Murli Industries

 

Murli Industries Ambitious Growth Plan And Poor Cash Flows Put Co On A Sticky Wicket

 

NAGPUR-BASED Murli Industries (MIL) has done substantially well on stock exchanges during the first half of FY10. The stock has more than doubled against a 9% growth in the BSE benchmark index, the Sensex.

   The company's performance on the bourses has been driven by an equally fast-pace growth in its business. In the March '10 quarter, the company's top line jumped by a third to Rs 179 crore. The growth was driven by higher sales of paper and commissioning of its 3-million-tonne green field cement unit. Besides, the company also produces edible oil and sells surplus power from its captive plants. However, profitability was under pressure due to higher raw material and fixed costs, related to the commissioning of its cement unit and expansion of its paper division.

   The performance of its paper and paperboard segment improved in the fourth quarter while the solvent extraction business continues to degrow. The company has recently expanded its newsprint capacity by nearly 75% to 140 tonne per day (TPD) and commissioned a green field paperboard plant with a capacity of 225 TPD at a project cost of Rs 136 crore. The company also owns power plants to cater to the power needs for the paper and cement segment.

   The company has made its foray into the cement sector in February 2010 through its cement plant in Chandrapur, Maharashtra with an installed capacity of 3 MTPA. Revenues realised from the segment stand at Rs 14 crore for the quarter ended March 31, 2010.

   The company plans to set up two additional cement plants in Karnataka and Rajasthan, both with an identical capacity of 3 MTPA, along with two captive power plants of 50 MW each at a total investment of Rs 1,135 crore each. The cement plants are expected to be operational by the middle of 2013.

   This is a very ambitious growth plan for a company with poor internal accruals and a small net worth of Rs 265 crore at the end of FY09. Lack of adequate operating cash flows from the existing business has forced the company to rely heavily on bank borrowing to fund its growth and its debt-to-equity is likely to exceed 4.0 in FY10, from 3.4 in FY09. This makes it vulnerable to unfavourable development in the financial markets. Despite an improved performance, the company is expected to face challenges in the coming years, given that growth is cyclical in the cement sector and the company's stretched balance sheet.