Article by Sanjay Mundada

Kemrock Industries & Exports Ltd [ KIEL ] located near Vadodara in the western part of India is a leading manufactures and exports FRP/GRP (Composite) Products for major industrial sectors such as aerospace, defense, renewable energy, wind energy, railways, chemical processing, oil and gas, water and waste water management, infrastructure, construction, electrical and electronics, marine, telecommunications and many more. Kemrock has the unique distinction of commissioning India’s first Carbon Fibre Manufacturing facility to cater to Defence, Aerospace & Infrastructure Sectors.

It may be noted that FRP [ fibre reinforced plastic ] also called Glass Reinforced Plastic [ GRF ] is a fibre reinforced polymer made of a plastic matrix reinforced by fine fibres of glass. Fibre glass is a light weight, extremely strong, and robust material. Its bulk strength and weight properties are also very favorable when compared to metals and it can be easily formed using molding process.

KIEL won 2009-10 and 2010-11 PLEXCONCIL [ The Plastics Export Promotion Council ] award for being the top exporter of FRP/GRP products.

Think of any major industry and Kemrock is most probably there – the company services major sectors like aerospace, defense, renewable energy, railways, chemical processing, waste water treatment, infrastructure, construction, marine, telecommunications, electronics, oil sector etc.

Some of the major products manufactured by Kemrock are :Carbon fibre – oxidized pan fibre and commercial grade carbon fibreMass transportation related products metro frontends, passenger busesWind energy – rotor blade tooling, nacelle covers and nose conesPultrusions – telecom towers, modular houses, cable management systems, louvers etcPiping systems – GRP Pipes, flanges and fittingsGratings – moulded gratings, trench covers, FRP palletsThermosetting resins – phenolic resins, epoxy resins, unsaturated polyster resins

Strategic Alliances – the key to growthSome of the strategic Alliances forged by Kemrock are as under:RPM International Inc. is a USD 3.5 bn multinational holding company based at Cleveland, Ohio. RPM holds 18% of stack in Kemrock, at present.Kemrock has established marketing JV with GP of 51:49 and has acquired Phenolic Specialty Resin Technology from Georgia Pacific.Fibregate – Kemrock has strategic alliance for licensed manufacturing and supply of gratings, moulded and pultruded.Kemrock has acquired Carbon Fibre Technology know-how from Aerospace Laboratories functioning under CSIR at Bangalore.Kemrock and General Electric has signed a long term strategic alliance for Wind Mill Blades to be manufactured at Kemrock facility in Baroda.BEML and Kemrock has done strategic alliance for manufacturing of Rail and Metro interior / exterior and Front-ends.

Very recently, KIEL commissioned India’s first carbon fibre manufacturing facility in Vadodara, in technological tie-up with CSIR- National Aerospace Laboratory, Bengaluru. This fully integrated plant, with an initial capacity of 400 tonnes per annum, was inaugurated on 9th May 2010 by Honourable Dr. APJ Abdul Kalam, distinguished Former President of India. In November 2010, KIEL signed an MoU with Hindustan Aeronautics Limited, Bangalore, for the formation of a joint venture company to develop, manufacture and market aerospace grade carbon fibre pre-pegs along with its associated pre-pegs for defense and aerospace programmes in India. Pre-peg by the way is the technical term for ‘pre-impregnated’ carbon fibre.

In March 2011, KIEL entered into joint venture with Netherlands-based € 9 billion DSM Composite Resins AG for the production of specialty composite resins in India. DSM and Kemrock together will invest USD 25 million in the joint venture. With this partnership DSM, one of the leading composite resins providers in the world, will structurally strengthen its presence in India and leverage its depth of technological knowledge and global customer relationships. Both partners will utilize and leverage each other’s strengths whereby DSM will focus on the supply of innovative specialized composite resin solutions to the fast growing Indian market while Kemrock will concentrate on the production of high end composite parts.

Some salient aspects relating to Kemrock’s numbers are as under :EBIT Growth pc for last 3 years has been growing rapidly : 34 pc in FY09,49pc in FY10 and 68 pc in FY11Net Sales growth has been 50 pc plus on a y-o-y basis during last 5 fiscalsCompany’s 5 year top-line and bottom-line grew 32.33pc and 24.72 pc respectively whilst the Gross asset base increased by a CARG of 37.52 per cent.Consequent to the company’s ongoing growth, need for fixed assets and working capital continues to increase and that’s why we get to see a high Debt Equity ratio of 1.79Net Profit margins are in the range of 8.10 to 12.8 per cent

The company clocked a turnover of Rs.901.30 and PAT of Rs.75.45 crores in FY2011 thus generating a handsome EPS of Rs44.12 and going forward expect earnings to increase smartly on a q-o-q basis / y-o-y basis.

As per the recent quarterly results appearing on BSE, Net Sales from operations increased smartly by 40.44 pc to Rs.237.71 crores in Q2FY12 as compared to Rs.169.26 crores in Q2FY11. PAT grew by 12.57 pc to Rs.15.49 crores in stated period.

Now even if we were to discount the annual topline growth by 25 pc, the company should generate revenues of close to Rs.1500 crores in FY2012-13 and Net Profit of around Rs.150 crores presuming the company continues to grow at 50 pc per annum as in the past. Accordingly the company is very much capable of generating EPS of around Rs.85 and the shares are thus quoting at a PE of 5.98x FY13 earnings.

Considering the fact that the company produces some very niche products especially the carbon fibre ones, one may consider including the scrip in ones portfolio when the stock dives due to any micro or macro events.

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