On the first look,KTIL business model looks easy and simple to understand but when we dig deeper,there are some unanswered questions.
Currently they are operating at capacity in Kandla,Guajrat,the future growth has to from capacity expansion or better realizations.Their other 2 projects at Kakinada,AP and Pipav,Gujarat are still work in progress.However,all their focus is currently on building Kesar Multi modal logistics park(KMML) in MP which is expected be a game changer for the future growth of KTIL.
KMML is a special purpose vehicle in which KTIL has 99% stake.This is a 89 acre project under public private partnership,land was given on a long-term basis for 33 years which includes creating warehouses like rail warehouses,agro warehouses,creating cold storage facilities,Container Frieght services,Container Depot and rail sidings to connect to the railways.This logistics park will be accessible by multiple modes like road,rail. Business model looks convincing since the logistics in India is still a developing sector.Organized retail and growing consumption among Indians have created the need for parks like this.This business has a high entry barrier and less competition.If a park like this is set up in an area like Phaerkeda,there is no point in creating similar one closer to this area.It does not make any economical sense for the competition to get the painful approvals,building the infrasturture and finally finding no takers for their project.So,in that case KMLLâs choice of location is really good based on the available information in the public domain.More over,one of the memberâs comment about this area being the grain belt adds comfort about this location choice.It is conveniently located next to the rail track and National Highway clearly shows the managementâs business acumen in selecting the location.These kinds of business requires huge support from the government, since they need permission from Railways,Highways and various other government agencies.Since MP is under BJP rule and now the central government also comes under BJP rule gives much needed relief on the political front.Both are pro-business governments.
On the management front,since the promoters have rich experience and the kind of team they have built shows their credibility and commitment to this project.
So,far the business model and the management look good.
But,There are so many unanswered questions still about this project.In one of the posts,i read that they took debt to the tune of Rs.400 crores.
1)How will this debt affects the balance sheet of KTIL?How much will be transferred to the KTILâs book?
2)Even if we consider 11% interest for this loan,interest payments will cross Rs.40 crores each year. Current balance sheet has a debt of Rs.55 crores and if we add Rs.400 crores it will be 7-8 times the current debt level.To pay the interest and cover the depreciation,the sales have to grow exponentially in the forthcoming years.How much sales KMLL will contribute from the current KTILâs sales of Rs.30 crores?
3)What will be maintenance cost of the KMLL?As per one of the report shared by harbin,for a project of this scale,the maintenace cost will bearound Rs.20-Rs.25 crores per year(Infrastructure,Equipment,other recurring costs).
4)What about the occupancy level of the rail warehouses,agro processing warehouses and cold storage?I know this is too early to comment on.Even if we take 50% capacity utilization,it has to generate a sales of atleast Rs.400-Rs.500 crores.Even if we take a OPM profit margin of 20%,it will be Rs.100,then there are Interest and depreciation.Will the sales grow 10 times In the next few years?
5)How do they fund the other projects in Kakinada and Pipav? May be equity dilution?
If we get to know about the financial part,it will provide a better picture and adds conviction to allocate a large amount of capital.
Please bear with me if I have stated anything incorrectly.I am still new to investing.
