Kingfa Science & Technology (India) Ltd-Could it be a dark horse for Make In India Theme?

[Surender]

Kingfa Science & Technology (India) Ltd
Industry: Plastic Products
Mkt Cap (15Jan2017) : 890 Cr. Financial details are readily available at:
https://www.screener.in/company/KINGFA/

Kingfa acquired controlling (66.5%) stakes in Indian compounder Hydro S&S Industries Ltd. in 2013 for 10.65 crore (US$1.94 million). The company changed its name from Hydro S&S Industries Ltd to Kingfa Science & Technology (India) Ltd.Presently, it operates through three manufacturing units situated at Puducherry, Pune and Manesar (Gurgaon).
a) Puducherry(Present Capacity: 19,200 MTPA)
b) Pune(Present Capacity: 15,000 MTPA)
c) Gurgaon(Present Capacity: 6,000 MTPA)
Combined manufacturing capacity of 40,200 MTPA.

Promoters viz; M/s Kingfa Sci and Tech Co. Ltd. holds 74.99% equity share capital

A report from HDFC has more details about the company:
http://hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3017336

Products : Plastic Products for Auto, Appliances, Lighting and electrical industry
a. Polypropylene based compounds
A metal substitute in engineering applications, ‘HYFIL’ brand, Used in car bumpers, Instrument panel,Door Trims, A,B, C Pillar Trims, Grab Handle, Fans and Washing Machine TUBS
b. Engineering Plastics Compounds.
Home Appliances (CFL Housings, LED light housings, MCB’s etc, Televisions, Connectors and Telecom industry)
c. Thermoplastic Elastomers compounds.
Pen Grips, Bushes,Bellows for 2 wheelers, pads, Seals, strips , washers etc

Top ten customers for the Financial Year 2015-16
• Bright Auto Plast Ltd.
• Plastic Omnium Exterior (India) Pvt Ltd.
• Motherson Automotive Technologies & Engineering
• Renault Nissan Automotive India Pvt Ltd
• Hanil Automotive India Pvt Ltd.
• Mutual Industries Ltd.
• Sundaram Auto Components Limited
• Reydel Automotive India Pvt Ltd.
• Yanfeng India Automotive Interiors Systems Pvt Ltd.
• Tractors and Farm Equipment Ltd.

More customers at india are shown in the attached snapshot:

Recently company got approval for rights issue.
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1480919278714.pdf

OBJECTS OF THE ISSUE
Company intends to deploy the Issue Proceeds to finance the fund requirements for:

1. Setting up of a new facility at Chakan Industrial Area, Village –Vasuli Tal-Khed, District-Pune;

http://www.plasticsnews.com/article/20151218/NEWS/151219821/kingfa-announces-major-expansion-in-india

2. Upgradation of Research & Development facility at the existing set-up at Puducherry;
3. Expansion of facilities at the existing set-up at Puducherry and Manesar;
4. Meeting the working capital requirement;
5. Meeting Expenses to the Rights Issue.

Per say Rights issue Document—>

A) Our Business Strategy

We are into the business of manufacturing and supply of high quality custom tailored Engineering thermoplastics based on Polypropylene (PP), Polybutylene terephthalate (PBT), Polyamide ¶ and Thermoplastics Elastomers. Although we currently supply to various industry segments, about 88% of our revenue comes from the Automotive industry.Going forward, we want to focus on increasing our exposure and revenue contribution from industries other than the Automotive industry. Our focus would be directed towards segments which are poised to grow at higher rates. LED lightings, appliances (front loading washing machines), air conditioners, water heaters, electronic chargers, telecom are a few industry segments where we have started making progress already. With wider industry reach and exposure we would be able to mitigate any risk associated with dependency on single industry segment.

B) Rationale for the rights issue is as below:

Due to increased demand of the specialty products across multiple industry segments like electronic billers and printers, convenience appliances, telecom and office automation, mass transportation to name a few with increased sales volume, there is the need to increase our capability and capacity. Investment in upgradation of our R&D facilities would enable us to meet the diverse demand supported by development of new varieties of specialty products to meet the new norms of safety, comfort and performance. In view of the increased demand of our products we propose to expand our manufacturing capacities at our existing units at Puducherry and Manesar. However in view of the limited expansion options available at our existing manufacturing locations, we propose to set-up a new manufacturing unit at Pune (Chakan) of global scale and standards confirming to international safety, design and capability.
The facility will have an initial installed capacity of 23000 MTPA.
We propose to expand the capacities at our existing set-up at Puducherry plant from 17000 MTPA to 26,000 MTPA and Manesar plant from 6500 MTPA to 15,000 MTPA.
Post expansion the overall capacity at all the locations put together will be 94,500 MTPA.

