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Monday, October 5, 2009

Porwal Auto Components Ltd and KPR Mill Ltd :Future growth outlook and prospects

1)Scripscan:Porwal Auto Components Ltd
cmp:11
Code:532933

Story:Porwal Auto manufactures ductile iron and grey iron castings and components primarily for the automobile industry.80 per cent of its installed capacity is to be utilized by 2009-10. With increase in capacity, the company expects to benefit from higher domestic demand for automobiles as well as the trend of overseas OEMs (Original Equipment Manufacturers) sourcing components from India.But in a fragmented industry such as this, small companies will find it tough to compete with bigger players. The latter score over the smaller ones in terms of ability to execute larger orders, offer value added products such as machined castings and forgings and sub-assemblies and assemblies. These value additions also bring in better margins. Moreover, export growth for Indian component makers has come from high-end cast products and higher technology castings rather than from raw castings or forgings.While the company too has plans to increase the supply of finished castings and scale-up its machined castings production, it will face stiff competition from established players. The company also needs to diversify its risks by supplying to other segments of the auto industry such as passenger cars and two-wheelers (to combat any slowdown in one particular segment ).The fragmented nature of the foundry industry with a number of small players, competition from larger companies , unattractive margins and heavy dependence on one client are concerns for the company.A call on it can be taken once the numbers reflct some decent performance.A hold as of now.

2)Scripscan: KPR Mill Ltd
cmp:87
Code:532889

Story:The Rs 718-crore KPR Mills is located strategically at the Tirupur belt, making it well-placed to cater to the demands of knitwear exporters in the area. KPR has a presence in spinning, knitted fabric and garments.KPR attributes its superior operating profit margins, to efficient sourcing of cotton and the use of captive wind power plants that have substantially cut its power costs.KPR plans to foray into the US, which is likely to be a competitive market. India’s knitted apparel exports to the US have been increasing, although the growth has come at the expense of realisations. KPR hopes to cater to volume buyers, which could entail some sacrifices on pricing and, thus, on margins. An appreciating rupee would compound margin pressures. With the company also heavily leveraged, we expect profit growth to trail revenue growth.Although the company’s large scale and better margin profile are positives, a weak export environment, the strong rupee and persisting pricing pressures pose challenges to its ability to significantly ramp up its garments business.There are also superior investment options already available among listed textile companies.One can hold the stock or can move on to better stocks with higher growth potential

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