Scripscan:Kesar Terminals & Infrastructure Ltd(KTIL)
Quote:As Phil Fisher says,"It seems logical that even before thinking of buying any common stock,the first step is to see how money has been most successfully made in the past".The silent multibaggers of the past often leads to big future multibaggers.
Note:Continue to be very high on the logistics sector.Earlier recommended ones like shreyas,tci,Gati-All been 3 baggers.Kesar terminals too shouldn't disappoint.The best way to play a bull market remains to ride on a sector which is fancied by the market.
IP:Intellectual property or human brain is one of the most important factor which I look for before selecting a company.Also as per Phil Fisher,“In evaluating a common stock,the management is 90%, industry is 9% and all other factors are 1%".Check the below given profiles and the detailed summary.
Business:Presently the company through its 2 bulk liquid chemical terminal at kandla has a capacity of 127,000 Kilo Litres (KL) at with a total of 64 tanks including specialized tanks, such as stainless steel tanks equipped with heating and insulation facilities and coated tanks which stores specialized products.The company is awaiting approval to further add capacity of 7000 kl at its kandla unit.Last year,the Company had converted 2 of its existing Mild Steel (MS) Tank to Stainless Steel which has contributed to additional revenues. The Company plans to convert more MS tanks based upon demand from its customers.Further,Kesar Multimodal Logistics Ltd (KMLL) is the SPV Company of Kesar Terminals & Infrastructure Ltd & Kesar Enterprises Limited and is developing a ‘Composite Logistics Hub’ at Pawarkheda(MP) under a Public Private Partnership (PPP) model.The Logistics Hub will comprise of a Private Freight Terminal with railway sidings, warehousing complex, cold storage, bonded warehouses, Inland Container Depot, Agri product processing units and modern cargo handling & storage facilities spread over 88.3 acres of land located strategically on the intersection of East-West, North-South corridor of the Indian railway network.The Company has planned to expand its presence to places like Kakinada [Andhra Pradesh], Pipavav (Gujarat).
Business in simple words:Put liquid storage facilities in port and rent them to importers and exporters.Company' vision is to be a Pan-India Integrated logistics Player.
Pawarkheda Expansion update:Kesar has done world class construction work in its new Pawarkheda unit.The company has almost completed its project phase 1.Few warehouses are even rented with high realizations.KMLL has also completed construction of some of its Agro Warehouses.KMLL has strongly geared up its marketing activities to create awareness among the prospective clients about the facilities that would be available at the Logistics Hub and also to assess the demand of such facilities in the area of influence.The facility is close to Itarshi which is a busy loading place owing to the high demand for food grains.Within the next 2-3 months,the company is hopeful of the full completion of its expansion along with the required approvals.That would see decent revenues coming mostly from its 800m long railway warehouse as well as from the futuristic looking 3.75k ton cold storage.Company in every possibility has chances of coming with blockbuster quarter4 numbers.Check the pictures:
Relevant deals in the sector:The sector in recent past witnessed lucrative deals.Warburg invested more than 200crs in IMC when revenues were just 65 odd crs.Royal vopak also acquired CRL at a pretty high valuations.Those extravagant deals happened on distressed times.With logistics booming bigtime,future such deals too will happen inevitably at exorbitant prices.
Performance:KTIL posed total revenue of Rs.36.24 crore with net profit of Rs.11 crore recording an EPS of Rs.20.95 for 2013-14.The increase was mainly on account of better realisation of terminal tankage charges and maintaining the utilization efficiency of tanks by over 99%.
2014-15 numbers:The company will close the present fiscal with a topline of around 47crs and a bottomline of 16crs(20.5cr revenues and 7.56crs PAT already done in the half yearly numbers).Company should report sales of 65crs and PAT of 21crs in fy16(40rs EPS).
Past and future numbers:Company has grown its sales and profits at a decent pace of 19% and 25% respectively in the last four years.The overall demand for Bulk Liquid tanking business is firm.With good demand growth is expected in the oil & gas sector in India and a more favourable business outlook,Company is poised for higher growth in the medium term.With its expansion plan going smoothly,company should grow at a minimum 30-35% CAGR for the coming 4-5 years.
Concerns:Consolidated debt as on last balance sheet figure stands at 56crs.Company may resort to more debt to fund its future expansion plan.Too much debt and delay in project completion can be detrimental to the financial health of the company.
Concern clarified:Company has Contingent liabilities of Rs 108cr which is nothing but guarantee given for KMLL.
Future scenario:KMLL has great long term prospects.Entry barriers are very high in this business.There's more than a chance of company opting for value unlocking by spinning it off as a separate entity and allotting free shares to you shareholders.That can only happen 3-5 years forward,if at all.Considering the potential,KTIL over the last couple of years,has put in around 25crs to increase its stake in KMLL from around 50% to 99.90%.
Few very interesting aspects:Company has got pricing power.Year after year the Kandla liquid storage division has seen higher realizations.The same trend should continue in the near future.The multi modal logistics hub would have strong pricing power too.As per our Buffett Grandpa,"The single most important decision in evaluating a business is pricing power.If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business".It would be prudent to note that,"Madhya Pradesh is the fastest growing state in our country with a GDP of over 11%".Rest of India are you listening?Cumulatively you cant even notch up 5% GDP.Think about it folks,you are putting on a massive size warehouse in an area where there's no such similar warehouses in 200km radius,Where the GDP itself is growing at an alien speed.Its also near to a railway station which sees a nomenclature of over 250 trains moving up and down.Year after year,you will increase the per sqft realizations and would supper on piles of cash flows.The expenditure would be the same fixed costs enabling you to enjoy rich operational leverage.Servicing interest shouldn't be a big deal.
Conclusion:KTIL’s business model is similar to one which Peter Lynch explained in‘One up on Wall Street’ as : success of business at one place and duplicating the same in another place(from Kandla to pawarkheda and later to pan India).Promoters are ethical and posses great long term vision.Company though is a professionally managed company.They own 60% stake in the company.Company has paid dividend since its inception.Average payout for last few years has been around 15%.Payout should increase with higher profits in future.In the era of 30-40x future earnings in the logistics sector,Kesar is just trading at 12 times its trailing cash flows of 18.5crs.Post march15,the trailing cash flows would make the valuation look much more attractive.Company also boasts of a fabulous ROE of 30% which is kinda unheard of in the logistics arena.Assign a buy with a target of 600 bucks which would discount its fy16 earnings by 15x(basis can be half of PEG,trailing cash flows of the same 12-13x,PE of 15-So many ways to arrive at the target price).Peers quote at way above.
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Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Disclosure: It is safe to assume that I might have kesar in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.