1 0.9 10%
expensive alternative to cashmere, due to the similar feeling of the materials.. 0.8
Acrylic takes color well, is washable, and is generally hypoallergenic. End-uses 0.0 0%
0.0 0%
FY24e
FY22e
FY23e
FY25e
FY26e
FY17
FY18
FY19
FY20
FY21
include socks, hats, gloves, scarves, sweaters, home furnishing fabrics, and FY16 FY17 FY18 FY19 FY20 FY21
awnings. Acrylic can also be used to make fake fur and to make many
different knitted clothes. Acrylic Fibre (Rs. Bn.) As a % of Total Revenues Sales to holding company (Rs.bn) % of revenue
Source: News reports, Spark Capital Source: Company filings, Spark Capital Source: Company filings, Spark Capital
Top 5 customers are ~63% of revenues The key Raw material is Acrylonitrile The operating profit should be sustained at mid-teens over the
medium term.
3% 3% 2% 2% 3% 3%
3.5 80% 5% 5% 5% 0.7 20%
67% 64% 7% 7% 6%
60% 63% 70% 0.6 16% 15%
3.0 56%
53% 14%
2.5 60% 0.5 15%
50%
2.0 0.4 9% 9%
40% 93% 7% 10%
1.5 3.0 90% 90% 92% 92% 91% 0.3 0.6
30% 0.6
1.0 2.2 2.2 2.1 0.2 0.4
1.7 1.8 20% 5%
0.3 0.3 0.2
0.5 10% 0.1
0.0 0% 0.0 0%
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Revenues from major 5 customers (Rs.bn) % of revenue Acrylonitrile Vinyl Acetate Monomer Others Operating Profit( Rs. Bn.) Margins (%)
~61% of the overall cost is raw materials and ~80% of the raw material cost is cotton, thereby gross margins are led by cotton – yarn spread.
Raw material is the key cost factor element for VTEX… …which is largely of cotton, hence…
100% 100%
16% 15% 15% 14%
80% 13% 13% 14% 80% 16%
14% 12%
10% 10% 11% 10%
60% 10% 8% 10% 60%
8% 9%
8%
40% 40% 77% 78% 74% 77% 80%
49% 54% 52% 53% 53% 20%

20%
0%
0% FY17 FY18 FY19 FY20 FY21
Cotton Manmade Fibre Yarn Fabric Acrylonitrile Others
COGS Employee cost Power and Fuel Other Expenses
…we observe a natural correlation of the RM costs to Cotton prices, while… …gross margins are correlated to the Yarn – Cotton spread.
40 130 40.0 110.0
35 120 100.0
35.0
110
30 90.0
100 30.0
25 80.0
90
25.0
20 80 70.0
15 70 20.0 60.0
Raw Material Costs (Rs.bn) Shankar 6 Cotton Price (Rs/Kg) Gross Profit (Rs.bn) Yarn 40s - Shankar 6 Price Spread (Rs/Kg)
~53% correlation between the cotton-yarn spread and VTEX GM; correlation between VTEX GM and ‘current Yarn - harvest season cotton spread’ is ~75%
We see a correlation between gross margins and Yarn – Cotton price spread… …however the correlation is more profound when considering the Yarn - on-season cotton price spread
60% y = 0.0023x + 0.2979 60% y = 0.0013x + 0.375

R² = 0.2782 R² = 0.5694
Gross Margin (%)

Gross Margin(%)
55% 55%
50% 50%
45% 45%
40% 40%
60 65 70 75 80 85 90 95 100 105 110 30 50 70 90 110 130 150
Yarn 40s - Corresponding Cotton Prices Spread (Rs/Kg) Yarn 40s - Previous harvest season Cotton Prices Spread (Rs/Kg)
Source: CCI, Bloomberg, Company filings, Spark Capital Source: CCI, Bloomberg, Company filings, Spark Capital
This is explained by VTEX buying most of its inventory during the Flush season We note that prices of cotton remain high even post the flush season arrival this year, leading us to
“First factor is the right quality, because what believe that the cotton prices can be sustained this year.
200 was happening in earlier year, in the peak 25000
160 166 season lots of good quality cotton used to get
145
150 131 130 132 139 exported. So we always had the future challenge 20000
121 120 if we do not buy today in the proper season and
106
95 good quality get exported, probably off-season 15000
100
comes-in the quality of raw material (inaudible).
As a result of that our customers gets difficulty 10000
50 in terms of the right yarn. So that was one of the
reasons we used to buy. The second has always
5000
0 been a commercial consideration, that if you
think the price are going to up or commercially
FY19
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
it will set lower price can only be stocking. So 0
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Dec-20
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-21
these are the two considerations which we have
Inventory Days always look and we are storing cotton.”
Source: Company filings, Spark Capital Source: CCI, Bloomberg, Company filings, Spark Capital
We have forecasted some operating leverage from the ~25% fixed operating expenses (which is ~6% of overall sales)
We have factored in for employee cost to increase at a ~13% CAGR and ~10% CAGR from FY21-24 and We observe that ~75% of other operating costs are variable in nature, fixed costs are ~25% of other
from FY21-26 respectively. expenses.
Nature of Line
Other Expenses (Rs.bn) FY17 FY18 FY19 FY20 FY21
9.6% Item
8.8% 8.3%
7.9% 8.1% 8.0% 8.2% 8.0% 7.8% 7.9% Power and fuel Variable 5.96 6.27 7.09 7.55 6.07
Consumption of stores and spare parts Variable 0.39 0.39 0.33 0.37 0.32
Packing materials and charges Variable 0.82 0.79 0.73 0.83 0.79
Dyes and Chemical consumed Variable 1.88 1.86 1.94 2.20 1.56
Rent Fixed 0.02 0.02 0.03 0.03 0.02
4.8 5.1 5.5 6.0 5.9 7.4 7.9 8.4 9.0 9.7
Repairs and maintenance to buildings Fixed 0.36 0.21 0.27 0.30 0.20
Repairs and maintenance to machinery Fixed 1.68 1.76 1.87 1.84 1.65
Employee Cost (Rs.bn) Employee Cost/ Sales Insurance Fixed 0.07 0.06 0.06 0.17 0.14
Source: Company filings, Spark Capital Rates and taxes Variable 0.05 0.07 0.06 0.06 0.05
Auditors remuneration Fixed 0.01 0.01 0.01 0.01 0.01
We have factored in for other expenses to increase at a ~17% CAGR and ~12% CAGR from FY21-24 and
from FY21-26 respectively. Bad debts written off Fixed 0.06 0.00 0.01 0.06 0.01
Forwarding charges and octroi Variable 0.95 1.13 1.22 1.19 1.55
24.5%
24.0% Commission to selling agents Variable 0.51 0.45 0.46 0.42 0.40
23.6% Assets written off Fixed 0.04 0.03 0.01 0.02 0.02
23.0%
Foreign exchange fluctuation loss Fixed 0.00 0.00 0.00 0.05 -
22.4% 22.3%
22.1% 21.9% 22.0%
21.8% Cotton Hedging Derivative Loss Fixed 0.00 0.00 0.00 - 0.88
Other miscellaneous expenses Fixed 1.42 1.29 1.29 1.37 1.09
Other Expenses Fixed 3.66 4.52 3.54 3.85 4.02
14.2 14.3 15.4 16.5 14.8 20.1 21.9 23.6 24.9 25.6
Other Expenses Variable 10.55 9.83 11.84 12.61 10.73
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e Other Expenses (% of other expenses) Fixed 26% 31% 23% 23% 27%
Other Expenses (Rs.bn) Other Expenses/ Sales Other Expenses (% of other expenses) Variable 74% 69% 77% 77% 73%
EBITDA margins to consolidate post the highs in FY22 as we anticipate spreads to be not that lucrative from FY23.
We believe EBITDA margins can be sustained at ~21-22% levels …led by a stable Yarn – Cotton spread Yarn price increase continues into 3QFY22
y = 345.26x + 47.608
24% 180 184
R² = 0.6286
Yarn 40s - Previous harvest season

