The company is engaged in the business of manufacturing, sale and supply of plastic Pipes & fittings and accessories which are used in agriculture, construction segment (building products) and drip irrigation systems. The company also manufactures and sells PLB Ducts, HDPE&MDPE pipes largely used in infrastructure sector.
Last year 2014-15 was a particularly bad year for the Co. due to the sudden fall in Polymer prices due to the fall in crude, leading to inventory losses. Last year was a one off & is unlikely to be repeated. This is already evident on the basis of the performance of the first three quarters of the current financial year. The Co. should do SALES, EBIT & PAT of about 475 Crs, 34 Crs & 13 Crs, after paying full taxes. For a Co. doing sales of about 500 Crs, under it’s own brands, it’s market cap is just about 140 Crs. The impressive part, are the return ratios. The Co. should have an RoCE in excess of 30% for the current year 2015-16.
The Co.’s product range is well displayed on its website http://kiil.kritiindia.com/
The mgt discussion & analysis give a fair idea of the demand potential of it’s products. The Co. is venturing into newer territories with more value added products. The mgt. is optimistic of a 15-20% growth p.a. in top line with better margins going forward. What is notable is that the Co. is a leader in the markets that it operates in.
The Co. has invested a sum of about 10 Crs. in a 100% subsidiary called Kriti Auto & Engineering Plastics § Ltd. This subsidiary had a top line of 20 Crs in 14-15 with a loss of 67 lacs. It should break even this year. With the auto sector looking up, it’s prospects are bright. The high RoCE is despite this subsidiary not contributing to the bottom line. In the event of the subsidiary being hived off into a separate entity, the return ratios are likely to get a further boost. The mgt. has a history of corporate restructuring.
Concerns: Raw materials constitute about 70% of the cost & a sudden fall in the price of crude could result in inventory losses, but that risk is for the industry as a whole. Another concern is that the interest outgo is eating substantially into the operating profits. This too is set to change going forward as has happened in Q3 of the current year. In case the subsidiary is sold / hived off, the interest outgo would reduce significantly.
I think the Co. is at the take off stage & should reward it’s shareholder well over the next 2-3 years.
Disc: I am invested in the Co. & looking to add.