Big improvement in EBITDA margins in a usual weak qtr for Kokuyo. Impact of the new plant? Few questions -
1.Will they still be operating all their old plants? Or they have shifted all operations to the new plant?
With the opening of the Patalganga Plant, Kokuyo Camlin has combined the production facilities that were distributed within Maharashtra, thereby creating a total production floor space that is twice in size when compared to combined floor space of existing factories. Kokuyo Camlin products having a Number One share in the Indian market such as markers, mechanical pencils, crayons etc. will now be manufactured here, which will strengthen the supply-chain infrastructure and enhance production efficiency.
The plant has complete end-to-end production capability and this would result in a reduction in the production cost owing to reduced transportation cost and enhanced production efficiency. Furthermore, Kokuyo Camlin expects the reduction in logistics cost by a direct dispatch from the new factory to all over India.
2.What is the optimum utilization% for the new plant? What could be the revenue at peak utilizations?
3.Product mix also impacts their margin? Can these 8-9% margins be sustainable going forward? Can they even improve on this number?
4.Unorganized to organized shift has been the touted theme from last 2 qtrs. Is the shift really happening? Any signs on the ground?
Some back of the hand calculations (Assumptions - Rev growth in FY19~10%, EBITDA% ~9%).
650-700 cr revenue at 9% margins (best case margins?), gives ~55-63 cr EBITDA.
~16 cr depreciation (4 cr per qtr)
~8 cr interest outgo (2 cr per qtr)
~30% tax outgo
~20-25 cr PAT
Current valuation ~1400 cr (@139)
So currently trading at ~ 70x - 55x (1 year forward)
Now, key is how they improve their revenues as that would improve the situation in terms of valuation. I have already taken ~10% revenue growth for my calculation.
Disclaimer: No holding.