This article provides in-depth fundamental analysis of Kesar Terminals & Infrastructure Ltd, storage facility provider for liquid cargo at Kandla port.
Kesar Terminals & Infrastructure Ltd Research Report by Reader
Q: Hi Dr Vijay. I have a question on Kesar Terminals & Infrastructure Ltd. I did a thorough analysis on this and I find this one very promising and available at a reasonable price.
- Equity : INR 5.25 cr (INR 10 FV)
- Started operation since 2010
- Paying dividend for 5 years (20% to 30%)
- Sales increased from INR 18 cr to INR 35 cr (2010 to 2014)
- OPM is above 50% since inception
- NPM was 23% in 2010 and in 2014, it is 30%
- Tax : paying above 33% since 2010
- Interest coverage is 9.68
- DE ratio decreased from 0.72 to 0.22
- Current ratio : 0.55
- Inventory turnover is 300
- Debtors turnover ratio is 8.23
- Fixed Asset turnover ratio is 0.61(increasing every year)
- Net Profit vs Net cash Flow is INR 35 cr. /INR 59 cr.
- Net cash flow last yr INR -0.03 cr
- price to sales 4.83
- PE 13.82
- Earnings yield 11.60% (as per screener.in)
- Industry PE : 63
- Promotor’s Holding : 59.99% Institutions : 5.23%
All the above ratios looks very attractive, expect for current ratio which is 0.55, price to sales 4.83 and PE which is 13 (at CMP of INR 285/-)
- Raw business but insightful management – KTIL is 6 yrs. old but an experience of 75 yrs. of its parent co, Kesar Enterprise Ltd
- Unique business model and strong entry barrier – Currently, KTIL has 64 tanks to store various liquids like chemicals and oils and is planning to add more storage units, which require dry and cold storage.
- Aggressive expansion plans.
- Decent show in the past despite a sluggish economic growth
- High dependency on Kandla Terminal
I would appreciate your feedback on this as I am holding a sizeable quantity of Kesar Terminals & Infrastructure Ltd and would like to keep it for long term.
Dr Vijay Malik’s Response
Thanks for writing to me!
Financial Analysis of Kesar Terminals & Infrastructure Ltd:
Kesar Terminals & Infrastructure Ltd has been growing its sales at a decent pace of 20% year on year since last 5 years (FY2010-14). Moreover, this sales growth has been accompanied by improved profitability. Operating profit margins (OPM) of Kesar Terminals & Infrastructure Ltd have improved from 58% in FY2010 to 64% in last 4 quarters. Similarly, net profit margins (NPM) have improved from 24% in FY2010 to 37% in last 4 quarters.
Sales growth with improved profitability is the first sign of any exciting investment opportunity. It indicates that Kesar Terminals & Infrastructure Ltd has good bargaining power with its customers and is able to price its services well with its customers.
Kesar Terminals & Infrastructure Ltd has been paying taxes at 32-35% rate, which is another good sign.
Operating Efficiency Analysis of Kesar Terminals & Infrastructure Ltd:
Kesar Terminals & Infrastructure Ltd has been reflecting improved operating efficiency year on year. This is shown by increasing fixed assets turnover, inventory turnover and reducing receivables days.
Fixed asset turnover has improved from 0.6 in FY2011 to 1.2 in FY2014. Inventory turnover has improved from 195 in FY2011 to 259 in FY2014. Receivables days have declined from 59 days in FY2011 to 44 days in FY2014. All these are good signs indicating improved efficiency in operations of Kesar Terminals & Infrastructure Ltd.
You are right that Kesar Terminals & Infrastructure Ltd has been able to convert its profits in to cash flow from operations. PAT for last 5 years (FY2010-14) is INR 36 cr. whereas the CFO over the similar period is INR 59 cr. Healthy cash collections are also indicated by improving inventory turnover and receivables days precluding any signs of money getting stuck in working capital.
However, the fixed asset turnover ratio, though increasing, is still low at 1.2 times. It indicates that Kesar Terminals & Infrastructure Ltd operates in a capital-intensive business where heavy capital investment is necessary to grow your business continuously.
Data of net fixed assets indicates that Kesar Terminals & Infrastructure Ltd has not done any major capital expenditure since FY2010. As a result, Kesar Terminals & Infrastructure Ltd has been able to keep its debt levels under check. Total debt of Kesar Terminals & Infrastructure Ltd has been constant at INR 10-11 cr.
Kesar Terminals & Infrastructure Ltd has been paying regular dividend to its shareholders, which has witnessed increase over the years. It amounts to sharing the fruits of growth with shareholders. These are signs of a shareholders’ friendly management.
Share market too seems to have recognized it. The market capitalization of the Kesar Terminals & Infrastructure Ltd has increased by INR 227 cr. against retained earnings of INR 30 cr. over last 5 years (FY2010-14). Management has created a value of INR 7.33 for the shareholders from every INR 1 of earnings retained & not distributed to shareholders.
Margin of Safety in the market price of Kesar Terminals & Infrastructure Ltd:
Current assets of players, which operate in business with high entry barriers usually go below 1 and should not be of much concern until the time they have current assets/cash to meet near term cash outflow requirements. Working capital of less than 1 mostly indicates that companies have higher payable days than receivables days. Such companies fund their working capital requirements at the cost of their suppliers and reduce their own interest costs. However, if the operating efficiency and debt levels start to rise, then current assets levels of less than 1 may signal trouble for companies and therefore, should be constantly monitored.
High dependence on Kandla Port is a double-edged sword. It ensures high barrier to entry for competitors but simultaneously, indicates that company would suffer badly if due to any reason economic activity at Kandla Port slows down. An investor should be consciously aware of the risk she is taking by investing in Kesar Terminals & Infrastructure Ltd.
However, we recommend that an investor may read the following articles to assess the PE ratio to be paid for any stock, takes into account the strength of the business model of the company as well. The strength in the business model of any company is measured by way of its self-sustainable growth rate and the free cash flow generating the ability of the company.
In the absence of any strength in the business model of the company, a low PE ratio of the company’s stock may be signs of a value trap where instead of being a bargain; the low valuation of the stock price may represent the poor business dynamics of the company.
- 3 Principles to Decide the Ideal P/E Ratio of a Stock for Value Investors
- How to Earn High Returns at Low Risk – Invest in Low P/E Stocks
- Hidden Risk of Investing in High P/E Stocks
Overall, Kesar Terminals & Infrastructure Ltd appears to be a company growing at a decent pace, with improving profitability margins & operating efficiency. Company is paying their fair share of taxes and rewarding shareholders with increasing dividends. These seem to be signs of good management, which has been rewarded by share markets as well.
These are my views about Kesar Terminals & Infrastructure Ltd. However, you should do your own analysis before taking any investment related decision about Kesar Terminals & Infrastructure Ltd.
You may use the following steps to analyse the company: “How to do Detailed Analysis of a Company“
Hope it helps!
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- The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
- I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
- Currently, I do not own stocks of the companies mentioned above in my portfolio.