KEI INDUSTRIES

Focus on retail to boost revenues

Delhi-headquartered KEI Industries is a fast-growing onestop shop for cables. It offers a wide range of cables, including extra high voltage (EHV), medium voltage (MV) and low voltage (LV) power cables, and serves both retail as well as institutional segments. No doubt, the pandemic administered a blow to the company’s working during the first half of fiscal 2021. However, the company has slowly and steadily started recovering. The current fiscal (2022) has started on a buoyant note and this has prompted the management to give a revenue growth guidance of 18 to 20 per cent for fiscal 2022 with sustainable margins of 11 per cent, and a similar range in revenues and margins in 2023 as well as in 2024.

Consider:

• At present, the company operates through five modern manufacturing facilities strategically located in Rajasthan (Bhiwani, Chopaki and Pathrediare) and in Dadra and Nagar Haveli at Rakholi and Chinchpada (Silvassa). With a presence in the northern and western parts of the country, KEI can easily serve its institutional clients efficiently across India. With its strong presence in the cable industry spanning over five decades, the company has succeeded in building a diverse market presence with significant revenues coming from the export, institutional and retail segments.
• The company is planning to expand its retail segment which comprises house wires, winding and flexible wires, LT power cables and HT cables. As per its new marketing policy, KEI has started expanding its distribution network to increase its retail sales. Its dealer-distributor network, which was increased from 1,284 in fiscal 2018 to 1,450 the next year, has been raised to 1,602 last year, of which 548 were from north India, 329 from south India, 376 from east India and 349 from west India. By now, the total number has gone up to 1,650 and the management has planned a 20 per cent increase every year for the next three years. The company expects a 35 per cent growth in its retail business in the current as well as the next year.
• At present, retail accounts for around 30 per cent of total revenues, the institutional segment for around 52 per cent and exports for around 18 per cent. The company is planning to reduce the institutional business and expand the retail as well as export segments.
• The company is also exploring new opportunities on the export front. Of course, due to the pandemic and the resultant travel constraints, there is an absence of large orders. However, once the pandemic comes to end, the export prospects will brighten. KEI has witnessed good export opportunities in markets such as Australia and Africa. In order to tap export opportunities, the company is looking to build a new authorized dealer and distribution network in international markets with a focus on both domestic and industrial cables and wires.
• The company was registering steady growth all these years before the pandemic struck. During the last five years, its sales turnover expanded from Rs 2,631 crore in fiscal 2017 to Rs 4,884 crore during fiscal 2020, before declining to Rs 4,181 crore in fiscal 2021. However, the profit at net level has inched up from Rs 98.64 crore in 2017 to Rs 273.31 crore in fiscal 2021. The company’s financial position is very strong, with reserves at the end of March 31, 2021 standing at Rs 1,760 crore – almost 100 times its equity capital of Rs 17.97 crore.

With the impact of the pandemic on the decline, the company has started doing very well and has started the new year (2022) on a buoyant note. With sales turnover during Q1FY22 (April to June 2021) moving up to Rs 1,018 crore as compared to Rs 745 crore in the corresponding quarter a year ago, KEI has earned a very high profit at Rs 67.11 crore as compared to Rs 36.23 crore a year ago. The management has cut down its debt burden to Rs 336 crore during the quarter from Rs 407 crore as on March 21, which has further strengthened the balance sheet.

Prospects ahead are bullish as the company’s order book stands at Rs 3,022 crore. s Investors will do well to include these shares in their portfolio with a longterm perspective.

CONSOLIDATED PERFORMANCE INDICATORS (Rs. in crore)

SURAT TEXTILE MILLS

Weaving a post-Covid revival

Incorporated in 1945, Surat Textile Mills is a leading textile company and one of the oldest in the textile city of Surat. It is engaged in the manufacture of yarn, cloth, polyester filament yarn, polyester chips (with on installed capacity of 24,500 tonnes per annum) and spun yarn. It has three manufacturing facilities, two in Surat district and one in Silvassa. The company is wellknown for the high quality of its products. It was adversely affected by the Covid-related lockdown initially but of late has staged a smart recovery. Available around its par value of Rs 10, the stock is a safe investment bet with excellent chances of good appreciation going ahead.

Consider:

• The company was growing steadily with its sales turnover crossing Rs 200 crore in fiscal 2018 and reaching Rs 216.28 crore in fiscal 2019. But on account of the pandemic, its sales declined to Rs 180 crore in 2020 and further to Rs 131 crore in fiscal 2021. Likewise, its operating profit declined from Rs 13.54 crore in fiscal 2018 to Rs 8.11 crore in 2019 and further to Rs 7.41 crore in fiscal 2020. However, its performance started improving significantly in Q4 of fiscal 2021 with sales of Rs 57.51 crore, a 33.3 per cent spurt over the same quarter a year ago, and the net profit shooting up from Rs. 0.95 crore to Rs 7.63 crore over the same period – higher than the profit earned in the entire fiscal 2020. The improving trend continues in the current fiscal. In fact, Surat’s textile hub itself has started weaving a revival story after Q4 of fiscal 2021. This augurs well for Surat Textile Mills too.
• Realising that one of the oldest organized industries in the country, which provides jobs to millions, is in distress, the Centre has taken steps to revive the industry by providing support in various forms. Exports are being encouraged to give a boost to the textile industry. With rising Covid-19 cases in India’s neighbouring countries, the demand for Indian textile products has seen a marked uptick. At the same time, the European Union’s decision to cancel the GSP status of Pakistan is seen as a huge boost for Indian textile suppliers to the EU.
• The company, erstwhile belonging to the Garden Vareli group can boast about its experienced promoters in the textile business: The Garden Group that has vast experience in the polyester intermediates and textiles industry. At the helm of its management are the Managing Director, Mr. M. R. Momaya, and CFO Mr. Yogesh Papaiya, who have an established track record of over 3 decades in the textile industry and have helped STML to develop strong business relations with its stakeholders.
• The shareholding pattern of the group company, with promoters holding the maximum possible stake (74.98 per cent), clearly indicates the promoters’ confidence in the company’s future. Again, not a single share of the promoters has been pledged.
• The company’s financial position is very sound. It is virtually a debt-free entity. Its debt-to-equity ratio – which is a as comfortable gearing leads to comfortable debt coverge indicator. As gearing continues to remain comfortable, minimum leverage and moderate networth, overall gearing stood at comfortable level. Given comfortable gearing levels, debt coverage indicators continue to remain healthy with interest coverage ratio being less than 12 times. Thus in fact, good metric to check capital structure and performance — is 0, which means that the company has a low proportion of debt in its capital. It has a healthy interest coverage ratio of 109.68 and its PEG ratio is 0.19. The company has an efficient cash conversion cycle of 22.62 days and has a healthy liquidity position with a current ratio of 35.76.

Surat Textile Mill’s shares with a face value of Re 1 are currently quoted around Rs 9. Once the corona chapter comes to an end, the share price is expected to move up and investors with a long-term perspective – say, five years – are bound to reap a rich harvest.

PERFORMANCE INDICATORS (Rs. in crore)