22% 21% 21% 22% 159
20% 160 146 153
Cotton Prices Spread (Rs/Kg)

17%
140
14% 14% 100 106 98 96 91 99
13% 81 84
120 75 70 72
25.2 100
21.7 22.9 24.2
21.2
80
12.0 11.9
9.0 9.4 8.1 60
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
40
FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e -10.0% 0.0% 10.0% 20.0% 30.0%
EBITDA margins (%) Yarn 40s - Previous harvest season Cotton Prices Spread (Rs/Kg)
EBITDA (Rs. Bn.) EBITDA Margins
Source: Company filings, Spark Capital Source: CCI, Bloomberg, Company filings, Spark Capital Source: CCI, Bloomberg, Company filings, Spark Capital
Interest costs are at subsidised levels on account of incentives provided by state governments We forecast EBITDA to rise at ~50% CAGR and ~25% CAGR from FY21-24 and from FY21-26 respectively
6.8%
16% 16%
6.6%
14% 13% 14%
13%
11%
6.2% 9% 9%
6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
5.9% 7%
14.9 15.9
14.0 13.6 13.7
9.8
5.8 7.3 5.8
17.5 11.0 14.2 11.1 10.2 23.4 23.7 25.0 26.5 27.7 4.1
Interest Expenses (Rs.bn) Interest Expenses as a % of Gross Debt PAT (Rs.bn) PAT Margins (%)
Working Capital to remain elevated due to higher inventory days; Capital efficiencies to normalise from FY23 on account of PAT margin contraction
Given the ~180 days of inventory holding period, working capital to Net Debt to reduce led by strong operating cash flows over next 5 …in spite of high working capital needs…
be a significant part of the balance sheet years…
10% 8% 6% 6% 6% 7% 10% 0.27 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
0.24
0.21
37% 41% 46% 0.19 0.18
49% 48% 49% 48% Debtor Days 44 62 62 62 62 62 62
8% 9% 6% 24.2 0.07
8% 6% 6% 6% 18.7 17.7 Inventory Days 145 166 166 166 166 166 166
12.6 12.0
45% 8.3
41% 37% 42% 40% 38% 36%
-4.5
Creditor Days 19 18 18 18 18 18 18
FY20 FY21 FY22e FY23e FY24e FY25e FY26e -0.04
FY20 FY21 FY22e FY23e FY24e FY25e FY26e Cash Conversion
Net Block Investments 170 210 210 210 210 210 210
Days (x)
Working Capital (Ex Cash) Cash & Liquid Investments Net Debt (Rs.bn) Net Debt/ Equity (x)
…and a CAPEX worth Rs.~20bn to increase the yarn capacity FCF to improve post the CAPEX phase… …while capital efficiency to remain rangebound.
139% 18%
109%
CAPEX (Rs.bn) 86% 15%
14% 13%
16% 13%
-2.4 20% 10%

