Hi Mukesh,
Textile division (yarn and garment) does look on the verge of turn around for technocraft. Pretty sure that the new textile policy to be announced on August 7 will definitely provide good impetus. Pumping money has been done but this division should see light of the day very soon.
Hoping for the best !!
Results are outâŚ
Company has posted impressive results 15% Increase in sales QoQ & 35% increase in EPS QoQ
The actual increase in PAT is 13.12% QoQ
The 35% increase in EPS is due to shares buyback exercised by the company few months back.
Segment wise Result analysis :
1) Drum closures :- steady growth again in profit @18.5% QoQ
2) Scaffoldings :- 234% rise in profit., against 20.61% rise in Sales QoQ (This can be due to sale of excessive inventory)
3) Yarn :- Increase in sales., but reduction in profit (for me., it is always a bone of contention). The net margins come out to be minimal 2% ., assuming the same inventory as earlier.
The Return on Assets in this segment remains poor in this segment at lowly 0.87%
4) Fabric :- Same as Yarn., poor Net Margins @3.8% & RoA @ 1.45%
It would be in the best interest of the company & the shareholders., if the management decides to sell the Yarn & Fabric segment of business & use surplus cash for better purposes.
I had raised this issue with the management in the last AGM. It does not make much sense for a purely engineering company., making drum closures & scaffoldings, to venture into non-profitable Yarn & Fabric business., which is not their forte.
Thanks a lot for the detailed analysis MukeshâŚ
Thanks,
Vinaya
Dear Mukesh,
Thanks for sharing your analysis. I agree with your views on not diversifying in areas where they do not specialize. However to worsen things they are even doing capex there which is concerning.
Did you get any response to your query in the AGM as to what we can expect for this division going forward in terms of strategy.
Also do you know what is the current progress on defense.
Regards,
Dhruv.
Management commentary on Textile business and profit guidance for this year :
Disclaimer :Invested.
It was last yearâs AGM where I had raised this question., but it was not answered with clarity & was sort of hushed up. I got the feel., that somehow the management does not want to let go the yarn / textile sector.
Also, what I am worried about it is : the machinery value depreciates faster in the textile segment., with advent of new technology. So, by the time, the management decides to sell the unit., the value should not erode considerably.
This yearâs AGM is on 30th Sept. If time permits, I will again attend & try to seek clarity from the management on some issues.
Thanks Mukesh.
Waiting for more inputs from your side post AGM. SK Saraf did say in his last interview that âAt the moment, it is not the right time to demergeâ which (if i look at the positive side) does give me a hope that they plan to do it sometime in future. But anyway, valuation (when they finally sell/demerge) will be a concern due to factors like depreciation etc.
Also hoping to get some progress and updates on defense manufacturing in this AGM.
Regards,
Dhruv.
Hi Mukesh,
Hope youâre doing good buddy. Just wondering if you did attend the AGM yesterday.
Some more talk from Management on expansion
Disc :Invested.
Hello Dhruv.
Sorry, couldnât reply earlier due to excessive workload.
I couldnât attend the AGM. But my cousin @NK1 attended the same.
I will try to reproduce his observations & updates from the AGM :
1) Drum closure : Continues to be the main bread earner for the company. The company feels that this segment will have consistent sales, but may not see a sharp growth. The company looks ahead to increase their footprint in China & also looks forward to venture into Japan market., which was untapped earlier.
The market share in China has increased from 1% to 5% in last year , thereby taking the total contribution of sales in China to 10-12% of the total sales.
But more or less, we may see a flattish sales in this segment.
2) Scaffoldings : This segment has been performing much better than the companyâs earlier expectations. The management said that the capacity for scaffoldings was fully utilised., & orders exceeded the supply capacity.
Also, all the required approvals in the Western market have been done & hence the results will continue to be positive. The company is in the process of constructing an additional 50,000 sq.ft. premises to cater to increase in demand from European markets.
3) Yarn : The management feels that this is not the appropriate time to divest the yarn division., as there are many factors such as stamp duty, land value, etc., that have to be taken into consideration.
The land value of the yarn division has appreciated in recent years., any disinvestment of this division & subsequent merger of this division with main divisions, would attract substantial amount of stamp duty too. The company feels that there are no takers for this business at this time.
The company continues to put in its efforts to make this division a profitable one.
The company is in process of infusing capital of Rs. 80 crore towards spindle expansion., out of which 80% would be debt & 20% by internal accruals.
4) Textile : The company had recently tied up with Mr. Ramchandran on JV basis., which gradually did not work on expected lines & hence the JV has been dissolved.
5) Defence : The company has made some investments in the defence sector & is looking forward to make the most of âMake in Indiaâ initiative by the government.
The company has made an investment of approx. Rs. 20 cr. for this sector & has entered into a JV with a technically sound & well experienced individual for development of this project.
The company has already bagged a few orders & are also expecting more, as they have received necessary approvals from DRDO.
The initial capital required for this project is not high., & any orders, if received., may just require additional working capital.
Why are they so attached to this business?
Q2 results out. PAT up 28% and EPS up 52% (because of buyback)
Scaffolding business has performed extremely well. Turnover up almost 50% . Is this sustainable? If it is, we are looking at a definite rerating of the stock to a 15+ multiple.
This could be a steady compounder for many years from here esp. if the yarns/fabrics is demerged at some stage.
Yarns/Fabrics still remains the biggest problem area for this company.
Thanks Rohan.
Drumclosure division flattish results., but still a consistent profit earner.
Scaffoldings doing really great., and I think the upward momentum can continue to persist atleast for a few quarters more., as demand in Europe & North America exceeds the companyâs supply capacity.
Yarn., as expected, a dark spot.
Good to see Fabric division in the green this time.
Technocraft launches its MACH range of Scaffoldings for the Indian market.
Would be interesting to see how it is accepted by the Indian market.
Looks Scaffolding business to contribute much in this fiscal.
Management commentary:
Disclaimer : Invested .
Hi ,
Anyone having AGM updates ?
Recently received this information on my mail. Courtesy: http://alphaideas.in/2017/10/15/technocraft-industries-defence-startup-also/
Technocraft Industries: A Defence Startup also
Interesting to see smaller companies also get into the Defence arena
Source: Annual Report 2016-17 Technocraft Industries
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=39c9144e-c6ec-4db0-9b72-748749c81cdd
Q2 results are good. Sales up by ~ 12% and EPS increased by 27% to Rs.13.51 for the quarter.
Capital employed in Drum closures has increased by Rs.50 Cr to 180 Cr over March 17. This is the most profitable division , so hopefully we can expect higher cash flows from this division in the future.
Scaffolding division has recovered from last quarter and PBIT is up from Rs.13 cr to 24 Cr YoY . Capex done in this division is also showing results .
Textile division remains a drag on the company and they had announced some capex in Amravati a while back which caused the share price to tank below Rs.400. Will have to wait patiently for them to demerge this unit at some point.
Would like to hear the view of others on whether it is wise to do a buyback when there is Rs.300 Cr + working capital loans on the book. Company is buying back through tender offer at Rs.525.
Rohan, you have a valid point here.
The company has some short term & long term investments in mutual funds. Also, the company has a strong balance sheet., so a 300 cr working capital loan doesnt look worrisome.
In my personal opinion., A buyback at Rs. 525/- per share is a good sign for the shareholders.
