Skip to main content

Mafatlal Industries


Mafatlal Industries operates in the textile industry engaging in spinning, weaving, and processing of textiles.

The company was de-registered from BIFR in 2011 as a result of restoring its net worth and paying down debts.  It did this by selling one of its properties to the Piramal Group for 600cr and using the proceeds to pay off outstanding debt.

The balance sheet revealed a much more comfortable debt position as at the end of the last financial year as compared to the year before.

Management now plans to incur capital expenditures of 65cr for enhancing processing capacities along with 10cr for power generation.  They also intend to raise additional bank loans to finance these capital expenditures.

The company reported large operating losses in nine out of the last ten years – enough to wipe out equity and then some – landing it with the BIFR.  Apparently, it is stuck with old equipment and high labour costs.  This isn’t helped by aggressive competition from low-cost domestic and foreign competitors.  The weaving/processing segments are fragmented and comprised of a large number of competitors.

Further, the industry suffers from below-par growth of 3 to 5% p.a. relative to other industries.  Therefore, demand growth is unlikely to ease the burden on competition.

The operations are exposed to volatile and rising cotton and polyester prices, which comprises the bulk of the company’s raw materials and adversely impacts profitability.

The company has a significant subsidiary – NOCIL – which is engaged in supplying rubber chemicals.  This business is subject to the risk of heavy dumping of cheap products by Korean competitors.

The company is still in a ‘rehabilitation’ period with BIFR until 2016 unless it pays off all its debts.  Until then, it faces restrictions on paying out dividends to equity holders.  It was also forced to take up spinning activities as part of conditions set out by the Maharashtra government for de-reserving some property that was surrendered to it (and in accordance with BIFR sanctioned schemes).  These are some of the restrictions that equity holders need to be aware as a result of the company being a former BIFR case.

Comments

Post a Comment

Popular posts from this blog

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

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

Nelcast

Nelcast manufactures iron castings for use in the automotive industry. The company plans to expand into supplying to manufacturers of earth moving equipment and trailers.  It also intends to focus on exports and supplying to OEMs. The company reported declining operating profit margins on moderately growing revenues – reporting about 30cr of operating profits on revenues of about 500cr in the last financial year.  It operated with a moderate net debt load. The business is dependent on the fortunes of the auto industry, which is cyclical.  Moreover, it faces stiff competition from players in the unorganised sector and new foundries that have come up.  It is exposed to metal price rises and a strengthening INR since it’s a net exporter.
Post a Comment
Read more