-7% 13% 12% 13%
-5.0 -5.0 -5.0 2 8 11 14 12%
7%
-6.5 -7.0
-1 -7 -5 8%
-48% 6%
-71%
-17.0 FY20 FY21 FY22e FY23e FY24e FY25e FY26e FY20 FY21 FY22e FY23e FY24e FY25e FY26e
FY20 FY21 FY22e FY23e FY24e FY25e FY26e FCF (Rs.bn) FCF/PAT (%) RoE (%) RoIC (%)
We anticipate a Rs.~21bn of new CAPEX and Rs.~18bn of maintenance CAPEX over the next 5 years
VTEX despite being in a business that had no exciting growth, has managed its expenses through internal accruals. Debts have been raised when necessary to fund expansions.
Rs.mn FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Total FY22e FY23e FY24e FY25e FY26e Total
Cash flow from operations 11,153 6,333 9,921 14,683 12,101 12,018 12,562 9,412 12,554 9,645 8,731 1,19,111 21,226 21,734 22,904 24,169 25,163 1,15,197
Less: Tax -1,824 -573 -1,495 -2,349 -2,247 -2,484 -3,087 -2,121 -2,573 -1,133 -463 -20,349 -4,585 -4,453 -4,488 -4,862 -5,197 -23,585
9,329 5,760 8,425 12,334 9,854 9,534 9,475 7,291 9,981 8,512 8,268 98,762 16,642 17,282 18,416 19,306 19,966 91,611
Working Capital -9,021 4,441 -5,097 -3,995 4,269 -383 4,028 -6,269 -4,991 -18 -6,584 -23,620 -16,581 -5,028 -4,987 -3,577 -1,291 -31,463
CAPEX -3555 -4124 -4907 -6503 -3051 -3766 -2234 -3564 -8834 -6499 -2396 -49,433 -7000 -17000 -5000 -5000 -5000 -39,000
Other Investments -1009 -2394 -263 -1292 -102 -748 -1198 1891 6059 2708 1237 4,890 2492 2309 2488 2676 2915 12,880
Dividend -268 -410 -407 -540 -926 -2329 -9 -996 -1028 -1209 -3 -8,125 -989 -1403 -2723 -2743 -2972 -10,830
Interest -1296 -1880 -1949 -1666 -1479 -1359 -1116 -792 -1096 -1211 -944 -14,786 -1289 -1664 -1679 -1259 -779 -6,670
Buy Backs 1967 0 -158 -170 -20 0 -6884 1878 48 34 92 -3,214 0 0 0 0 0
Total Exp -13,182 -4,367 -12,780 -14,166 -1,308 -8,585 -7,413 -7,852 -9,842 -6,193 -8,598 -94,288 -23,368 -22,785 -11,901 -9,903 -7,126 -75,083
Debt (inclusive of repayments) 1936 -1261 4166 1991 -7326 39 -3793 831 -442 -570 -892 -5,320 6000 6500 -6000 -8000 -8000 -9,500
Internal Accruals 11246 5628 8614 12176 8634 8546 11206 7021 10284 6764 9490 88,362 17368 16285 17901 17903 15126 84,583
Net Debt on Books 27,134 24,649 28,126 28,151 12,632 8,382 9,056 12,086 13,390 12,650 11,992 -15,142 18,718 24,221 17,707 8,304 -4,536 -23,254
We anticipate the stock to move higher than its +2 SD levels of 12.5x
VTEX is currently trading at 10X one year forward multiple… …which is well within its historical trading range
4,000
3,500 15x Cumulative traded no. %of Cumulative no. of
P/E Multiple range No. of days traded % of no. of days
13x of days days
3,000
2,500 11x
under 5x 0 0% 0 0%
CMP (Rs.)
2,000 9x
1,500 7x
5 - 6x 8 1% 8 1%
5x
1,000
500 6 - 7x 30 2% 38 3%
0
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
7 - 8x 256 21% 294 24%
8 - 9x 380 31% 674 54%

Source: Bloomberg and Spark Capital
9 - 10x 225 18% 899 73%
We see the stock inching close to its +2SD levels in medium term as yarn –cotton spread stays resilient
14.0 10 - 11x 237 19% 1136 92%
13.0
12.0 +2 SD, 11.7 11 - 12x 85 7% 1221 99%
11.0
+1 SD, 10.4
10.0
9.0 Avg., 9.1 12 - 13x 14 1% 1235 100%
8.0 -1 SD, 7.7
7.0 13 - 14x 1 0% 1236 100%
-2 SD, 6.4
6.0
5.0 14 - 15x 1 0% 1237 100%
4.0
Jun-18
Jun-17
Jun-19
Jun-20
Jun-21
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Total 1237 100% 1237 100%
Source: Bloomberg and Spark Capital Source: Bloomberg and Spark Capital
Charting the history
#1 YARN #2 FABRIC #3 ACRYLIC FIBRE #4 GROSS MARGINS # 5 EBITDA MARGINS #6 BALANCE SHEET/CF #7 VALUATIONS/RISKS #8 ESG
Cotton Prices The ban on Xingjian Formal wear as a Competitive intensity Vertically integrated
declining on account region cotton being category declining from domestic players players taking away
of higher supply lifted post COVID increasing share
The domestic market Management’s failure Higher shift towards

Government of India Inability to procure
remaining subdued to invest in the next MMSF fibre reducing
placing restrictions on good quality cotton at
for prolonged period capacity expansion at the need for cotton
cotton/yarn exports competitive prices.
of time the opportune time products
ESG Parameters – Environmental Aspects
VTEX has been installing treatment plants to ensure zero liquid Energy saved has increased as the company adopts to efficient The company has been at the forefront of buying organic and
discharge usage of non-renewable resources recycled produce which are…
Purchase of units Consumption of renewable raw material (in MT)

30
Water Treatment FY17 FY18 FY19 FY20 FY21
25 FY17 FY18 FY19 FY20 FY21
Effluent Treatment 20
8 2 2 3 3
Plants
15 Organic na na 11000 11510 8000
Sewage Treatment 10
8 8 8 8 7
Plants BCI na na 28800 44820 69400
5
Bio-gas plants 2 2 2 2 2 0
FY20 FY21 Recycled Cotton na na 2 60 425
Total 18 12 12 13 12 Recycled Polyester na na 2000 2900 7700

Energy Saved (Mn. kWH)
~1/5th of the total RM consumed in value terms The company has installed and enhanced its solar plant to Company has ~52 rain water harvesting systems on its premises
generate renewable energy
Consumption of renewable raw material (in Rs.mn) Rain water harvest systems installed
Solar Power Plant Capacity (MW)
FY21 52
FY21
Organic na na 1250 1290 120 FY20 52
3500 4930 868 FY20

BCI na na FY19 52
Recycled Cotton na na 0 6 31 FY19 FY18 52
Recycled Polyester na na 223 218 616
FY18 fy17 48
Total 0 0 4973 6443 1635
% of RM Costs 0% 0% 14% 18% 5% 46 47 48 49 50 51 52 53
0 2 4 6 8 10 12 14

