Kennametal India
Has metallic strength
An MNC subsidiary, this machine tool major caters to auto and auto related industries, light and general engineering industries
| Buy | Kennametal India |
| BSE Code | 505890 |
| NSE Code | Not listed |
| Bloomberg | KNM@IN |
| Reuter | WIDI.BO |
| 52-week High/Low | Rs 674 / Rs 236 |
| Current Price | Rs 273 (as on 09th May 2008) |
Kennametal India (KIL), part of Kennametal Inc, USA is a pioneer in metal cutting and forming business. It manufactures machine tools, hard metal & hard metal products, engineered products and mining compacts. The main user industries of its products are Automobiles, Mining, Engineering, Defence, etc. Besides products, the company also provides total manufacturing solutions to the customers.
The company caters to the needs of auto and auto related industries, light and general engineering industries etc., and seeks to provide a competitive edge to its customers through total manufacturing solutions.
Broadly, the business of company is organised and managed in two segments Hard metal & hard metal products and Machine Tools. Apart from the above two primary business segments, the secondary segmental reporting is on the basis of the geographical locations of the customers, viz., domestic and international.
Roboust performance- March quarter PAT up 65%, nine month PAT up 40%
For the quarter ended March 2008, net sales have increased 5% to Rs 93.83 crore. OPM that expanded by a solid 850 basis points to 24.4% lifted operating profit by 61% to Rs 12.59 crore.
PBT was up 62% to Rs 19.80 crore and after providing for taxation (up 56% to Rs 6.56 crore) PAT zoomed 65% to Rs 13.24 crore.
For nine months ended March 2008, KWIL has registered a net sales of Rs 281.13 crore, a rise of 8%. Spurred by 600 basis point expansion in OPM, operating profit surged ahead by 47% to Rs 62.95 crore.
PBT was up 37% to Rs 56.91 crore and after providing for taxation (up 31% to Rs 19.10 crore) PAT zoomed 40% to Rs 37.81 crore.
Will continue to benefit from the capex upturn
Kennametal India is a leading player. With its wide range of products and services, it is rightly positioned to capitalise on the pick up in investment in industries as well as infrastructure sectors.
Good economic growth over the past few years and lack of any major expansion in most of the industries has lead to most of the manufacturing sector working at near full capacity utilisation. This has lead to pick up in investment in fixed assets to expand and modernise capacities to cater to future growth in demand. Notably, huge investment projects are lined up in the mining, manufacturing and the infrastructure sector, which has lead to massive expansions by Steel companies, Indian Railways, Mining Equipment companies, Material handling equipment companies, Cement companies, Sugar companies, Paper companies, Continuous process industry companies, High speed heavy duty turbines manufacturers (used in power plants) and Oilfield companies.
Strong parent
US-based Kennametal has 88.16% stake in the company. It must be recalled that Kennametal acquired from Milacron Inc. USA, Widia businesses worldwide including Widia Germany in August 2002. By acquiring Widia Germany and consequently Meturit A.G., which held 76.68% of the equity share capital of the company, Kennametal gained indirect control of the company. According to SEBI rules, Kennametal made open offer to the public shareholders to acquire balance 23.32% stake of the company. The offer closed in February 2003. Currently Kennametal, itself and through its subsidiaries hold 88.16% stake in the company.
Reaping the benefits of past restructuring
The company is making a significant progress in both the manufacturing and non-manufacturing areas. Under this initiative, to enhance operational efficiency and competitiveness, many improvement projects were completed that helped improve productivity. The focused thrust given to this initiative enabled the company to meet the customers' needs in a more timely and efficient manner. Various medium and small operational improvement projects were carried out apart from some major lean projects, which resulted in significant savings. The management is confodent that the company should continue the good work that has been done in the past on process improvements and cost reduction.
Valuation
KWIL has an equity share capital of Rs 21.98 crore and face value is Rs 10 per share. We expect the company to register sales and net profit of Rs 383.88 crore and Rs 53.67 crore in FY ending June 2008. On equity of Rs 21.98 crore and face value of Rs 10 per share, EPS works out to Rs 24.4. The share trades around Rs 273. P/E works out to just 11.2. By then thebook value will also cross Rs 100 mark. Being a major player in machine tools industry with good growth prospects and 88.16% controlled by a major MNC in this field, the company deserves better discounting.
| | 0606 (12) | 0706 (12) | 0806 (12P) |
| Sales | 320.86 | 357.22 | 383.88 |
| OPM (%) | 19.1 | 18.2 | 22.8 |
| OP | 61.24 | 64.96 | 87.61 |
| Other inc. | 16.35 | 13.43 | 9.85 |
| PBIDT | 77.59 | 78.39 | 97.46 |
| Interest | 0.56 | 0.47 | 0.30 |
| PBDT | 77.03 | 77.92 | 97.16 |
| Dep. | 12.54 | 13.07 | 16.07 |
| PBT | 64.49 | 64.85 | 81.09 |
| EO | 3.77 | 0.00 | 0.00 |
| PBT after EO | 68.26 | 64.85 | 81.09 |
| Tax | 24.40 | 22.60 | 27.42 |
| PAT | 43.86 | 42.25 | 53.67 |
| EPS* (Rs) | 18.9 | 19.2 | 24.4 |
| * Annualised on current equity of Rs 21.98 crore. | |||
| Kennametal India: Results |
| | 0803 (3) | 0703 (3) | Var. (%) | 0803 (9) | 0703 (9) | Var. (%) | 0706 (12) | 0606 (12) | Var. (%) |
| Sales | 93.83 | 89.31 | 5 | 281.13 | 260.29 | 8 | 357.22 | 320.86 | 11 |
| OPM (%) | 24.4 | 15.9 | | 22.4 | 16.4 | | 18.2 | 19.1 | |
| OP | 22.90 | 14.19 | 61 | 62.95 | 42.75 | 47 | 64.96 | 61.24 | 6 |
| Other inc. | 1.04 | 1.48 | -30 | 6.10 | 8.74 | -30 | 13.43 | 16.35 | -18 |
| PBIDT | 23.94 | 15.67 | 53 | 69.05 | 51.49 | 34 | 78.39 | 77.59 | 1 |
| Interest | 0.07 | 0.10 | -30 | 0.23 | 0.37 | -38 | 0.47 | 0.56 | -16 |
| PBDT | 23.87 | 15.57 | 53 | 68.82 | 51.12 | 35 | 77.92 | 77.03 | 1 |
| Dep. | 4.07 | 3.33 | 22 | 11.91 | 9.60 | 24 | 13.07 | 12.54 | 4 |
| PBT | 19.80 | 12.24 | 62 | 56.91 | 41.52 | 37 | 64.85 | 64.49 | 1 |
| EO | 0.00 | 0.00 | -- | 0.00 | 0.00 | -- | 0.00 | 3.77 | -100 |
| PBT after EO | 19.80 | 12.24 | 62 | 56.91 | 41.52 | 37 | 64.85 | 68.26 | -5 |
| Tax | 5.12 | 3.82 | 34 | 18.42 | 14.18 | 30 | 20.90 | 19.66 | 6 |
| Deferred Tax | 1.44 | 0.39 | 269 | 0.68 | 0.38 | 79 | 1.70 | 4.74 | -64 |
| PAT | 13.24 | 8.03 | 65 | 37.81 | 26.96 | 40 | 42.25 | 43.86 | -4 |
| EPS* (Rs) | # | # | | # | # | | 19.2 | 18.9 | |
| * Annualised on current equity of Rs 21.98 crore. | |||||||||
BigGains !!
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