Emkay taps and tools

Stock Opportunities Untested - but worth a good look
23

I am sharing my notes on the company.

General points:

  • Manufactures high-speed steel threading taps (high precision requirement) and cutting tools supplied to OEMs in automotive and auto ancillaries segments
  • High operating leverage business as requirement of new assets for growth is very low
  • Highly fragmented industry and consolidated customers
  • Originally setup as a proprietorship in 1976 by Mr. Ajay Prakash Kanoria (Nagpur-based first generation entrepreneur), reconstituted as a private limited company in 1995, converted to a public limited company in 2015 and is listed on NSE-Emerge
  • Owns and operates wind-mills in Rajasthan (2 x 0.8 MW) and Karnataka (1.2 MW)
  • Must maintain high inventory (140-180 days) due to large number of SKUs, just in time delivery to customers and significant lead time in importing raw materials
  • Extends 80-100 days of credit period to customers
  • Very good at equity investing

Expansion: Created a new subsidiary in March 2023, no details announced

Investment in marketable securities

  • Out of 84 cr. networth, has investments in marketable securities of 48.5 cr. (FY17)
  • Out of 104 cr. networth, has investments in marketable securities of 72 cr. (FY18)
  • Out of 109 cr. networth, has investments in marketable securities of 65 cr. (FY19)
  • Out of 122 cr. networth (March 2020), has investments in marketable securities of 88 cr. (September 2020)
  • Out of 146 cr. networth, has investments in marketable securities of 99 cr. (FY21)
  • Out of 200cr. networth, has investments in marketable securities of 162 cr. (H1FY23)
  • Out of 226 cr. Networth, has investments in marketable securities of 185 cr. (FY23)

Fund utilization:

  • Jan 2019: 18% (6.5 cr. limit)
  • July 2019: 9% (6.5 cr. limit)
  • May 2020: 10.5% (6.5 cr. limit)
  • Dec 2021: 3% (6.5 cr. limit)
  • March 2023: 9% (6.5 cr. limit)

Disclosure: Not invested (no transactions in last-30 days)

4 Likes
24

Below are some of my observations:

  1. This company is throwing off cash and they are using it for investments in securities
  2. They need negligible amount of money for capex
  3. Investment in securities itself is 187 crores which is spitting 16crores in interests per year.
  4. Cash conversion cycle is a concern given high inventory days.
    Anyone has any details on their securities book, need to dive deep into that.
25

They have a demerger announced, need to look into this

1 Like
26

Not invested but was considering for investment. But after reading about this company; I am having very negative view. I found few negative things, however my view can be biased as I am not invested. I reserve the right to be wrong!

Just consider these points before investing:

  1. Promoter is aged and no succession planning.

  2. Promoter is withdrawing salary in the name of his wife (maybe she is active).

  3. A lot of profit has been invested in shares and PMS from past 3-4 years which shows no growth plan or no money is need for bussiness. This is ridiculous for such a small company with such a small profit. Check their cash flow statement and go to notes.

  4. Promoter has created so many subsidery company and holding shares through it. Very complicated arrangement for such a small company. Inter party transaction looks suspicious because of it.

  5. No growth plan or capex.

  6. Its share price is easily manipulated because of very less volume. You just observe the volume of share for a week, you will understand it is getting manipulated by very small operators.

Thanks!

2 Likes