ESG Parameters – Social Aspects
Median employee payout has been on the increase over the Number of employees has increased in tandem with Contractual employees for temporary assignments on the basis
past 5 years production of need
356804 12% 13%
7.0 353022 360000 30,000 15%
350500
8% 4,000 20%
6.0 350000 25,000 10% 3,422 3,442
3,500 3,195
5.0 340000 5% 3,000 13% 15%
20,000
325000 16%
4.0 330000 0% 2,500 2,020
15,000 2% 1,813 13%
317000 2,000 10%
3.0 320000 25,715 24,111 -5%
21,206 22,939 21,349 1,500
10,000
2.0 310000 -10% 9% 9%
-17% 1,000 5%
1.0 300000 5,000 -15%
4.8 5.1 5.5 6.0 5.9 500
0.0 290000 0 -20% 0 0%
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Employee cost (Rs.bn) Median remuneration No. of Employees Growth rate No. of Contractual Employees As a % of Total
Women employees are ~25% of the workforce More than ~80% of the employees have undergone skill and There is no employee union recognised by management;
safety trainings company has not faced any disruptions by employees so far
8,000 7,254 40%

7,000 35%
6,000 5,393 5,460 30% FY17 FY18 FY19 FY20 FY21
5,127 4,947 34% Safety and Skill training FY17 FY18 FY19 FY20 FY21
5,000 25%
4,000 24% 20%
22% 21% 23%
3,000 15% % of employees as part of
Permanent employees 59% 70% 83% 88% 80% management recognized NA NA NA NA NA
2,000 10%
employee union
1,000 5%
0 0%
Permanent women
FY17 FY18 FY19 FY20 FY21 77% 72% 87% 90% 83%
employees
No. of Women Employees As a % of Total
Source: Company
This file was downloaded filings,
from Spark Spark Capital
Research website by research@karmacap.com|January 03, 2022 10:13:50 Page 92
The current BoD members have been a part of the board for at The BoD has an equal representation of independent and non- Independent directors are present in all committees
least 3 years independent directors.
Original Nomination Corporate

Stakeholders Risk
BOD Composition Designation Appointment BOD Composition Audit and Social
FY17 FY18 FY19 FY20 FY21 Relationship Management
Date Committee Remuneration Responsibility
Committee Committee
Committee Committee
S.P. Oswal Promoter - Chairman & MD Independent Directors 7 6 7 7 5
1973
Independent
Promoter Director - Vice- 3 2 1 1 2
Suchita Jain 2016 Non- Independent Directors
Chairperson & Joint MD 5 5 5 5 4
Directors
Promoter Directors - Non- Non-
Sachit Jain 1994
Executive Director Independent 0 2 2 2 2
Executive Non-Independent Total 12 11 12 12 9 Directors
Neeraj Jain 2010
Director - Joint MD
Prafull Anubhai Independent Directors 1980 Total 3 4 3 3 4
Women Director 1 1 2 2 2
A.K. Kundra Independent Directors 2009
S.K. Bijlani Independent Directors 2005
Parampal Singh Independent Directors 2017 The Independent Audit committee members have remained as part of the committee since 2008 There has been no complaints from any
Harpreet Kaur Kang Independent Directors 2019 stakeholder in the past 5 years.
Audit
FY17 FY18 FY19 FY20 FY21 Consumer Stakeholder
Committee Stakeholder
Prafull Prafull Prafull Prafull Prafull Complaints Complaints
Complaints
Anubhai Anubhai Anubhai Anubhai Anubhai Since 2006
Audit committee comprises of 3 independent directors as of
FY21
(Chairman) (Chairman) (Chairman) (Chairman) (Chairman) 2021  
Audit Committee FY17 FY18 FY19 FY20 FY21
Name of
A.K. Kundra
S.K. Bijlani
A.K. Kundra
S.K. Bijlani
A.K. Kundra
S.K. Bijlani
A.K. Kundra
S.K. Bijlani
A.K. Kundra
S.K. Bijlani
Since 2007
Since 2008
2020  
Independent Directors 5 4 4 4 3
Committee
member D B Jain D B Jain D B Jain D B Jain NA 2019  
Non- Independent
D L Sharma D L Sharma D L Sharma D L Sharma NA 2018  
 
1 1 1 1 0 Shravan
Directors NA
Talwar 2017

Nomination and Remuneration Corporate Social Responsibility

Audit Committee Stakeholders Relationship Committee Risk Management Committee
Committee Committee
Mr. Prafull Anubhai Mr. A.K. Kundra Mr. A.K. Kundra Mr. Prafull Anubhai Mr. Prafull Anubhai
Board members (Chairman) (Chairman) (Chairman) (Chairman) (Chairman)
composition in various Mr. A.K. Kundra Mr. Prafull Anubhai Mr. Sachit Jain Mr. Neeraj Jain Mr. Neeraj Jain
committees
Mr. S.K. Bijlani Mr. S.P. Oswal Mr. Suchita Jain Mr. Sachit Jain Mr. D.K. Sindwani
Mr. Sachit Jain Mr. Rajeev Thapar
(In Rs.mn) 2017 2018 2019 2020 2021

Capital and other
Contingent liabilities and commitments 1,219 429 2,961 2,888 2,883
commitments
as % of net worth 2.9% 0.9% 5.4% 4.8% 4.5%
(In Rs.mn) 2017 2018 2019 2020 2021

Corporate Social Amount Required to be spent 154 170 198 199 154
Responsibility Spend Amount Spent 59 149 132 200 104
Amount Spent/ Required 38% 88% 67% 100% 67%
(In Rs.mn) 2017 2018 2019 2020 2021
Audit Fees Audit fee 4 5 6 6 7
For other services 3 3 2 3 1
2017 2018 2019 2020 2021

Auditors Statutory Auditors S.C Vasudeva & Co Deloitte Haskins & Sells, LLP Deloitte Haskins & Sells, LLP Deloitte Haskins & Sells, LLP Deloitte Haskins & Sells, LLP
Secretarial Auditors B.K Gupta And Associates B.K Gupta And Associates B.K Gupta And Associates Ashok K Single & Auditors Ashok K Single & Auditors
Source: Company Filings and Spark Capital Research
Key Managerial Person Salary and Remuneration Dividend pay-out (%)

