KLRF Ltd: Hidden gem (BSE Code: 507598) (CMP: Rs.58.50) (FV: Rs.10)
Kovilpatti Lakshmi Roller Flour Mills Ltd (KLRF) with its brand named ‘Kuthuvilakku’ came into existence in 1964 with the establishment of 46,800 MT of wheat flour mill at Gangaikondan in Tamil Nadu. The Company operates in five business segments: Flour Mill Division: The flagship division of the Company has an installed capacity of 74,000 TPA but operates at 70% capacity utilization with 30% spare capacity. From a traditional stone mill, it has transformed itself into a well-known manufacture of branded whole meal Atta that has more fibre, minerals and vitamins and is rich in aroma. The Company’s product portfolio comprises the entire range of wheat flour products that meet the demand of bakeries, paratha makers, hoteliers, sweet shops & confectioneries and domestic end-users. KLRF is a pioneer in tapping the high margin retail segment by launching 1/2 kg and 1 kg packs of Atta that are well-accepted by consumers due to its consistent quality and affordable pricing. The Company’s brands include Kuthuvilakku, Kera and Alamaram. Textile Division: In 1982, KLRF diversified into the textile business under the name of KLRF Textiles with a 30,000 spindle unit and 1,344 rotors. After further expansions, it turned into a leading yarn manufacturer and exporter. This division posted operating loss of Rs.3 crore mainly due to fall in yarn prices on account of a global slowdown and lower off-take from China.
Sheet Metal Division: Established in October 1978, KLRF Sheet Metal Industries was set up to cater to the needs of M/s Lakshmi Machine Works. It is engaged in various business activities including ferrous castings, flour milling, textile spinning, sheet metal fabrication, plantation and flour milling machinery manufacturing, rice color sorting, machine manufacturing and trading of electrical and industrial goods. It also acts as a trading agent of Probat Werke (Germany) for their entire range of Coffee Roasting machines and M/s. Mahlkonig (Germany) for their entire range of Coffee Grinding machines. KLRF Sheet Metal Industries has all facilities for sheet metal fabrication under one roof. Windmill Division: KLRF’s Wind Mill Division has an installed capacity of 6.25 MW. The the entire power generated is used for captive consumption. Its windmills are well maintained and their performance is satisfactory. Engineering (Foundry/Casting) Division: KLRF’s Foundry division has an installed capacity of 10,800 TPA with 90% capacity utilization. It contributes 30% of the Company’s total turnover. Investment Rationale: For FY15, KLRF registered a turnover of Rs.222 crore with EBIDTA of Rs.12.67 crore. Its Flour Mill division posted EBIDTA of Rs.9.3 crore (59% of the total turnover). Its Textile and Engineering divisions posted EBIDTA of Rs.(2.31) crore and Rs.5.68 crore respectively. For H1FY16, KLRF registered a turnover of Rs.106 crore with net profit of Rs.5 crore fetching an EPS of Rs.9.9. The Company’s turnover and profit could double in H2FY16 which would fetch an EPS of Rs.20 for FY16. The management is optimistic on KLRF’s Flour Mill division due to consistent demand and favorable availability of quality wheat. It has decided to shut down two textile units and one sheet metal unit due to its unsatisfactory performance and considering the uncertainty in these sectors. The sales proceeds will help KLRF reduce its debt and also improve its bottom-line (Rs.6 crore over the last 3 quarters resulting in an EPS of Rs.12). Its engineering division increased production on availability of dedicated power supply and is expected to improve further in FY16. Valuation: The Company has an equity capital of Rs.5 crore and its share book value works out to Rs.46. This 50-year old company with trailing twelve month (TTM) sales of Rs.195 crore, has promoter holding of 51%. Its recession-proof business of branded foods and high potential Engineering (Foundry/Casting) business, is available at a market cap of just Rs.29.37 crore, which is very cheap looking at the potential earning power of the Company whose ROE, ROCE and OPM margin stand at 14%, 11% and 13% respectively. The KLRF share trades at a P/E multiple of 5 against its market cap of Rs.29.37 crore compared to its peers that are trading at a P/E multiple of 20 and market cap:sales ratio of 4. Thus, this turnaround company, which is likely to notch an EPS of about Rs.30-35 in the next 2-3 years could be quoted at Rs.300 at a P/E multiple of just 10.
Sheet Metal Division: Established in October 1978, KLRF Sheet Metal Industries was set up to cater to the needs of M/s Lakshmi Machine Works. It is engaged in various business activities including ferrous castings, flour milling, textile spinning, sheet metal fabrication, plantation and flour milling machinery manufacturing, rice color sorting, machine manufacturing and trading of electrical and industrial goods. It also acts as a trading agent of Probat Werke (Germany) for their entire range of Coffee Roasting machines and M/s. Mahlkonig (Germany) for their entire range of Coffee Grinding machines. KLRF Sheet Metal Industries has all facilities for sheet metal fabrication under one roof. Windmill Division: KLRF’s Wind Mill Division has an installed capacity of 6.25 MW. The the entire power generated is used for captive consumption. Its windmills are well maintained and their performance is satisfactory. Engineering (Foundry/Casting) Division: KLRF’s Foundry division has an installed capacity of 10,800 TPA with 90% capacity utilization. It contributes 30% of the Company’s total turnover. Investment Rationale: For FY15, KLRF registered a turnover of Rs.222 crore with EBIDTA of Rs.12.67 crore. Its Flour Mill division posted EBIDTA of Rs.9.3 crore (59% of the total turnover). Its Textile and Engineering divisions posted EBIDTA of Rs.(2.31) crore and Rs.5.68 crore respectively. For H1FY16, KLRF registered a turnover of Rs.106 crore with net profit of Rs.5 crore fetching an EPS of Rs.9.9. The Company’s turnover and profit could double in H2FY16 which would fetch an EPS of Rs.20 for FY16. The management is optimistic on KLRF’s Flour Mill division due to consistent demand and favorable availability of quality wheat. It has decided to shut down two textile units and one sheet metal unit due to its unsatisfactory performance and considering the uncertainty in these sectors. The sales proceeds will help KLRF reduce its debt and also improve its bottom-line (Rs.6 crore over the last 3 quarters resulting in an EPS of Rs.12). Its engineering division increased production on availability of dedicated power supply and is expected to improve further in FY16. Valuation: The Company has an equity capital of Rs.5 crore and its share book value works out to Rs.46. This 50-year old company with trailing twelve month (TTM) sales of Rs.195 crore, has promoter holding of 51%. Its recession-proof business of branded foods and high potential Engineering (Foundry/Casting) business, is available at a market cap of just Rs.29.37 crore, which is very cheap looking at the potential earning power of the Company whose ROE, ROCE and OPM margin stand at 14%, 11% and 13% respectively. The KLRF share trades at a P/E multiple of 5 against its market cap of Rs.29.37 crore compared to its peers that are trading at a P/E multiple of 20 and market cap:sales ratio of 4. Thus, this turnaround company, which is likely to notch an EPS of about Rs.30-35 in the next 2-3 years could be quoted at Rs.300 at a P/E multiple of just 10.
Comments
Post a Comment