Skip to main content

Katare Spinning Mills


Katare Spinning Mills operates in the textile (cotton yarn) and hotel industries.

The profits on both segments are similar. 

Management expects cotton yarn demand to remain strong domestically and internationally over the long run.

The company operates a hotel in Solapur with about 54-room capacity.  It is enjoying reasonable occupancy rates as a result of tourism and industrial development around the area as well as a refurbishing exercise undertaken on the hotel in the previous year.

The company reported reasonably stable operating profits (but declining margins) on growing revenues – reporting over 2cr in operating profits on revenues of 47cr.  Its net debt load appeared to be backed by net current assets alone.

The business is exposed to hikes in cotton prices, which shot up over 100% in the previous year.  This has resulted in lack of demand and un-remunerative prices resulting in poor returns on substantial capacities added in previous years.   Inflationary factors also raise other costs, which the company is unable to pass on effectively to customers as a result of relatively low bargaining power with brand-name customers. 

The textile industry suffers from periods of overcapacity depressing selling prices and profit margins.  Overall, the industry is notorious for generating low returns on capital.

The company, being a net exporter, is adversely impacted by the recessionary economic conditions in customers’ countries as well as a strengthening INR.

Besides, government policies on cotton and yarn exports distort the demand/supply equation, which affects the company’s results (usually adversely).

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”. Of cour
1 comment
Read more

Lakshmi Energy

Lakshmi Energy is in the business of processing and distributing rice to domestic and export markets.   It is also engaged in generating biomass fuel. The company has reported growth in revenues and operating profits over the last five years reporting about 200cr in operating profits on about 1200cr of revenues in the last financial year (ending 30 th September, 2010).   It operated with a relatively high net debt load of 780cr as at that date. The business, however, generates weak operating cash flows as a result of high investment in its working capital. The business is subject to adverse changes in government regulations/policies on procurement pricing, non-Basmati exports etc.   It is monsoon-dependent, subject to adverse changes in foreign exchange rates (for exports) and prone to heavy competition in its operations. Dividends have been on a declining trend for the last five years (probably as a result of above cash flow problems).   Management appear to be making a valiant
2 comments
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 average.
2 comments
Read more