Kilburn Engineering - Huge undervaluation

Kilburn Engineering - The story:-

  1. McLeod Russel group company, which is into process equipment and foof processing equipment segment

  2. Clients : LnT, HPCL, BPCL, GNFC, GFFC, McLeod Russel, and most of Sugar companies in India

  3. Last year there were certain exceptional things which happened in the company. One was relocation of its plant from Bombay to Thane because of which the companyâs operations were shut for almost about two months. There was almost nil or negligible production and sales. That is the reason the turnover came down by 20%. Profitability was hit because of certain exceptional expenses which the company incurred on account of all this.

  4. End result - turn over down by 20%, profitability by 90%.

  5. New facility is in operational condition now, Started showing profitability in last 2 quarters, with increasing EPS.

  6. Has around 90 crore Reserve, Book value 100 crore, Debt is 29 crore

  7. At CMP of 26, market cap is 30 crores (1/3rd of the reserve, and book value)

To me it make a superb short term investment opportunity. Views invited from Valuepickr seniors.

source:

http://www.moneycontrol.com/financials/kilburnengineering/balance-sheet/KE03#KE03

dont know much about kilburn but I have high regards for rajen shah as a wonderful stock picker. he has the uncanny knack of picking multibaggers from amongst well known and lesser known stocks.

I have a small position in this business.Need to explore more for including it to short term portfolio. If the numbers and management are to be believed next 2 quarter results will take this stock back to 50+ from current level.

The FY11 EPS was at 6.89 and stock on average was quoting at 70 which gives P/E around 10.15. While the Current year EPS has fallen to as low as 0.47.

If EPS raise back to previous level or even below that around 4.5-5 then the scrip might quote around 50.

These are just predictions it totally depends on future performance.Let us see

Any1 having latest AR plzzz share…

Also, plzz share source of this- “Last year there were certain exceptional things which happened in the company. One was relocation of its plant from Bombay to Thane because of which the companyâs operations were shut for almost about two months.”

attaching a weekly line chart of kilburn engg. Stock currently seems to be at a low risk entry point. I think one can keep a stop loss of 20 on closing basis and take a position. Potential target could be nearer the upper end of channel.


Hi, thanks to Subash and Hitesh, I have taken a small position here in my short term portfolio. Shilpa also has a position in the short term portfolio.

Possible reasons for undervaluation:

From the Annual report:

“revenue declineddue to macroeconomic factors. in many instances both domesitc and overseas clients cancelled or deffered their capex”

“During the current year order inflow continues to remain bearish, expects 2013-14 to be better”

The plant was operational from Sep 2011, but Q-1 2013 nos do not show better performance. Com itself has mentioned in the AR that the above quoted reasons lead to slide in orders and the tone of the report is quite negative in terms of business prospects. The new plants depreciation and higher finance costs (huge increase in short term loans) will also not help.

Inspite of negative cashflow and weak order situation the com invested 1200 Cr in Mcnally Bharath, another cap goods listed com with executive chairman being the same person who is chairman of Kilburn. How would you view this?

Cheers

Vinod

Mandatory disclosure:-

I used to have a small exposure to Kilburn Engineering. Has sold all of the stock, and is no longer invested in Kilburn Engineering.

News of Kilburn merging with sister Company Mcnally Bharat Engineering in reverse merger.
Any update on this Company and its performance???