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Kulkarni Power Tools


Kulkarni Power Tools is in the business of manufacturing power tools for the housing, infrastructure and industrial sectors.

The company reported growing revenues in the last five years but the operating profits don’t seem to have kept up – indicating declining operating margins.  It reported about 12cr in operating profits on revenues of about 90cr.  However, it employed an uncomfortably high debt load to accomplish this performance thereby increasing the financial risk in case of a business slowdown.

The business is exposed to iron and steel price increases (raw materials) as well as the housing/construction cycles.  It is also vulnerable to a weakening INR since it’s a net importer and its high debt level (apart from its customer profile) exposes it to the risk of rising interest rates.

Management don’t appear to have discussed the risks in this business fully or intelligently – management reluctance to honestly discuss their views of the business (risks as well as opportunities) even once a year to their owners is baffling.

They have also engaged in issuing share options to employees – this activity, while generally abhorrent to minority shareholders, is tempered by SEBI regulations and may be an acceptable incentive if the issuance volume is miniscule, the exercise prices are high and employees actually increase the ultimate value of the business.

Management have managed to maintain a reasonable dividend payout over the last five years but its sustainability would depend on continuing or bettering its recent performance and it may be better to prioritise debt repayment to reduce overall financial risk.
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