Hi,
Find enclosed my observation based on annual report of FY14 and FY13, which raise some concerns about management conduct. Please consider these as key risk areas being highlighted and I believe collectively we may be able to satisfy on many of these issues. Having said that, based on my decade long experience in dealing with distress companies, I would still like forum to ponder over and take final view:
1)Cash Balance: Rs 98 Cr in Current account FY14 vis a vis Rs 36 Cr in FY13. There is very nominal increase in interest income from Rs 36.9 Lakhs in FY 14 vis a vis Rs 36 Lakhs in FY 13
2)Sale of Scrap is increased from Rs 24 Lakh in FY13 to Rs 14.8 Cr in FY14. That also coupled with Net profit margin being almost doubled. Typically high scrap would adversely affect the margin. Here we find increase in scrap has not only contributed to bottomline, despite such large scrap, the companyâs operating margin has increased (almost doubled)
3)During FY13, The company added Gross block of Rs 3.69 Cr and incremental Depreciation was Rs 1.76 Cr (Rs 8.62 Dep Chage FY13 â Rs 6.86 Dep Charge Fy12). This give ratio of around 48% of Inc in Dep/Inc in Gross block. During FY14, the company added Gross block of Rs 79.35 Cr and incremental Depreciation of Rs 1.06 Cr only ( Rs 9.68 Cr FY14- Rs 8.62 Cr FY13 Dep Cahrge). This give ratio of around 1% of increase in Dep charge/Increase in Gross Block. Even if all addition is after Sep 30, still there would be depreciation charge of around 2.5% (assuming 5% for the year as a per cent of Gross Block).
4)The CA and Secretary and director, all signed there report as on April 3, 2014. Considering that April 1 Being Non-working day for the Bank, even reconciliation would take at least couple of day.
5)While still giving benefit of doubt to efficiency to the company, The sectreatial audit consistently showing deadline being missed by the company during FY13 and FY14 for filing there ROC return. In Fact, ROC filing of Balance sheet is on January 3, 2014 as against normal time line of October 31, 2013. Same is case with ROC charge creation forms. The selective efficiency need greater attention.
6)The company has interest accrued and due in current liabilities in FY14
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Mr.SABU MECKAMKUNNEL JACOB has promoted two more companies by name of Kitex Herbal Limited and Kitex Apparel Limited in 2014 and has been director on these companies since 28 Jan 2014. While there has been already issue about related party transaction, we have also new Kitex Apparel Limited, which by name suggest being in similar business.
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It would be worthwhile if we have growth back up between volume and realisation. Nothing is available in annual report. However, power consumption (being a rought proxy of actual production of garment), has grown 15% with revenue growth of 39%. Otherthing being same, it would mean 25% growth in Realisation, which is very high unless, company has improved its productivity substantially. One also need to understand that company is increasing automation (with use of robotics etc), which shall mean more use of power vis a vis labour.
Do look forward to view of other members of forum on same,
Dhiraj Dave
Kitex.xlsx (9.07 KB)