Krypton Industries Ltd BSE Scrip Code:

Transcription

1 Krypton Industries Ltd BSE Scrip Code: Auto Tyres & Rubber Products October 19, 2012 Equity Statistics Current Market Price Rs Week High/Low Rs /11.55 Market Capitalisation Rs. Crores Free Float Rs. Crores Dividend Yield % 0.00 One Year Regression Beta Times 0.20 BSE Volumes Trend - Average = 3.23 Thousand Relative Returns Company Summary Krypton Industries Ltd is an India-based company engaged in the business of manufacturing and sale of Tubeless Tyres and other products like Footwear, in Falta Special Economic Zone and Banganagar (West Bengal). It operates in two segments: Tyre and Footwear. Their products include MCP tubeless tyres, polyurethane (PU) shoe soles and PU sandals. The company's subsidiaries include Eco Wheels Pvt Ltd, Krypton Developers Ltd and Krypton Industries (Suzhou) Co Ltd. The equity shareholders of Krypton Industries in a meeting held on 24 August 2012 have approved the scheme of amalgamation of Eco Wheels, Krypton Tyres and Barons Polymers with the company. In FY12, the company reported net sales of Rs crore and net profit of Rs.16 crore. Core strength for Krypton Industries Ltd is the diversification in to unrelated businesses that is tubeless tyre manufacturing, footwear business and medical equipment business. Moreover the company also has a manufacturing base in China, thereby securing the low cost advantage to company s benefit. However, the company is deliberating on sell of the China unit. The better performance will enable the company to fetch good valuation. Krypton Industries Limited is currently trading at 0.6 times the adjusted book value Krypton Industries Ltd Sensex Returns 1M 3M 6M 1 Yr Absolute -1% 2% 6% -5% Rel. to Sensex -3% -6% -3% -14% Shareholding Pattern 100% 80% 60% 40% 20% 0% Dec `11 Mar `12 Jun `12 Sep `12 Promoter DII FII Others Board of Directors Person Role Jay S Bardia MD Tansukh Gulgulia T C Bachhawat Pradip Kumar Singh Source: AR and CARE Research Note: MD: Managing Director, WTD: Whole time Director ED: Executive Director, : Non Executive Director 1 Initiative of the BSE Investors Protection Fund

2 Background Krypton Industries Ltd was incorporated as public limited company on April 6, On April 20, 1990, the company received the Certificate of Commencement of Business to carry on the business as manufacturers of MCP Tyres. Initially, the company was promoted by J P Toshniwal, M L Kankaria and C L Sarawgi in collaboration with Poly Air Tires Inc, Canada. The company set up a 100% export oriented unit at Falta Export Processing Zone in West Bengal for manufacture of MCP tubeless cycle tyres. In the year 1991, the company came out with its Maiden Public Issue. In the year 1992, the present promoters took over the control and management of the company. In February 1993, the company commenced commercial production. On June 24, 2002, the company incorporated ECO Wheels Pvt Ltd as a subsidiary company, which commenced production on February On August 17, 2007, the company incorporated Krypton Industries (Suzhou) Company Ltd as a wholly owned subsidiary in China. In 2007 the company also expanded it PU processing capabilities by entering PU shoe sole and sandals manufacturing. By 2010 the company entered in the growing shoes and accessories market by launching sandals under its own brand name Softflex. The company is planning to expand the range by way of increasing its own capabilities as well as through strategic outsourcing. The company started working towards setting up national network for its footwear-related products. With respect to the China subsidiary, the company has approved its sale to a suitable buyer on November 29, 2010 for total purchase consideration of USD 3,05,000 subject to approval from relevant authorities in India & China. They will further invest into putting up new capacities to support the growth and provide better quality service, to all the customers with lesser lead times. Business overview Krypton Industries Limited derives its revenue primarily from three segments i.e. manufacturing of tubeless tyres, medical equipments and footwear. Geographically, the company serves diverse markets, thereby reducing concentration risk. Strengths and growth drivers Diversification of business. Rapid growth in tubeless tyre business. Long-term relationship with Original Equipment Manufacturers (OEMs). Risk and concerns Managing rapid growth. Timely implementation of the ongoing projects. Ability of the company to pass on raw material price escalation to the customer. Future strategy and expansion plans Rapid expansion in distribution network. Planned promotion activities. Debottlenecking of medical equipment production unit is underway. Reducing per unit cost by improving efficiency in production process. Industry outlook After surpassing the hiccups in FY09 the tyre industry has been registering strong growth for the past two fiscals. Strong automobile demand coupled with new launches led to the overall tyre industry growth. CARE Research foresees the domestic tyre industry (replacement and OEM demand) to grow at a CAGR of around 12 per cent in tonnage terms from 1,295 thousand tones to 2,244 thousand tonnes during FY11 FY16 period. In unit terms the industry is expected to grow by around 11 per cent on a CAGR basis from 109 million units in FY11 to 188 million units in FY16. Healthy demand from both replacement and OEM is expected to drive this growth. Replacement demand currently forms roughly a little less than two-third of the total domestic demand for tyres in the country. CARE Research expects replacement demand to grow at a CAGR of 13 per cent from around 837 thousand tonnes to around 1,445 thousand tonnes during FY11 FY16 period. Strong growth in automobile sales in the last two and half fiscals will transform in healthy replacement demand for tyres in the next 2-3 year period. However CARE Research believes that the growth in replacement demand would be affected to some extent by the slowdown foreseen in economic activity in the short-term period. Nevertheless in the medium to longterm period these concerns would diminish and demand is expected to revive at a healthy pace. 2 Initiative of the BSE Investors Protection Fund