Director Designation 2017 2018 2019 2020 2021
17.50 17.50
Mr. S.P. Oswal Promoter Directors - Chairman & Managing Director 266.6 151.9 188.3 65.3 92.4
15.0 15.00 15.00
Ms. Suchita Jain Promoter Directors - Vice- Chairperson & Joint Managing Director 8.8 16.8 18.5 22.2 22.3 24%
Mr. Neeraj Jain Executive Non-Independent Director - Joint Managing Director 11.1 16.6 17.9 18.6 18.6
15% 14%
Mr. Sachit Jain Promoter Directors - Non-Executive Director 11.8 14.0 1.6 0.0 0.0 14%
Mr. Prafull Anubhai Executive Director 0.4 0.4 0.5 0.4 0.5 9%
Mr. A.K. Kundra Independent Directors 0.6 0.5 0.7 0.5 0.4
FY16 FY17 FY18 FY19 FY20 FY21
Mr. S.K. Bijlani Independent Directors 0.3 0.3 0.2 0.3 0.3
Dividend Declared (Rs.) Payout (%)
Mr. Parampal Singh Independent Directors 0.0 0.0 0.2 0.1 0.1
Ms. Harpreet Kaur Kang Independent Directors 0.0 0.0 0.0 0.1 0.1
Mr. D.L. Sharma Non-Executive Non-Independent Director 0.0 0.0 0.0 0.0 0.0 Promoter Holdings (%)
Mr. R.M. Malla Independent Directors 0.2 0.2 0.3 0.2 0.1 62.3 62.1 62.1 62.1 62.1 62.2 62.2 62.1 62.2 62.2 62.2 62.2 62.8 63.3 63.2 63.2
Mr. D.B. Jain Independent Directors 0.2 0.3 0.4 0.3 0.2
Mr. Rajeev Thapar CFO 4.9 5.6 6.1 6.6 8.1
Mr. Sanjay Gupta Company Secretary 0.9 1.5 1.9 2.0 2.1
Mr. Shravan Talwar Independent Directors 0.1 0.1 0.0 0.0 0.0
Nominee
Mr. Kumar Neel Lohit 0.1 0.1 0.0 0.0 0.0
Directors
Total 305.7 208.1 236.8 116.5 145.4
7.1% 4.8% 4.7% 2.1% 2.7%
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
% of employee Cost
% of PAT 3.1% 3.6% 3.2% 2.0% 3.5%

Date of
Director Name Corporate name Paid Up Capital E-filing status Appointment date Cessation date
Incorporation
Flamingo Finance And Investment Co Ltd 2 22-Dec-82 Active 20-Apr-93 -
Santon Finance And Investment Co Ltd 2 22-Dec-82 Active 20-Apr-93 -
Ramaniya Finance And Investment Company Limited 2 07-Jun-83 Active 09-Jan-02 -
Vardhman Acrylics Limited 803.6 24-Dec-90 Active 24-Dec-90 -
Mr.SP Oswal
Vardhman Holdings Limited 31.9 27-Dec-62 Active 12-Apr-71 -
Devakar Investment And Trading Company Pvt Ltd 193.3 08-May-80 Active 20-Apr-93 -
Mahavir Spinning Mills Private Limited 30.3 26-Apr-78 Active 08-Jan-98 -
Vmt Spinning Company Limited 207 27-Jun-90 Active 30-Dec-93 -
Ramaniya Finance And Investment Company Limited 2 07-Jun-83 Active 30-Sep-19 -
Santon Finance And Investment Co Ltd 2 22-Dec-82 Active 30-Sep-19 -
Flamingo Finance And Investment Co Ltd 2 22-Dec-82 Active 30-Sep-19 -
Vardhman Acrylics Limited 803.6 24-Dec-90 Active 30-Dec-95 -
Vardhman Holdings Limited 31.9 27-Dec-62 Active 30-Mar-05 -
Mr.Sachit Jain
Devakar Investment And Trading Company Pvt Ltd 193.3 08-May-80 Active 08-Jan-98 -
Vardhman Special Steels Limited 405.1 14-May-10 Active 01-Apr-11 -
Mahavir Spinning Mills Private Limited 30.3 26-Apr-78 Active 08-Jan-98 -
The Alloy Steel Producers Association Of India 0 11-Sep-68 Active 20-Sep-13 -
Vtl Investments Limited 40 23-Feb-94 Active 30-Sep-19 -
Vardhman Acrylics Limited 803.6 24-Dec-90 Active 28-Sep-21 -
Vmt Spinning Company Limited 207 27-Jun-90 Active 29-Sep-20 -
Vardhman Nisshinbo Garments Company Limited 140 17-Apr-09 Active 30-Sep-21 -
Devakar Investment And Trading Company Pvt Ltd 193.3 08-May-80 Active 30-Sep-19 -
Mahavir Spinning Mills Private Limited 30.3 26-Apr-78 Active 30-Sep-19 -
Mrs. Suchita Jain Flamingo Finance And Investment Co Ltd 2 22-Dec-82 Active 30-Sep-02 -
Santon Finance And Investment Co Ltd 2 22-Dec-82 Active 30-Sep-02 -
Ramaniya Finance And Investment Company Limited 2 07-Jun-83 Active 30-Sep-02 -
Vardhman Holdings Limited 31.9 27-Dec-62 Active 30-Mar-05 -
Vtl Investments Limited 40 23-Feb-94 Active 30-Sep-15 -
Vardhman Special Steels Limited 405.1 14-May-10 Active 14-May-10 -
The Cotton Textiles Export Promotion Council 0 04-Oct-54 Active 25-Mar-21 -
Vardhman Spinning and General Mills Limited 0.5 31-Jan-07 Active 30-Sep-15 -
Vardhman Nisshinbo Garments Company Limited 140 17-Apr-09 Active 27-Aug-14 -
Mr. Neeraj Jain
Vardhman Apparels Limited 3 28-Aug-03 Active 28-Aug-03 -
Vardhman Textile Components Limited 33.2 20-Aug-81 Active 21-Nov-96 -
Vmt Spinning Company limited 207 27-Jun-90 Active 01-Apr-13 -
Vardhman Textile Subsidiaries Source: Company RoC filings, Spark Capital

