After a forgettable FY12, Kabra Extrusiontechnik is likely to have a better FY13. The company’s technical tie-ups with global industry leaders, healthy balance sheet and nearly 5% dividend yield mean that it will remain attractive for retail investors.
BUSINESS Kabra Extrusiontechnik (KETL) is India’s leading manufacturer of machinery for plastic processing industry. It supplies plants to produce plastic pipes and packaging films. India’s growing consumption of plastic has ensured increasing demand for its products.
KETL has tied up with global leaders to access latest technology. Europe-based Battenfeld-Cincinnati holds a 14% stake in KETL. Similarly, KETL has picked up a 15% stake in Gloucester Engineering (GEC) in the US, which is another leading company in the industry. It also exports to 68 countries.
INVESTMENT RATIONALE India’s polymer consumption, which was growing in double digits, slowed down in FY12 impacting KETL’s sales and profitability adversely.
The polymer consumption, particularly in pipes that are used in irrigation, water management, construction, telecom etc industries and packaging films that are used for edible oils, milk, processed foods etc, is expected to resume its healthy growth in FY13. This will ensure improved demand for KETL.
The company has set up another unit in Daman at a cost of 35 crore and launched various new products. This additional capacity will be available through FY13 for its new products. KETL is expected to maintain its dividend from last year in absence of any major capex plans for FY13. This translates into a dividend yield of 5%.
FINANCIALS During the first three quarters of FY12, KETL’s profits plunged 75% as against a 14% fall in its net sales. This was due to two factors. Its overheads increased with the new plant in Daman, while local electricity rates went up nearly 30% with retrospective effect in this period. In the five-year period ended FY11, the company’s revenues grew at a CAGR of 16.9% with profit growth at 32.5%. Its debt-equity ratio at end September 2011 stood at 0.1.
VALUATIONS The company is currently valued at a price-to-earnings multiple (P/E) of 8 and price-to-book value ratio (P/BV) of 1, which fairly discount its weakened earnings of the last 12 months. The dividend yield works out to 5%, which is attractive. Nearly 8% of KETL’s m-cap is represented by thevalue of its investment in a listed sister concern.
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