I’m sure you all must have realized my enthusiasm about the long term prospects of BKT by now. Post the management meet and latest annual report of the company, I think the company is on a very good wicket to deliver consistent growth for next 3-5 years and achieve its internal target of $ 1 Bln turnover & 10% Global Market share by 2015.
Few highlights from the latest annual report:
On Business:
Your company operates is predominantly known as “large variety-low volume” – a segment that restricts optimal capacity utilization. It is a capital intensive as well as labour intensive proposition, making it un-attractive for fresh investments by major players. Your Company is fully geared up to take advantage of the peculiarities of the said segment and has developed a large base of SKUs to meet the diverse needs and applications.
Company has already set up an all-steel OTR Radial tyre plant at its Chopanki location and thereby become the first company in India to set up such plant.
On Expansion:
During the year, the company has incurred capital expenditure of Rs.131 Crs. on account of following major activities:
a) Setting up of raw material warehouse at Chopanki and finished goods warehouse at Bhiwandi.
b) Setting up of new mould plant at Dombivli.
c) Increase in small production capacity at all the three plants through de-bottlenecking.
d) Regular maintenance capex at all the three plants.
The company also incurred capital expenditure of Rs.94 Crs approx. in connection with its upcoming green field tyre project at Bhuj in the State of Gujarat which is progressing as per schedule.
Outlook for Current Year 2011-12:
The company is seeing continuity in demand of its products. Raw Material prices and other input costs have started softening. If this continues, the margins of the company are expected to be better in this year.
The company continues to expand its base through developing new product lines, venturing into new geographies and deeper penetration into existing markets to ensure its sustainable growth.
On the risks – as the co is entering a huge expansion phase and would be taking debt, any major slowdown or delay could affect the company adversely.
Overall, we feel the company is trading cheap considering the consistent track record and the opportunity ahead. For FY 2012, the company may do a turnover of about 2500-2700 Cr and post an EPS of 25+. CMP of 160 discounts the earnings by just 6.5 times.
Financials & Valuation:
For FY 2011, interest of Rs.25 Crs on debt of rs.600 Crs, or 4% seems very low. Any special reason? Thanks, Ketan
Hi Ketan,
The reason for lower cost of interest to loan outstanding is – Co is in process of a major expansion worth 1000 Cr to be completed by mid 2013. Majority of the loan is for that purpose hence the interest cost on that might not be getting expensed.
Regards,
Hi Ayush
Have you looked at punnet resins. It has one of the best financials and valuations. Promoters are also increasing their stake aggresively
Thanks
Nishant
Had looked at it earlier but the feedback from other investors was negative. Haven’t looked into it recently.