KLRF LTD (BSE 507598 FV RS.10)

Any view on below company??

KLRF LTD (BSE 507598 FV RS.10)

Company : Kovilpatti Lakshmi Roller Flour Mills, as KLRF with its brand as "Kuthuvilakku" came into existence way back in 1964 with the establishment of 46,800 MT of wheat flour at Gangaikondan in Tamil Nadu, near the southern tip of the Indian subcontinent. The various business of the company is as below :

Flour Mill Division : This is the flagship Division with licensed and Installed capacity of : 74,000 MT per annum working at 70% capacity (thus leaving scope for further scalability). KLRF has commissioned a traditional stone mill and transformed itself into well known manufacture of branded whole meal Atta which has more fibre, minerals, vitamins and rich in aroma. The company now has product portfolio of entire range of flour, which meets the demand across users such as Bakeries, Parotta Makers, Hoteliers, Sweet & Confectioneries Manufacturers and domestic end users. The company is pioneer in tapping high margin retail segment by launching half kg, 1 kg pack of various attas it manufactures, which is well accepted by the consumers due to its consistent quality, well recognized brand at affordable price. Company has Brands as : Kuthuvilakku, Kera Brand, Alamaram Brand for various basket of products.

Textile Division : In 1982, the company expanded into textiles business by the name of KLRF Textiles, a 30000 spindle unit and 1344 rotors, after further expansion it became one of the leading yarn manufacturer and exporter in the country. The division scored operating loss of 3 crore, this is mainly due to fall in yarn prices due to global slowdown and less off take from China.

Sheet Metal Division : KLRF SHEET METAL INDUSTRIES was established in October 1978. Initially this unit has been installed to cater the needs of M/S. LAKSHMI MACHINE WORKS. KLRF SHEET METAL INDUSTRIES is engaged in a diversified business like, ferrous castings, flour milling, textile spinning, sheet metal fabrication, plantation and flour milling machinery manufacturing, rice color sorting machine manufacturing and trading of electrical and Industrial goods.. KLRF SHEET METAL INDUSTRIES is also acting as a trading agent of Probat Werke of Germany ( for their entire range of Coffee Roasting machines ) and M/s. Mahlkonig , Germany ( for their entire range of Coffee Grinding machines ). KLRF SHEET METAL INDUSTRIES has got all the facilities required for sheet metal fabrication under one roof.

Windmill Division : Wind Mill Division at Aralvoimozhi Village in Kanyakumari District, Pazhavoor Village and Dhanukkarkulam Vilalge in Tirunelveli District, Tamil Nadu with a capacity of 6.25 MW. The entire power generated by the windmills is captively consumed. All the windmills are well maintained and the performance is satisfactory.

Engineering (Foundry / Casting) Division : The company has Foundry division with licensed and installed capacity of 10,800 MT per Year, which is running at 90% capacity and contributing 30% of turnover.

Investment Rationale : During 1st Half of FY16, the company achieved turnover of Rs 106 Cr, on which it earned net profit of Rs 5 crore, resulting EPS of Rs 10 per share in first six months only. In 2nd half FY16, company can double the turnover and net profit, which will result in EPS of Rs 20 per share for entire FY16. (In FY15 The turnover of the company in FY15 as 222 Cr, on which EBIDTA of 12.67 Cr was earned. Food Division earned EBIDTA of 9.3 Cr (56292 MT) accounting 59% of turnover, Textile division has incurred EBIDTA of -2.31 CR and Engineering Division has earned EBIDTA of 5.68 Cr.)

The management is optimistic on Food Division of the company due to consistent demand and favorable availability of quality wheat. Due to continuous losses and considering uncertainty in the sector, the management has decided to close down 2 units of textile division & 1 unit of sheet metal division, for which the approval has been obtained from shareholders. This will help company to wipe out loss and proceeds from sale will help the company reduce the debts. While in engineering division increased production as achieved due to availability of dedicated power supply. Increased production and improved performance is expected in FY16.

Valuation : The share of this more than 50 year old company with Fv of Rs 10 paid up and tiny equity of Rs 5 Cr only, having book value of Rs 46 and having TTM sales of 195 Cr & management holding of 51%, with recession proof business of Branded Food and high potential Foundry/Casting Heavy Engineering business, which is already making good profit alongwith ROE and ROCE of 14 & 11 percent and OPM margin of 13% is available at market cap of only 30 crore which is very cheap looking at the potential earning power of the company, as company has closed down its loss making division and proceeds of which is utilized to reduce debt, which again will improve the profit, which is already 6CR in last 3 quarters (Rs 12 EPS per Share). The current PE of 6 and market cap of 35 crore is very attractive as peers are trading at a PE of 20 and Mcap to Sales of 4, thus this turned around company can achieve EPS of close to Rs 30 TO 35 per share in net couple of years, if it can trade at PE of even 10 can give immense scope of appreciation in the long term.