Dewakar Investment & Trading 34% Mr.S.P Oswal 56% Mr.S.P Oswal 47%
Adishwar Enterprise Ltd 33% Mrs. Suchita Jain 22%
Mrs. Suchita Jain 15%
Mr.S.P Oswal 2%
Mrs. Shakun Oswal 14%
Flamingo Finance 2% Mrs. Shakun Oswal 35%
Adishwar Enterprise 7%
Others 4%
Others 3%
Others 1%
Total Promoter Holdings 75%
Listed Company - Public 25% Total Promoter Holdings 100% Total Promoter Holdings 100%
Devakar Investment and

Vardhman Holdings 28% Trading
11% Adishwar Enterprise LLP 18% Other Family Members 7%
63% Vardhman Textiles Ltd
Vardhman Special Steels Ltd Vardhman Acrylics Ltd Vardhman Yarns & Threads Vardhman Spinning and General Mills 100% Owned Subsidiaries
Vardhman Textiles Ltd 24% Vardhman Textiles Ltd 71% Vardhman Textiles Ltd 11% Vardhman Textiles Ltd 50% VMT Spinning Company 100%
Mr. Sachit Jain 14%
Dewakar Investment & Trading 3% American & Efird Global 89% Vardhman Holdings 50% VTL Investment Limited 100%
Vardhman Holdings 13%
Dewakar Investment & Trading 5% Vardhman Holdings 1% Vardhman Nisshinbo Garments 100%
Others 5%
Listed Company - Public 39% Listed Company - -Public 25%

