Stock Review: Kemrock Industries

 

Vadodara-based Kemrock Industries continued with its impressive financial performance in the December 2010 quarter after equally impressive June and September quarters. It posted more than 50% jump in net profit while the revenues almost doubled from the year-ago period. A sharp jump in interest and depreciation costs and higher tax rate were the main factors responsible for the slower growth in bottomline compared to the topline. Kemrock Industries is India's largest producer of fibre-reinforced polymers (FRP) and derives two-thirds of its revenues from exports. The company became the first in India when it commissioned a 400 TPA carbon-fibre plant in May 2010 with a capex of 200 crore. In June, it went on to acquire 80% stake in an Italian company Top Glass. In FY10, it had also doubled its resins and quadrupled its FRP capacities. Recently, it signed an MoU with Swiss company DSM Composite Resin to manufacture saturated polyester and other specialty polymers in India.

Last few quarters saw the company benefiting from its mega-investment cycle. Kemrock's December 2010 quarter net sales crossed 200 crore. Interest and depreciation costs more than doubled while the tax rate at 29% was higher than 25% in the year-ago period.

The heavy capex has resulted in the company doubling its gross block between March 2009 and June 2010. This trend seems to be continuing since then. The value of net assets as on December 31, 2010 at 946.6 crore was around 15% higher from June 2010. Pursuing a high-paced growth within a short-time span has resulted in a heavy debt burden, a series of equity dilution and promoter stake in the company coming down. Since the start of 2008, the company's equity increased 58%, while the promoters' stake dipped to 26.9% from almost 38%. The debt-burden at 1,056 crore was its highest ever as of December 2010 end. Still, a higher growth in earnings of past several quarters meant that the debt-to-equity ratio has not gone up. From 1.9 as of end-FY09, the debt-equity ratio has come to 1.77 by end December. Last year, its scrip was highly volatile on bourses, though it outperformed the Sensex by a wide margin. Considering its current market valuation and the earnings for December quarter, its valuation has dipped to 15.5 times its earnings for the past 12 months