Stock Review: Kemrock Industries

It is an integrated global leader making fibre reinforced composite products and has  wide applications in aero space, wind energy, road, waste water treatment, oil and gas, railways, defence and all the sectors that are critical in respect to quality control. It is an import substitute of very high tech products and fetches good margin for the company.

In the 9 months performance that ended on 31 March, 2011, the company has posted a rise of 72% in its top line which moved to Rs 600 crore plus and the PAT has improved by 62% in the corresponding period of the previous year.

The RPM International Inc acquired about 20% stake in the company and they are coming out with an open offer at Rs 539 per share for 22% equity of the company. If you see the present shareholding pattern of the company, about 48% are held by the depository holder and 20% by RPM International. If I presume that open offer will go through successfully because of the public holding of about 28% and even if they are able to mobilize and garner about 12% to 15% stake, they will all be ending up with an effective stake of about 64% to 65%.

The share is ruling at a PE multiple of 12, the price book too is quite attractive at 1.4 times. Generally, these products and these types of products fetch high valuation, therefore, taking that this into consideration over a period of time this is becoming a multinational company likely to get acquired, maybe in 28% held by the Indian promoter may get sold.

The core business of the company has excellent growth potentials in the next 3-5 year scenario. The share should be able to reach Rs 600 maybe in the next couple of months but if somebody can keep a view of 6-8 months, the share can easily move to Rs 750 levels.