Skip to main content

Murudeshwar Ceramics


Murudeshwar Ceramics manufactures ceramic and vitrified tiles.

The demand scenario appears to possess tailwinds such as improving living standards, government emphasis on housing, rural penetration etc.   The company has also outsourced some manufacturing by licensing its brand name that has helped save costs and may improve competitiveness.

The company reported somewhat volatile operating performance over the last five years – reporting about 50cr of operating profits on revenues of about 200cr in the last twelve months.  It’s debt load of 140cr (at 31st March 2011), although not comfortable, appeared to be manageable particularly in relation to net current assets.

The business is exposed to changing consumer preferences and high competition - including the unorganised sector, which adversely impacts the retail market that forms the largest tiles market segment. 

The business model is characterised by heavy capital investment – both in fixed assets and working capital – resulting in reduced free cash flows.  It may also increase financial and operational leverage, which translates directly to diminished earnings at the slightest drop in revenues.

Increases in input costs - natural gas, power (unavailability of quality coal), etc., and transport costs - fuel (petrol) etc. adversely impacts profit margins.  Government increases in excise duties and delays in laying infrastructure such as natural gas pipelines could also hamper profits.  Retaining skilled personnel appears to be another challenge in this industry. 

Management does intend to raise additional funds in the near future, including via preferential allotments of warrants to promoters at INR 17/share, ostensibly to repay debt.  Overall, minority shareholders will have their stakes diluted from 45% to 32%.  Minority shareholders ought to note this dilution factor along with management’s attitude towards them before considering a commitment to the company’s equity.

Comments

Post a Comment

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today...
1 comment
Read more

Under the Radar: India’s Mid-Cap and Small-Cap Equities

Indian stock markets have been one of the worst performers in 2011 – worse than their BRIC peers, worse than the rest of Asia and far worse than the US with the leading indices declining about 25% during the year.  Foreign investors in India have also suffered substantial declines of nearly 20% in INR currency value. There appear to be several reasons for the market’s dislike for Indian equities in 2011, which include persistent inflation (including food inflation, which constitutes the major proportion of the typical Indian household), political paralysis (e.g. rollback of foreign investment in retail etc.) and global concerns about the solvency of several Eurozone countries. As a result, estimated GDP growth for the next financial year has been revised downwards from about 8% earlier in the year to about 6% now - with many market commentators wondering whether this rate of growth is India’s ‘new normal’.  This is still, however, substantially higher than global av...
2 comments
Read more

Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:          ...
Post a Comment
Read more