X hits on this document

PDF document

Independent Equity Research - page 10 / 24





10 / 24


KLRF’s capex cycle is behind it, strengthening of businesses key to profitability

CRISIL Equities

High gearing limits growth potential KLRF’s gearing is high at 3.4x in FY10 as a fall out of debt taken under TUFS (Technology Upgradation Fund Scheme) for expanding the textile business in FY06, and for acquiring the foundry business in FY08. The company’s capex cycle is over and it is looking to stabilise its business over the next two-three years. Consequently, the debt-equity ratio is expected to decline to 2.2x in FY12, which is still high as the company operates in capital intensive industries. To fuel growth beyond this period, the company would have to resort to additional borrowing or equity dilution.

Shortage of electricity is a key concern for growth The state of Tamil Nadu suffers from severe shortage of electricity. Companies do not get power for three hours daily during the peak hours. Over and above that, they need to choose between: (a) 60% power of the allotted KVA; or (b) eight days power cut during a month. CRISIL Research expects the power deficit to continue beyond FY12. Given the power intensive nature of businesses KLRF operates in, this is a key concern for growth. Alternatively, if the company wants to have continuous power it will have to incur additional capex, which it can ill afford.

Significant land reserves – a silver lining KLRF’s foundry is located on 12.3 acres of land in one of the prime industrial areas of Coimbatore, which could be valued in excess of Rs 200 mn. The company may choose to relocate the foundry to the outskirts of the city and sell the land, and infuse the resulting funds into the business. While the management is exploring such options, no concrete steps have been taken. If this materialises, the company will be able to expand its operations without additional equity or debt funds.


Document info
Document views84
Page views84
Page last viewedFri Jan 20 14:53:50 UTC 2017