Market Price Rs 116 (FV )
Analyst : Janak Shah (M.B.A. Finance)
Market Cap Rs 1369 crs
Date: 15th April 2016
Target : Rs 175 Rating: Outperformer
About the Company:
Kesoram was recommended in this column in November 2015 at Rs 83 levels. Kesoram is a B.K. Birla group company. As per the news, just as Century textiles, Kesoram will too go under the Aditya Birla fold. It is a matter of time and as soon as the succession is passed over, the valuations will surely improve. The company was in news recently when they sold a part of tyre business to JK Tyres.
The main products of the company are Tyre, Cement & Rayon. Tyre business was making losses and part of it was sold off. We believe the remaining unit will be sold off too. The Rayon business does not contribute much to the topline or bottomline. The Cement business is the most profitable of the three. If the full tyre business is sold off and debt is reduced, the company will be once again profitable. Kesoram Industries has 3 lakh tonne per annum plant of tyre at Balasore in Odisha which is at a book value closer to Rs 1,400 crore. We believe this unit will be sold off in the near future too. The one which will be left will be the cement division of 7.5 million tonne. A rough valuation at USD 100 per tonne, gives one a value of closer to about Rs 4,000 crore while the market cap is less than Rs 1,500 crore.
Their tyre division in Haridwar to JK Tyre and Industries for Rs 2,195 crore. The company has already finalised numbers and if you go by the debt positions, the main concern has been how they reduce the debt. It stands at Rs 4,300 crore and this Rs 2,195 to be precise will be received by the company on or before 31 May 2016 So , after that, the net debt in the company will remain at Rs 2,100 crore. Since the last 5 years, the company is reporting losses , in the year 2013 the sales and Net loss stood at Rs 5700 crs and Rs 329 crores, year 2014 saw sales of Rs 5080 crores and net loss of Rs 515 crores. Year 2015 saw sales and net loss of Rs 4873 crores and Rs 368 crores. For the first 9 months of 2016 the company saw losses of Rs 574 crores. As the debt will reduce from next year, the company will post profits soon.
Promoters hold about 46 % and while Fii’s and Dii’s hold 9% , the public holding is about 45% .
Comparisions to Peers:
The company can be given an average PE of what is enjoyed by Tyre and Cement. It can get a PE of about 12 to 15 per share.
The main problem with Kesoram was that it had huge debt and the tyre business was not profitable. Due to huge interest burden, it could not be serviced and the company started posting huge losses. It has made an excellet decision by selling a part of the tyre business and it will further sell of the entire tyre business and retire a huge part of its debt which will make it very profitable given its excellent cement business.
At current price of Rs 116 per share the company is available at a low valuation. If bought at current valuation, it can easily cross Rs 175 per share in the next 1 year. If kept longer, can be a multibagger.
( Disclosure: The analyst has no holdings in the company as on date of issue being published)
Sebi Registration No: INH000001717