Kamdhenu Ltd.

DESCRIPTION Mar-18 Mar-17 Mar-16 Mar-15

PBIDTM (%) 3.77 3.83 3.66 3.02
EBITM (%) 3.12 2.95 3.07 2.48
PATM (%) 1.32 0.93 0.92 0.79
ROA (%) 4.36 2.53 2.81 2.91
ROE (%) 12.90 7.35 7.94 8.30
ROCE (%) 16.38 11.78 13.18 13.24
Asset Turnover(x) 3.30 2.71 3.06 3.66
Inventory Turnover(x) 18.49 13.10 13.04 16.86
Debtors Turnover(x) 6.85 5.71 6.37 7.69
Fixed Asset Turnover (x) 12.94 10.27 11.64 13.88
Receivable days 53.26 63.87 57.29 47.45
Inventory Days 19.75 27.86 27.99 21.64
Net Sales Growth(%) 43.03 -1.94 -13.10 5.02
EBITDA Growth(%) 34.58 2.78 6.04 18.77
EBIT Growth(%) 44.76 -5.64 8.09 19.76
PAT Growth(%) 93.35 -0.52 1.48 34.79
Total Debt/Equity(x) 0.68 0.93 1.02 0.99
Current Ratio(x) 1.40 1.24 1.37 1.37
Quick Ratio(x) 1.08 0.94 0.97 0.97

 All the ratios have improved over the time. The EBITDA margins have also improved
over the period of time. But in comparison to the competitors the margins are not up to
the mark. If we look at the performance all the ratios have improved. The profit after tax
margins have also improved but are very low level in comparison to the peers.
 ROA, ROE and ROCE have also improved which is due to increased profits. It is a positive
sign as it shows that the company is generating returns for the shareholders and
utilizing the assets properly.
 Asset turnover have improved over the years which means that the company is able to
generate more sales on the assets of the company. Inventory turnover has also
improved which shows that the company is able to manage the inventory properly and
is not buying too much inventory. Debtors’ turnover has started to improve from the
previous year which shows that the collection is becoming efficient.
  Inventory days and receivable days have gone down which is a positive sign which
shows that the company is able to manage inventory better and is able to collect
payments from the debtors easily.
 The company’s net sales have improved and there has been a growth of 43% which is
very good sign. Also the EBITDA and EBIT have improved by large percentages.
 The debt equity has reduced over the period of time which shows that the company is
paying off debts and has low debt levels which means low payment risk and low interest
cost.
 The current ratio and quick ratio have improved which shows that the working capital
has improved and liquidity has improved.

Positives for the company

 Kamdhenu is present in steel and paint segment and is operating in the steel segment
since 1995.
 The company doesn’t manufacture steel instead it has adopted Franchisee Model.
Under this model company offers the franchiser producer its brand name and help in
technology up gradation, superior quality and consistency and marketing of products.
This model is asset lite which helps them to generate high ROE and ROCE and the
company can generate income by investing less. Also, it reduces the inventory cost of
the company.
 The revenue from operations increased by 37% from the previous year and PAT
increased by 93%. In the previous year due to low selling prices of steel the company
faced losses but the conditions have improved this year.
 The revenue from steel division increased by 45% which shows that the company has
performed well in its core business segment. In the paint segment, despite the
company’s brand name is not known and not very popular in the market, the company
has registered a growth of 7% in revenue from operations. The company is engaged in
marketing of the paint products in order to create brand recognition the market.
  The royalty income has also increased in comparison to the previous year. The company
had Rs 282 per metric ton income in the previous year and in current year it was Rs 364.
 The demand of steel in Industrial sector is increasing as the warehousing needs are
increasing which is positive for the company as this would increase the number of
franchisers.
 The paint industry is also growing as the demand by households for exterior paint is
increasing as people are becoming more aware and concerned about the exterior paint.
Also the demand of paint in industrial segment is increasing because of rising
investment in infrastructure and automobile segment. Rapid urbanization is also a
positive for the business. If the company is able to capture this opportunity it will be
very good for the business.

 The management seems to be good in managing the business. In the tough times the
company has managed to perform well. Also, the MD & Chairman MR. Satish Agarwal
has 45 years of industrial experience.

Negatives for the business

 The management seems to be little aggressive as they have expected that they will
increase royalty income to 100 crore by FY 2020 from 41 crore in FY 2017-18. Assuming
30% growth in the royalty income the company might not achieve the target. Also the
company has estimated that they will reach 12000 crore revenue by 2020 from current
level of 1100 crores which might not be possible.
 The company faces tough competition from large players in the paint industry which will
continue to be the case in future. The revenue from paint segment might not increase in
short term as the company does not enjoy brand name in the paint market. Also rising
competition will have negative impact on margins of the company.
 Rising crude oil prices will increase the raw material cost for the company which will
squeeze the margins of the company which is a negative sign for the company. Also
company has just entered into this segment therefore it might not be able to sustain in
the market.
  Rising steel prices will also have negative impact on the business of the company as the
demand will reduce if the steel prices continue to rise, which means that the franchisers
might shift from companies offering lower prices as the products of Kamdhenu are sold
are at premiums.
 If we look at the balance sheet of the company it can be seen that the company has
constant amount of cash and cash equivalents. Why is the company not using the cash?
This may be a accounting fraud by the company.

Conclusion

Although the company is having low risk and has performed well in the market it is not a good
option to invest because the steel industry in facing issue because of high prices and company
is facing high competition in the paint segment. Also, the management is aggressive in
estimating the growth of the business. Therefore the company is not a best option to invest.