Stock Review: Kemrock Industries

 

THE scrip of Kemrock Industries continued with its three-week long fall losing 2.2% on Tuesday, disregarding its strong June quarter results announced late on Monday. In the past one year, the scrip has witnessed a bumpy ride. It continued to lag overall market gains till April 2010, but a subsequent spurt — in spite of a sharp correction that ensued — helped it outpace the Sensex.

   Kemrock Industries is India's leading producer of fibre-reinforced polymers (FRP) and derives two-thirds of its revenues from exports. The company set up India's first carbon fibre plant with 400 tonne per annum capacity in May this year with a capex of Rs 200 crore.

   The company's June quarter numbers were boosted by its acquisition of an 80% stake in an Italian company, Top Glass. Its net sales more than doubled, while net profit grew 82% to Rs 15.9 crore. The company, which extended its financial year by three months, reported net profit of Rs 55 crore for the 15-month period ended June 30, 2010, which was 35.8% higher against the comparable period last year.

   In the past, the company always tried to go for high-speed earnings growth necessitating heavy investments, which has resulted in mounting debt burden, equity dilution as well as receding promoters' stake. Within the past couple of years, the company witnessed a 65% dilution in equity capital, whereas the promoters' stake fell to 26% from 38%. As on June 30, 2010, the company carried nearly Rs 940 crore of outstanding debt, resulting in a debt-equity ratio of 1.67.

   All these investments have enabled the company to grow its net profit by 33% annually for last three years. Sales have, however, increased at a much sharper rate of 60% in the same period. However, equity dilution meant the earning per share remained stagnant.

   The company has recently completed its ambitious expansion project to double its resins and carbon fibre capacities and quadruple FRP capacity. As a result, its net block on June 30, 2010, stood nearly twice of its level of last year. The carbon fibre business is unlikely to bring in any significant revenues this year due to the long drawn testing and approval procedure by the prospective customers. However, the substantial capacity additions could enable the company's earnings growth to continue.