Stock Review: Kennametal India

They make innovative and high-end metal cutting tools which are largely catered to the defense, energy, aerospace and specialty applications. There is a multinational company where the promoters hold over 88% stake in the company.

The company's financials end in June and if we go by their financial performance for the last nine months that is the period ending March 31, 2011, the company has shown a rise of 27-28% in its topline with sales at Rs 335 crore. But the bottomline has improved by 60% on a comparative nine month period if I take for FY10, resulting into an EPS of about Rs 27 for nine months.

If we extrapolate generally always the fourth quarter which is the June quarter, it has traditionally been good for the company and one can expect Rs 37-38 EPS. Apart from that, because all multinational companies have a debt fee status, generally, companies who have promoters stake as high as 88%, it is a foregone conclusion that all of them will be initiating a delisting move.

If you take cues from Atlas Copco which has been the recent case, they all have been happening at a PE multiple of more than 30 and since the share is now ruling at a PE-multiple of 16-17 that too on a historic earnings. All these processes have to be get implemented by March 2013 which is the deadline for the promoters to get back their stake back to 75%.

Again, there is a sweetener of the delisting move which is likely to get initiated by the company. At this Rs 600 level the stock looks very good. Even of a PE multiple on the forward it is ruling at 14-15 times but a delisting move which is likely to get initiated maybe in the next 12 months time can take the share price to Rs 800 to 850. But it is a very safe stock to remain invested in and keep in the portfolio.