Financial Summary
Abridged Financial Statements
Rs. mn FY17 FY18 FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26e
Profit & Loss 60,300 62,483 68,779 67,350 61,399 90,269 99,007 1,07,674 1,13,892 1,16,135
Revenue 30,996 28,437 32,822 31,801 28,794 48,745 51,484 54,914 58,085 60,390
Gross profit 11,993 9,030 11,938 9,373 8,138 21,226 21,734 22,904 24,169 25,163
EBITDA 3,434 2,400 2,540 3,332 3,638 3,740 4,228 5,417 5,766 6,115
Depreciation 8,559 6,630 9,397 6,041 4,500 17,487 17,506 17,487 18,403 19,048
EBIT 5,539 1,974 2,227 1,745 2,016 2,142 1,970 2,146 2,306 2,519
Other Income 1,287 1,182 1,197 1,353 1,133 1,289 1,664 1,679 1,259 779
Interest expense 0 0 0 0 0 0 0 0 0 0
Exceptional items 12,811 7,421 10,428 6,433 5,383 18,339 17,812 17,954 19,450 20,789
PBT 9,814 5,812 7,307 5,775 4,099 14,030 13,617 13,717 14,859 15,878
Reported PAT (after minority interest) 9,814 5,812 7,307 5,775 4,099 14,030 13,617 13,717 14,859 15,878
Adj PAT 163.1 104.5 129.4 102.2 72.5 243.3 236.2 237.9 257.7 275.4
EPS (Rs.) (Adjusted)
Balance Sheet 42,732 49,537 55,915 60,479 64,738 77,790 90,004 1,00,998 1,13,113 1,26,020
Net Worth 2,557 2,556 3,233 2,435 2,569 2,569 2,569 2,569 2,569 2,569
Deferred Tax 18,090 20,310 19,752 20,031 18,482 24,482 30,982 24,982 16,982 8,982
Total debt 1,434 1,393 1,506 1,605 1,710 1,785 1,867 1,958 2,058 2,167
Other liabilities and provisions 64,813 73,796 80,406 84,550 87,499 1,06,626 1,25,423 1,30,507 1,34,722 1,39,739
Total Networth and liabilities 32,812 35,037 43,290 50,523 53,213 60,213 77,213 82,213 87,213 92,213
Gross Fixed assets 25,713 26,146 31,862 36,135 35,243 38,518 51,303 50,898 50,143 49,038
Net fixed assets 490 1,057 2,737 1,416 780 780 780 780 780 780
Capital work-in-progress 193 163 149 150 148 133 120 108 97 87
Intangible Assets 8,588 7,486 5,924 4,582 4,376 4,376 4,376 4,376 4,376 4,376
Current Investments 447 738 439 2,799 2,115 1,400 2,397 2,912 4,316 9,156
Cash and bank balances 10,987 11,924 8,605 8,151 8,779 8,779 8,779 8,779 8,779 8,779
Loans & advances and other assets 18,396 26,282 30,691 31,317 36,060 52,642 57,669 62,656 66,233 67,524
Net working capital 64,813 73,796 80,406 84,550 87,500 1,06,627 1,25,423 1,30,508 1,34,723 1,39,739
Total assets 60,822 69,847 75,667 80,510 83,221 1,02,273 1,20,986 1,25,980 1,30,096 1,35,002
Capital Employed 51,298 60,566 66,568 71,712 75,950 95,717 1,13,434 1,17,913 1,20,625 1,20,691
Invested Capital (CE - cash - CWIP) 9,056 12,086 13,390 12,650 11,992 18,706 24,209 17,695 8,291 -4,549
Net debt
Cash Flows 16,589 3,143 7,563 9,627 2,147 4,645 16,707 17,917 20,591 23,872
Cash flows from Operations (Pre-tax) 13,503 1,022 4,990 8,494 1,684 60 12,254 13,429 15,729 18,675
Cash flows from Operations (post-tax) 2,234 3,564 8,834 6,499 2,396 7,000 17,000 5,000 5,000 5,000
Capex 11,269 -2,542 -3,845 1,996 -713 -6,940 -4,746 8,429 10,729 13,675
Free cashflows 11,260 -3,356 -4,686 1,006 -715 -7,929 -6,149 5,706 7,986 10,704
Free cash flows (post interest costs) -3,432 -1,673 -2,775 -3,790 -1,159 -4,508 -14,690 -2,512 -2,323 -2,084
Cash flows from Investing -11,802 921 -2,518 -2,956 -1,747 3,733 3,433 -10,402 -12,002 -11,751
Cash flows from Financing 9,034 8,223 6,362 7,381 6,491 5,776 6,773 7,288 8,691 13,532
Total cash & liquid investments 60,300 62,483 68,779 67,350 61,399 90,269 99,007 1,07,674 1,13,892 1,16,135
Financial Summary
Growth ratios 2.8% 3.6% 10.1% -2.1% -8.8% 47.0% 9.7% 8.8% 5.8% 2.0%
Revenue 4.4% -24.7% 32.2% -21.5% -13.2% 160.8% 2.4% 5.4% 5.5% 4.1%
EBITDA 59.7% -40.8% 25.7% -21.0% -29.0% 242.3% -2.9% 0.7% 8.3% 6.9%
Adj PAT
Margin ratios 51.4% 45.5% 47.7% 47.2% 46.9% 54.0% 52.0% 51.0% 51.0% 52.0%
Gross 19.9% 14.5% 17.4% 13.9% 13.3% 23.5% 22.0% 21.3% 21.2% 21.7%
EBITDA 16.3% 9.3% 10.6% 8.6% 6.7% 15.5% 13.8% 12.7% 13.0% 13.7%
Adj PAT
Performance ratios 138% 35% 63% 103% 26% 22% 77% 78% 85% 95%
Pre-tax OCF/EBITDA 26% 2% 7% 12% 2% 0% 11% 11% 13% 15%
OCF/IC (%) 24% 13% 14% 10% 7% 18% 15% 14% 13% 13%
RoE (%) 17% 10% 11% 9% 6% 15% 12% 12% 12% 12%
RoCE (%) 23% 13% 16% 10% 8% 21% 17% 16% 16% 16%
RoCE (Pre-tax) 17% 12% 15% 9% 6% 20% 17% 15% 15% 16%
RoIC (Pre-tax) 1.84 1.78 1.59 1.33 1.15 1.50 1.28 1.31 1.31 1.26
Fixed asset turnover (x) 0.93 0.85 0.86 0.80 0.70 0.85 0.79 0.83 0.85 0.83
Total asset turnover (x)
Financial stability ratios 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.1 -0.0
Net Debt to Equity (x) 0.8 1.3 1.1 1.3 1.5 0.9 1.1 0.8 0.3 -0.2
Net Debt to EBITDA (x) 10 1 4 6 1 0 7 8 12 24
Interest cover (x) 106 132 139 145 166 166 166 166 166 166
Inventory days 136 159 164 170 210 210 210 210 210 210
Working capital days 2309
Valuation metrics 60 56 56 56 57 58 58 58 58 58
Fully Diluted Shares (mn) 1,33,137 1,33,137 1,33,137 1,33,137 1,33,137 1,33,137 1,33,137 1,33,137 1,33,137 1,33,137
Market cap (Rs.mn) 14 23 18 23 32 9.5 9.8 9.7 9.0 8.4
P/E (x) 10 130 27 16 79 2210 11 10 8 7
P/OCF(x) 1,41,703 1,44,166 1,43,790 1,44,370 1,44,349 1,51,064 1,56,567 1,50,052 1,40,648 1,27,808
EV (Rs.mn) (ex-CWIP) 12 16 12 15 18 7 7 7 6 5
EV/ EBITDA (x) 10 141 29 17 86 2,508 13 11 9 7
EV/ OCF(x) 8.5% -1.9% -2.9% 1.5% -0.5% -5.2% -3.6% 6.3% 8.1% 10.3%
FCF Yield 3 3 2 2 2 2 1 1 1 1
Price to BV (x) 0.0% 17.7% 14.1% 20.9% 0.0% 7.0% 10.3% 19.9% 18.5% 18.7%
Dividend pay-out (%) 0.0% 0.7% 0.6% 0.8% 0.0% 0.7% 1.1% 2.0% 2.1% 2.2%
Dividend yield (%) 2.8% 3.6% 10.1% -2.1% -8.8% 47.0% 9.7% 8.8% 5.8% 2.0%

Crystal Ball Gazing
Vardhman revenues are likely to grow at ~14% CAGR over the next five years led by ~24% growth in the yarn segment . EBITDA margins to be a function of Cotton – Yarn price
spread. We anticipate margins to be volatile over the long term. Assuming an exit multiple of 12.5x on our FY26E EPS of Rs. 275.4 and a cumulative dividend of Rs. 139/share.
We have assumed an exit multiple of 12.5x; the assumed

Yarn segment revenue contribution to increase from 66% in Capital Efficiency to seem lower than FY22 levels due to decline
multiple is higher than its +2SD levels on a 5 year historical
FY21 to ~72% by FY26 in PAT margins
average.
FY11-FY14 FY14-FY17 FY17-FY21 FY21-FY26E FY11-FY14 FY14-FY17 FY17-FY21 FY21-FY26E Implied P/E multiple FY26E EPS (Rs.) Price target
Revenues CAGR 11.8% -0.7% 0.5% 13.6% RoE (%) 11.0% 13.3% 11.9% 12.6% 12.0 275 3305
Gross Margin 52% 52% 48% 52.0% RoCE (%) 17.6% 19.3% 15.0% 14.5%
12.5 275 3442
EBITDA CAGR 10.2% -6.4% -9.2% 25.3% RoIC (%) 8.6% 13.4% 11.1% 13.4%
EBITDA margin 20% 20% 16% 21.9% Average 1 yr fwd
EPS CAGR 10.6% 12.4% -18.3% 30.6% PE (x) 5.0 5.6 8.8 9.5
Total Asset Turnover (x) 0.85 0.98 0.86 0.8 EV/EBITDA (x) 5.4 4.5 6.1 6.6
Total WC days 179 148 157 210 Peak 1 yr fwd
Pre-tax OCF/EBITDA (%) 102% 104% 104% 71% PE (x) 10.1 9.4 11.3 14.1
Post Tax OCF as a % of IC 11% 22% 12% 10% EV/EBITDA (x) 7.3 5.9 7.8 8.4
Debt/EBITDA 3 1 1 0.1
Total
Entry = Rs. 2309 EPS CAGR of ~31%, exit Return of
Cumulative Dividends: Rs. 139
@ 9.8x FY23E EPS multiple of 12.5x on FY26E EPS 55%

