KLRF
LTD (BSE 507598 FV RS.10) RS. 55 – Hidden GEM
Company
:
Kovilpatti Lakshmi Roller Flour
Mills, as KLRF with its brand as "Kuthuvilakku" came into existence
way back in 1964 with the establishment of 46,800 MT of wheat flour at
Gangaikondan in Tamil Nadu, near the southern tip of the Indian subcontinent. The
various business of the company is as below :
Flour Mill Division : This is the flagship Division with licensed and Installed capacity of :
74,000 MT per annum working at 70% capacity (thus leaving scope for further
scalability). KLRF has commissioned a traditional stone mill and transformed itself
into well known manufacture of branded whole meal Atta which has more fibre, minerals,
vitamins and rich in aroma. The company now has product portfolio of entire
range of flour, which meets the demand across users such as Bakeries, Parotta
Makers, Hoteliers, Sweet & Confectioneries Manufacturers and domestic end
users. The company is pioneer in tapping high margin retail segment by
launching half kg, 1 kg pack of various attas it manufactures, which is well
accepted by the consumers due to its consistent quality, well recognized brand
at affordable price. Company has Brands as : Kuthuvilakku, Kera Brand, Alamaram
Brand for various basket of products.
Textile Division : In 1982, the company expanded into textiles business by the name of
KLRF Textiles, a 30000 spindle unit and 1344 rotors, after further expansion it
became one of the leading yarn manufacturer and exporter in the country. The
division scored operating loss of 3 crore, this is mainly due to fall in yarn
prices due to global slowdown and less off take from China.
Sheet Metal Division : KLRF
SHEET METAL INDUSTRIES was established in October 1978. Initially this unit has
been installed to cater the needs of M/S. LAKSHMI MACHINE WORKS. KLRF SHEET
METAL INDUSTRIES is engaged in a diversified business like, ferrous castings,
flour milling, textile spinning, sheet metal fabrication, plantation and flour
milling machinery manufacturing, rice color sorting machine manufacturing and
trading of electrical and Industrial goods.. KLRF SHEET METAL INDUSTRIES is
also acting as a trading agent of Probat Werke of Germany ( for their entire
range of Coffee Roasting machines ) and M/s. Mahlkonig , Germany ( for their
entire range of Coffee Grinding machines ). KLRF SHEET METAL INDUSTRIES has got
all the facilities required for sheet metal fabrication under one roof.
Windmill Division : Wind
Mill Division at Aralvoimozhi Village in Kanyakumari District, Pazhavoor
Village and Dhanukkarkulam Vilalge in Tirunelveli District, Tamil Nadu with a
capacity of 6.25 MW. The entire power generated
by the windmills is captively consumed. All the windmills are well maintained
and the performance is satisfactory.
Engineering
(Foundry / Casting) Division : The company
has Foundry division with licensed and installed capacity of 10,800 MT per
Year, which is running at 90% capacity and contributing 30% of turnover.
Investment
Rationale : During 1st Half of FY16, the
company achieved turnover of Rs 106 Cr, on which it earned net profit of Rs 5
crore, resulting EPS of Rs 10 per share in first six months only. In 2nd
half FY16, company can double the turnover and net profit, which will result in
EPS of Rs 20 per share for entire FY16. (In FY15 The turnover of the company in
FY15 as 222 Cr, on which EBIDTA of 12.67 Cr was earned. Food Division earned EBIDTA of 9.3 Cr (56292 MT) accounting 59% of
turnover, Textile division has incurred EBIDTA of -2.31 CR and Engineering Division has earned EBIDTA of
5.68 Cr.)
The
management is optimistic on Food Division of the company due to consistent
demand and favorable availability of quality wheat. Due to continuous losses
and considering uncertainty in the sector, the management has decided to close
down 2 units of textile division & 1 unit of sheet metal division, for which
the approval has been obtained from shareholders. This will help company to
wipe out loss and proceeds from sale will help the company reduce the debts.
While in engineering division increased production as achieved due to
availability of dedicated power supply. Increased production and improved performance
is expected in FY16.
Valuation : The share of this more than 50 year old company with Fv of
Rs 10 paid up and tiny equity of Rs 5 Cr only, having book value of Rs 46 and
having TTM sales of 195 Cr & management holding of 51%, with recession
proof business of Branded Food and high potential Foundry/Casting Heavy
Engineering business, which is already making good profit alongwith ROE and
ROCE of 14 & 11 percent and OPM margin of 13% is available at market cap of
only 30 crore which is very cheap looking at the potential earning power of the
company, as company has closed down its loss making division and proceeds of which
is utilized to reduce debt, which again will improve the profit, which is
already 6CR in last 3 quarters (Rs 12 EPS per Share). The current PE of 5 and
market cap of 30 crore is very attractive as peers are trading at a PE of 20
and Mcap to Sales of 4, thus this turned around company can achieve EPS of
close to Rs 30 TO 35 per share in net couple of years, if it can trade at PE of
even 10 can give immense scope of appreciation in the long term.
What I noticed , in the last quarter its Engineering Division contribution is remarkable with increased GPM , it is expected to do well in this 3rd quarter also ad the management put efforts in streamlining its power supply needs by installing some balancing electric equipment , With the hiving off its loss making textile & sheet metal units which used to eat into the profits of casting & wheat four Division, the visibility of its profits increased . Going forward its debt position will be improved considerably with the sale proceeds of its textile & sheet metal units which are put for sale.
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