3 Peer comparison Year ended March 31, 2012 Income statement (Rs. Crore) Krypton Tirupati Vamshi Rubfila Total income Net sales EBITDA Ordinary PAT Adjusted PAT Per share data (Rs.) Adjusted BVPS Diluted EPS Growth (Y-o-Y) (%) Growth in total income Growth in net sales 22.3 (2.7) Growth in EBITDA (38.5) Growth in adjusted PAT (89.9) (53.7) Growth in EPS* (96.3) (53.7) Profitability ratio (%) EBITDA margin Adjusted PAT margin Valuation ratios (Times) Price/EPS (P/E) Price/Book value (P/BV) Enterprise value (EV)/EBITDA Note: Tirupati: Tirupati Foams Ltd., Vamshi: Vamshi Rubbers Ltd., Rubfila: Rubfila International Ltd. NM: Non Meaningful Quarterly financials Income statement (Rs. crore) Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Total income Net sales EBITDA (1.6) Ordinary PAT (2.1) Adjusted PAT (0.8) Growth (Q-o-Q) (%) Growth in net sales (40.2) 52.3 Profitability ratio (%) EBITDA margin NM Adjusted PAT margin NM NM: Non Meaningful 3 Initiative of the BSE Investors Protection Fund

4 Financial analysis In FY12, the company reported net sales of Rs.44.5 crore up 22.3% y-o-y. Total income witnessed a growth of 14.5% during the same period. The limited ability of the company to pass on raw material prices is evident from dip in EBIDTA margins from 11.4% in FY11 to 5,8% in FY12. In line with fall in debt levels the interest cost reduced giving some respite to the PAT margins which fell from 2.5% in FY11 to 0.2% in FY12. The company appears to have adopted aggressive recovery policy which is evident from consistent fall in debtor days, on account of which the company has witnessed increase in cash balances in spite of repaying the debt as well as incurring capital expenditure in FY12. The company had negligible levels of leverage as on March 31, The total debt as on March 31, 2012 was at Rs.3 crore compared to an adjusted networth of Rs.26.3 crore. The company has not paid dividend for FY12. Annual financial statistics FY08 FY09 FY10 FY11 FY12 Income statement (Rs. crore) Total income Net sales EBITDA Depreciation and amortisation EBIT 3.4 (0.6) Interest PBT 3.1 (1.5) Ordinary PAT 2.4 (1.9) Adjusted PAT 2.4 (1.9) Balance sheet (Rs. crore) Adjusted networth Total debt Cash and bank Investments Net fixed assets (incl. CWIP) Net current assets (excl. cash, cash equivalents) Per share data (Rs.) Adjusted BVPS Diluted EPS* DPS Growth (Y-o-Y) (%) Growth in total income (11.4) Growth in net sales (4.1) Growth in EBITDA (84.2) (38.5) Growth in adjusted PAT NM NM 30.3 (89.9) Growth in EPS* NM NM 30.3 (96.3) Key financial ratio EBITDA margin (%) Adjusted PAT margin (%) 10.1 NM RoCE (%) NM RoE (%) NM Gross debt - equity (times) Net debt - equity (times) NM Interest coverage (times) 3.6 NM Current ratio (times) Inventory days Receivable days Note: Financial Year (FY) refers to period from April 1 to March 31 NM: Non Meaningful; NA: Not Available 4 Initiative of the BSE Investors Protection Fund

5 DISCLOSURES Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. This report has been sponsored by the BSE Investors Protection Fund. DISCLAIMER CARE Research, a division of Credit Analysis & REsearch Limited [CARE] has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report can be construed as either investment or any other advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees do not have any financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied for any purpose. PUBLISHED BY CARE Research is an independent research division of CARE Ratings, a full-service rating company. CARE Research is involved in preparing detailed industry research reports with 5-year demand and 2-year profitability outlook on the industry besides providing comprehensive trend analysis and the current state of the industry. CARE Research also offers research that is customized to client requirements. Credit Analysis & REsearch Ltd. (CARE) is a full service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. Head Office: 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai Tel: Fax: Regional Offices: New Delhi Kolkata Ahmedabad Bangalore Hyderabad Chennai Pune Published on behalf of The Stock Exchange Investors' Protection Fund First Floor, P J Towers, Dalal Street, Mumbai. Tel: /34