Manufacturing Locations
Plant Locations
Spinning Textiles ➢ Auro Textiles (Unit- I & II), Baddi

➢ Auro Textiles (Unit- I & II), Baddi
➢ Anant Spinning Mills

Dyeing ➢ Auro Dyeing (Unit-I & II), Baddi
➢ Arihant Spinning Mill
Malerkotla
➢ Auro Dyeing (Unit-I & II), Baddi
➢ Arisht Spinning Mills Ludhiana
Hoshiarpur Baddi
➢ Auro Spinning Mills, Baddi
➢ Mahavir Spinning Mills (Textile Div) (Unit-I), Baddi
➢ Mahavir Spinning Mills (Textile Div) (Unit-II), Baddi
➢ Vardhman Spinning and General Mills, Ludhiana Satlapur
Budhni
➢ Vardhman Spinning Mills, Baddi
Mandideep
Jhagadia
Yarn Subsidiaries & Associates
➢ Jhagadia, Gujarat Fibre Unit -VAL
➢ Baddi, Himachal Yarn- VMT

➢ Vardhman Yarns, Satlapur
➢ Ludhiana, Punjab Garment - Nishhinbo
➢ Vardhman Yarns (Power Div), Satlapur Vizag
➢ Ludhiana, Punjab Steel Unit - VSS
➢ Hoshiarpur, Punjab Sewing Threads - VYTL

Weaving
➢ Ludhiana, Punjab Sewing Threads - VYTL
➢ Perundurai, Tamil Nadu Sewing Threads - VYTL

Perundurai
➢ Auro Weaving Mills, Baddi ➢ Vizag, Andhra Pradesh Sewing Threads - VYTL

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BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year horizon
Absolute Rating
Interpretation
ADD Stock expected to provide positive returns of >5% – <15% over a 1-year horizon SELL Stock expected to fall >10% over a 1-year horizon
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Indian Textile Sector - Initiating Coverage

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SPARK CAPITAL UNIQUEORNS SERIES COVERAGE

Indian Textile Sector –

“vestis virum facit” meaning “clothes make the man”

Indian Textile Sector – Indian Spinners leading the turnaround

Total Textiles Exports from India (USD bn)

Cotton + Cotton yarn Made-ups Knitted RMG Woven RMG Total

RMG – Ready Made Garments; Source: India EXIM data,

Indian Textile Sector – Indian Spinners leading the turnaround

FY11 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY26E 0

Indian Textile Sector – Indian Spinners leading the turnaround

34% China's Market Share %

* Assuming the benefits that could accrue from EU-Vietnam BTA

Source: India EXIM data, UN Comtrade, OEC and This

Indian Textile Sector – Indian Spinners leading the turnaround

Manmade Filaments + Synthetic Yarn ($28bn) Woven ($5bn) Made-Ups ($28bn)

India Cotton Exports ($ mn) 700 India Made-Ups ($ mn)

Source: India EXIM data, UN Comtrade and SparkThis

Indian Textile Sector – Indian Spinners leading the turnaround

Source: Global Cotton Outlook, UN Comtrade andThis

Indian Textile Sector – Indian Spinners leading the turnaround

25% 16% 19% 20% 20% 20%

Source: India EXIM data, UN Comtrade and SparkThis

Indian Textile Sector – Indian Spinners leading the turnaround

Cotton Prices in India have shot up to an all-time high and

correction in cotton price.

Source: Bloomberg, CCI, China Yarn Pricing and Spark

Indian Textile Sector – Indian Spinners leading the turnaround

MMSF Cotton MSP (INR/Qtl) Shankar 6 (INR/Qtl)

With 3 major cotton growing states going to the elections in the

200 With underlying demand drivers

Source: US Census Bureau, CCI, election commission

Indian Textile Sector – Indian Spinners leading the turnaround

China India Pakistan India Made-Ups (USD mn)

Source: India EXIM data, US Census Bureau and Spark Capital

Indian Textile Sector – Indian Spinners leading the turnaround

In the knitted garments segment, Bangladesh has gained in the

Indian Textile Sector – Indian Spinners leading the turnaround

Source: Bloomberg, IPCC, UN Comtrade and SparkThis

Indian Textile Sector – Indian Spinners leading the turnaround

Source: Bloomberg, IPCC, UN Comtrade and SparkThis

Indian Textile Sector – Indian Spinners leading the turnaround

Source: World bank, ARIC and Spark Capital research

Indian Textile Sector – Indian Spinners leading the turnaround

India FTA policy over the past 8 years.

2014 2015 2016-18 2019

Total 58.5% 60.1% 49.5%

Indian Textile Sector – Indian Spinners leading the turnaround

Given that Global Supply Chain is

Indian Textile Sector – Indian Spinners leading the turnaround

▪ Setting up of 7 MITRAs encompassing 1000+

Scheme for Integrated Textile ▪ The Government of India grants up to

▪ PowerTex India is an all-inclusive scheme

Indian Textile Sector – Indian Spinners leading the turnaround

India T&A Export Revenues

Source: Bloomberg, Company Filings, Spark Capital

Indian Textile Sector – Indian Spinners leading the turnaround

0 80% 250 1.4 1.8

Net Debt Net Debt/Equity

Cash In Hand (Rs.bn)

Source: Bloomberg, Company Filings, Spark Capital

Indian Textile Sector – Indian Spinners leading the turnaround

Source: Bloomberg, Company Filings, Spark Capital