Equity capital of 31.5 cr having a reserves of 533 cr,which gives a book value of 178.Technocraft is showing good growth in all its segment.
Demeger of its business in future,stock could be a multibaggar.
Technocraft ind posted revenue in FY 14 of 1044 cr vs 808 cr FY 13 and profit of 89 cr vs 74CR after making a provision of 19.37 cr having exposure to National Spot Exchange.
wht i actually mean is if in future company goes for demeger the stock could get re rated.Resently Manaksia ltd went for demeger the stock got re rated even though growth in manaksia is slow.
Hi All…just went through this thread on Technocraft. My thoughts -
even without the demerger, this seems like an interesting story. Rs. 600 cr. mkt cap; FY 15 expected PAT to be around Rs. 110 cr.; this is a debt free co; 20%+ ROC and trading at book value. Growth is about 15% odd and has a dominant position in the drum closure market.
I disagree. when I look at the management, they are doing all kinds of things - commodity trading, scaffolding and drum closures (which is the crown jewel). it;s primarily run by 60 + year olds with lower levels of professionalization when compared to most other companies of the same vintage.
Just playing devil’s advocate here - management IMHO, seems content with 10 %+ rate of growth. Nothing wrong with that, you won’t get a multi bagger unless there is a demerger or any such else.
I had bought this company at an average price of 40 Rs. over 2010/2011 as a Net-Net
It has done quite well since then. However I do have a few apprehensions as well:
-> Commodity trading appears a segment in AR 2014 from nowhere! There is no mention about it as a new segment in the whole AR. And it contributes a huge revenue of 105 crores while making a loss of 17 crores!! 17 crores loss is not small for this company. It ought to explain what is this segment and what does it do?!
Even more surprising is that it disappears again in HY 2015 (sep 2014 results)
->AR 2013 brags about great results in Scaffolding segment and a profit of 14 crores as compared to loss of 10 crores last year i.e. FY 2012. But when you see AR 2012 the segment shows a profit of 13 crores! Isn’t that great! I cross-checked with the yearly filings and its the same!
There are many such things if you closely see the Annual Reports. Acquisition of Shreyan Power (where S.K.Saraf was also on board. So is that a Related Party Transaction? And whats the synergy?)
I feel this company should be bought only at half the Book Value at any given time. Since I had entered at a much lower price, I am just watching still!
Overall, the businesses are fine, well-placed, most doing fine with good prospects as well. But there are these issues mentioned above , which can be seen as red flags or atleast warrants a lot of digging.
Technocraft seems to be a too diversified with no focus. The commodity trading, diverification into cotton textile spinning, drum closures, scaffolding…all are totally unrelated diversifications with no synergy. There also donesot seem to be any rationale for all this businesses. The drum closure is a low volume growth, low priced item (Rs 35 per cap) and the price has remained static for number of years. This is despite it being a highly concentrated market. It seems the buyers have the bargaining power and the suppliers of cap are content with stable low margin, low growth business. the commodity loss is totally unacceptable and cannot be explained looking at its past businesses. Highly unpredictable diversifications…I would not risk my capital here…
As a follow-up to my comment on commodity trading above, the 17 crore loss is actually a write off against the NSEL investments. Its considered as a bad debt and written off since the outcome is uncertain. That’s a good point!
So this is a one time loss hopefully. But still considering the laggers Yarn & Garment segments, which the promoters seem to be emotionally attached to, suggests that at the most Book Value is what one should pay for and a discount may be warranted.
I had taken a small starter position in this for the drum closure segment and after a while I sold it off at a small profit because of all this unrelated diversification. In hindsight, It has turned out to be a good decision. What is the point of diversification with such a small base? It can best be a value buy when available at very very cheap valuations.
Drumclosure biz: With end industries suffering,how the demand of the drumclosures would be affected!
Scaffolding biz: With global growth slowing, will their be much investments to drive scaffolding demand
Garments & yarns: China slowing could push the prices further down
Old promoters going and kids need to prove themselves
Nonetheless with the current valuation PE at 8, strong balance sheet, demerger possibilities I would still be comfortable to invest something.
Overall its a good company and biz although not sure to what extent its scalable and whether the new ones have it in them to transform into a great co.
I am not sure about the objective of the Buyback announced by the Management few days back. The
At the buyback price of 270 for 52.26 Lakhs shares, the outflow is Rs. 141 Crores.
I could think of the following reasons for the management to go in for the buy back:
The Management thinks that the share is undervalued in the market, and would like to bring up the market price to a fair value. (or)
The promoters need funds for meeting some personal commitments / investments. (or)
The company does not need any additional funds for expansion. Hence, by returning the idle funds to the share holders, RoE can be improved. (or)
The Promoters intend to participate in the buyback as well implies they want to take out the cash from the company. I believe the risks mentioned in my previous post seems to be realizing since management themselves don’t feel the room to expand or increase operational efficiencies.
In all probability, this buyback seems to be set up for the promoters!
Buyback price is at such a huge premium.
Optimum time to buyback would have been a few months before when it traded at around 160 types. But then the promoters would have got only 60% of what they would get now. At least 105 crores from the 141 crores would definitely go to promoters, since their holding is already almost 75% which is the upper limit for promoters. To keep to the limit they would have to (Read they want to show they have to!! :-)) tender at least a proportionate amount of shares.
While I agree that the yarns business is a bad investment of capital. The rest of the business looks very interesting even at the current market cap.
If only the management realizes the demerger/hiving off of the unrelated business of yarn can create such huge returns for themselves (and shareholders). The drums closure business could easily trade at a market cap of 1200 Cr+ on its own. Classical case of promoters unnecessarily using up cash flows to fund unprofitable (and in their own words - unpredictable) businesses instead of returning to themselves and to the shareholders.
Will be interesting to watch out for any impending next generation/transfer of business which could lead to a demerger in next few years.
Unfortunately announced another JV in textile today - hope the promoters have some direction. Keeping fingers crossed
At last, Management came up with some decent expansion plans.
1.30% additional production of scaffolding business.
2. Company got all the required approvals all the required licences from Europe and USA last year.
3. 50 cr capex done in Textile
4. Drum closure segment expansion with another 20 cr .
5.Company is are trying to go for a defense based unit for supply to defense.
Foray into defence sector is a smart move considering new government’s focus on this area.
Things have started to look really good in their scaffolding business as major licensing, approval related hurdles have been crossed. Ecommerce presence (link given below) is a good step.