Noteworthy Points:

1. Relationship with established players in industry: Customer base includes a diverse set of
   industries including Automotive, Home Appliances, Lighting, and other Industries.
2. Technical Strength of the main promoter i.e Kingfa China to develop cost effective formulations backed by our research and development
   team . More details about the Promoter:
   KINGFA SCI. & TECH CO.,LTD was founded in 1993
    KINGFA is the largest MODIFIED PLASTIC enterprise in Asia Pacific
    2013 Revenues in Excess of US$2.3 Billion
    A-share company listed in Shanghai Stock Exchange
    Leader in New Materials in China
    Honored as National Innovative Enterprise in China
    Sales offices world wide and Products sold across 100 Countries
    Approved sources for all major Trans National Companies and OEM’s
3. Capacity Installation and Utilization plan - Image attached below.
   
   
4. Company has availed unsecured loans from promoter - Kingfa Sci. & Tech. Co., Ltd.,(Kingfa China). The total outstanding payable to Kingfa China as on September 30, 2016 amounts to 1,599.79 lacs. The tenure of the said loan is 7½ years.
5. Logo’ ’ is registered in the name of the Promoter i.e; Kingfa China. As of now, neither entered into any agreement with Promoter nor paying any royalty for the usage of the Logo.

RISKS

1. Negative cash flows, incurred losses in past resulting in erosion of fifty percent of the then peak net worth. Consequently, company was notified to BIFR in 2014. Subsequently, company’s financial health improved and funds were infused in the Company by way of a Rights Issue in the FY 2015-2016. Further, for the FY 2015-16 the Company earned a net profit of 1079.95 lacs. Presently networth of the Company as on September 30, 2016 is12617.11 lacs. Vide our letter dated February 26, 2016 informed BIFR about the Company being out of the purview of BIFR.
2. In FY 2016, 88% of revenue came from the Automotive Industry - 4 wheeler. Also, supplies products to the consumer appliances industry viz ; front loading washing machines, air conditioners, LED & CFL lighting.
3. Primary raw material viz; Polymer resin is a petroleum based product leading to higher susceptibility to price fluctuations in future. 75% of raw material consists of Polypropylene.
4. Foreign currency volatility as raw materials like Polyamide 6 & PBTP, Glass Fibre and Elastomers are imported from countries like China, Malasia, Singapore, etc
5. Although, author does not present substantive evidence but does point a finger.
   Stock manipulation: Kingfa Science & Technology India

Disclosure:
No Position as of today. Shared the idea for discussion purpose. All the above is taken from various articles whose links are provided in this note.

[Surender]

Per say AReport2015-16:
Lot of information on initiatives and sales momentum building up under MDA section of the AR.

More risks:

• Very high dependency on the HQ (kingfa China). Under Cost of material consumed, Imported raw material shows a jump of 40%.
  
  
• Much hope on future without any past history of good numbers (QoQ,YoY etc)

Annual Report is available at:
http://www.kingfaindia.com/kyc/AReport2015-16.pdf

[snipersatya]

can some explain me the impact of rising crude prices on kingfa ? how much would be the margin cut ? can they pass it on to customers ??

[ukdube]

Snipersatya,being in plastic product, crude price will greatly impact its expenditure(being basic RM), however, easily it would be passed to consumer as usual industry practice,without impacting bottom line. Fantastic Q3 -yr 18 result.Net profit year on year 496% and Quarter on Quarter 62%. Expansion plan in place, will be operative in 2019.

[rajeevkani]

Any rough idea of the order book of the company?

[vikas_sinha]

I find the claim of the company quite absurd, having used several front-load washing machines. All have weighed approx 60 kgs, almost always made purely of metal, except the door and a decorative top. So this is going to be their “focus”?

“Our focus would be directed towards segments which are poised to grow at higher rates. LED lightings, appliances (front loading washing machines), air conditioners, water heaters, electronic chargers, telecom are a few industry segments where we have started making progress already.”

Discl: not invested, not much interested.

[Birsha_Haldar]

Well, they have the technology which can reduce the weight of the washing machines by using bio degradable plastics , so if they can make that happen that will be a major disruption. Not just in washing machines , they can utilise this in many other industries as well. Just because something has been going on ages does not mean it can’t change. Last 2 quarter results shows that the thesis is working,

Disc : Invested and adding more in this correction.

