Kirloskar Electric - A Turnaround Bet?

Stock Opportunities Untested - but worth a good look
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Kirloskar Electric Company Ltd (kecl) is engaged in manufacturing electrical equipments like AC / DC motors, generators, transformers, switch gears etc…for the past 6 decades! Promoted by Vijay Kirloskar, (not very popular), but the company enjoys a great brand recall in south India.

Things went wrong when the company acquired Llyod Dynamowerke Gmbh, a german company at a steep valuation, supposedly to give Kecl a footprint in the European market along with complimentary engineering skills. This was some time in 2008-09.

From the good old days when the company was doing a turnover of 1200 crs with a net profit of 50 crs in 2009 & 2010, the company now in 2017 does a turnover of 575 crs and just about breaks even to make some paltry operating profit. Dont even ask about the bottom line, thanks to an interest outgo of 45 crs (on a debt of 280 crs), the net loss is almost 40 crs in march 2017.

Then why is this company interesting?

Firstly, the company has a huge land bank, worth well over the debt in hand which the company is looking to offload to pare the debt. This could make the company profitable.

Secondly, with the 6 odd manufacturing facilities, and tailwinds in the power & distribution space, the demand for Transformers could be quite huge, which by the way the company specializes in.

Thirdly, with the electrical vehicle becoming a reality, the company is one of the few companys who manufacture electric motors - a critical part for electric cars. Mahindra’s current elec car - E2O has sourced its electric motors from Kecl!

A lot of inefficiencies are being plugged in the manufacturing setup.

Kecl is also trying to make headway into railways & defense, as stated in the agm this year. The best part is that they have ample capacity so capex is not at all required.

At a market cap of 290 crs, I felt the risk reward ratio is favourable. However, when the turnaround will actually happen and the results turn positive is a difficult question.

Would like to hear from anyone who has knowledge on this company.

Disc: Invested.

4 Likes
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If it makes Motors for EVS than the valuations will be different otherwise there is no charm in its current business…

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It’s gonna be a long wait for the land deal, this has been doing rounds for some years now and if that happens only then the company could take care of its debt easily. Holding the stock for two years now for this story to become a reality and if anyone is planning to enter it mostly is going to be a test of Patience.

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I have been tracking and trading in this stock for more than 2 years now. My reading is :slight_smile:

  1. The land deal is not showing any traction. Management had transferred assets to a SPV ~2 years back and there is no movement at all.

  2. Management does not give any guidance on land sale. They did manage sale of treasury shares. They did a QIP as well - however this has not helped much.

  3. Every Quater, prior to result date the stock sees momentum anticipating a turnaround, which does not seem to be happening for more than 2 years now and then immediately after results the momentum dies down.

  4. This was recommended twice as Jackpot share on CNBC Awaaz, however the turnaround does not seem to happen - It is really testing patience of all.

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New JV with power drive of Coimbatore is seems to be a game changer for KECL.
JV Firm had the contract to supply 10,000 electrical vehicles EVs to TATA (It’s the supplier of TATA TIGOR) and its contribution also in the M&M EVs.
KECL website also indicating the same in its main page.

Let’s see how the new JV change the fortunes of KECL.

With thanks
Be and Make

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KIRLOSKAR ELECTRIC COMPANY LTD

Red Flags (Annual Report 2018-19)

  • Auditors’ Qualification for Going Concern Assumption as Net Worth is eroded.

  • The Company’s Net Loss of 67.33 crores for FY 2018-19 and Rs. 75.69 crores for FY 2017-18. The loss for both the years is more than its market capitalization of Rs. 62.00 crores.

  • 75.81% of promoters Equity is pledged.

  • The Company’s borrowing of Rs. 222.07 cr. which is high compared to its market capitalization of Rs. 62.00 crores

  • The Company has not paid interest of Rs. 74.42 lakhs (Due but not paid)

  • Loans given to subsidiaries aggregating to 148.98. crores. Could be doubtful of recovery.

  • No provision made for demand of resale tax penalty of Rs. 5.27 crores Special Leave Petition pending in Supreme Court.

  • As on March 31, 2019, Excise Duty amounting to 1.76. crores and Provident Fund dues of Rs. 0.02 crores was outstanding for more than six months from the date they became payable.

  • The loan given by Axis Bank is classified as NPA and has been assigned to ARCIL

  • Negative Free Cash Flow

  • Ongoing litigation and contingent liabilities on account of guarantee / corporate guarantee / Sales Tax

  • There could be equity dilution on account of conversion of loan in equity

  • The only saving grace is immovable property which could have good market value. But the Company has already accounted revaluation reserve of Rs. 256.64 lakhs

Need to be cautious

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https://www.bseindia.com/xml-data/corpfiling/AttachLive/71f35747-3ed0-4bcb-8241-c9d015a4153c.pdf

Co has announced that they have sold 32 acres of land for Rs. 100 crore to Marvel Group. Seems like a material positive that can help in a (potential) turnaround.

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they have repaid some part of term loan also

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Is anyone tracking this company? with recent Amazing result , turnaround story & reduced debt …it looks like company is worth looking again!!
Is this CG power making?

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Deserves a serious study… a possible turnaround situation… T&D sector is roaring… Transformer stocks like Shilchar have picked up greatly… other power sector stocks like ABB, Cummins, Siemens are up trending…

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Hear and watch the last Concall brother
My whole conviction from the stock is down the drain
You will end up laughing with sarcasm
And next very moment you will feel like selling the stock .

Am invested and confused

Please share insights !!

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Does anyone have any update on this company?, The mgmt is very shy to talk to investors.

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Is there any news on this company? 20% UC today

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What disaster numbers from KECL, and mgmt seems least bothered to give any clarification or updates.
Does anyone have any update on whats going on with the business?