Kirloskar Electric Company Ltd (kecl) is engaged in manufacturing electrical equipments like AC / DC motors, generators, transformers, switch gears etc…for the past 6 decades! Promoted by Vijay Kirloskar, (not very popular), but the company enjoys a great brand recall in south India.
Things went wrong when the company acquired Llyod Dynamowerke Gmbh, a german company at a steep valuation, supposedly to give Kecl a footprint in the European market along with complimentary engineering skills. This was some time in 2008-09.
From the good old days when the company was doing a turnover of 1200 crs with a net profit of 50 crs in 2009 & 2010, the company now in 2017 does a turnover of 575 crs and just about breaks even to make some paltry operating profit. Dont even ask about the bottom line, thanks to an interest outgo of 45 crs (on a debt of 280 crs), the net loss is almost 40 crs in march 2017.
Then why is this company interesting?
Firstly, the company has a huge land bank, worth well over the debt in hand which the company is looking to offload to pare the debt. This could make the company profitable.
Secondly, with the 6 odd manufacturing facilities, and tailwinds in the power & distribution space, the demand for Transformers could be quite huge, which by the way the company specializes in.
Thirdly, with the electrical vehicle becoming a reality, the company is one of the few companys who manufacture electric motors - a critical part for electric cars. Mahindra’s current elec car - E2O has sourced its electric motors from Kecl!
A lot of inefficiencies are being plugged in the manufacturing setup.
Kecl is also trying to make headway into railways & defense, as stated in the agm this year. The best part is that they have ample capacity so capex is not at all required.
At a market cap of 290 crs, I felt the risk reward ratio is favourable. However, when the turnaround will actually happen and the results turn positive is a difficult question.
Would like to hear from anyone who has knowledge on this company.