[vikas_sinha]

The weight of the machine is not due to the metal parts which can be substituted with plastic. The biggest part is the drive motor (in bottom corner) and an equal CONCRETE counter weight (in diagonally opposite corner). This is because the wash drum is in the center and is driven by belt and gears by the motor. I have used direct-drive Inverter WMs. Somehow, they were also of an equal weight. Running an 8kg front loader at 1200+ rpm requires great stability and strength. BTW, I did not see a single top-loader in the 10 years spent outside India.
Company is doing well certainly, though thesis it seems is not quite correct. “Bio-degradable, weight reducing plastics for washing machines”. Might as well make them fly also! Well, just because “things can change”.

[Birsha_Haldar]

Washing machines are just one of the products they have mentioned. Their main clients are auto makers and auto ancillary companies and they are focusing of diversifying to other industries not just washing machines. As long as the Nos are flying stock price should also fly in due course… Lets see after some time…

[saurabhved]

Posting some key excerpts from Kingfa’s 2017-18 Annual Report. The management’s focus is mainly on growing the top line, business development and increasing/ utilizing capacity. They haven’t mentioned too much on how they plan to improve profitability - they only talk about bringing in efficiencies to improve their OPM.

The company did not report any major forex losses/ maintenance expenditure (the two things that led to profitability shrinking in the June quarter). So couldn’t get a clear understanding on what went wrong in Q1 2019.

Kingfa Annual Report 2017-18 Excerpts.pdf (45.4 KB)

[Birsha_Haldar]

This page shows dollar gaining 7 % will result in profits of about 9 crores. Not sure why the forex loses happened in this quarter.

[utsav08]

I dont know about what they want to show…what i know is that they are importing from their parent and any depritiation in the rupee will result in losses for them…what i dont understand is that why they are not hedgeing their currency risk

[Birsha_Haldar]

Yeah seems very surprising that they haven’t hedged, given that the parent is an MNC company and should be well aware of currency fluctuation risk. Its a possibility that there might be more to it rather than just the forex loss amounting to the reduced margins in Q1. If anyone is attending AGM we might get a better picture.

[stockhunter]

Anyone has idea why did statutory dues and pf , tds come down so drastically.

[ciri]

Hi guys,

I like how the Chinese parent has executed and grown and I am expecting the Indian arm to do the same. With the current market, Is it a good time to take a new position in this stock?

I am finding it difficult to find the latest information about the company. That is the main risk.

I plan on investing 1% of my portfolio initially and wants to increase it to 5-6% by end of 2020.

[bhaskarbora67]

Inputs from kingfa science AGM

1. volumes are increasing and they are only 10% less in September compare to pre covid levels.
2. Mask and melt blown Raw materials are in good demand. These businesses are not for short term we will continue and will export.
3. Presently they are exporting to Thailand and south africa. They are in process of entering turkey soon.
4. They have placed there teams to increase the exports.
5. Coming quarters they are seeing large volumes compare to pre covid levels.
6. From next financial year they are planning to start dividends.
7. They are working on reducing forex losses.
8. They will consider quarterly results calls with investors.
   9 They are in process of introduction many new products in the next financial year.
9. The volume mix is 80:20 auto and appliances. They will soon will move towards 60:40.
10. They are present in almost all white goods industries . like tv washing machine fridge microwave mixture grinders etc. Going forward they will have more market share .
11. They are in process of entering into electronic industries. Discussion are in final stage with customers.
12. Design center will take time to be operational.
13. Presently 190000MT is there capacity .Rest is in process of increasing.
14. There Manesar Gurgaon plant is running with full capacity and from there they are supporting Maturi.
15. In coming quarters there bottom line will increase from present levels.
16. They have just started ABS and Engg plastics.
17. They are supplying to IKEA stores not only in India they are exporting to Germany. They see good volumes going forward in this.
18. On importing from China they said they don’t import from China they are importing from Europe and other countries. They don’t see any negative issues with Anti China sentiments.
19. Next quarters they are seeing volume increasing by the schedules received.
    Thanks.

[VBS]

Whether it is worthwhile to hold Kingfa Sciences and Technology Limited if it was subscribed at the time of right issue even after dispute between India and China. As it majority shareholders is chinese Companies and looking at growth potential for companies?

[Balaji1974]

Kingfa is owned by Chinese , but have manufacturing facilities in India. Their products are very good and they are expanding their capacity rapidly.

[ssnkumar]

Today Kingfa has gone up with good volumes.
Is it because of some upcoming news? Or was there any bulk deal?

[Birsha_Haldar]

It is going up due to liquidity and the fact that all small caps rallying. Though Auto industry seems to be reviving and Kingfa’s maximum business comes from that industry . But we will have to wait for actual nos . Management has been promising a lot in last 3 years but execution hasn’t happened.
Disc : Invested at higher levels and running out of patience.