There is a lot of buzz about Kiri industries being a three bagger already and people are saying it is just the start. Initially, I was also a bit enamoured with the idea of investing in it but then I decided to pull out early after further investigation. People including experts such as Mr. SP Tulsian, though were clamouring to invest in it for the following reasons:
- The total borrowings decreased from Rs 853.13 crore in FY15 to Rs 410.6 crore in FY16, which is a reduction of about 51.87%.
- There had been a sudden dramatic change in the market situation of dyes Intermediate especially h-acid and vinyl sulphone due to closure of a leading manufacturing plant in China (which contributed a major chunk of the world h-acid market). The average price of h-acid during the previous financial year which had been ranging from Rs 300 to Rs 360 per kg had now shot up to about Rs 900 to Rs 1,000 per kg and average price of vinyl sulphone during the previous financial year which stood at Rs 160 to Rs 180 per kg had now shot up to about of Rs 240 to Rs 275 per kg globally. The company has installed capacity to manufacture 7200 MTPA of H-acid and 18000 MTPA of vinyl sulphone.
- Kiri Industries also hold 37 percent stake in Dystar Germany and their 37 percent share of profit will give them estimated profit of about Rs 250 crore this year. And in March, 2016 market cap of Kiri Industries was around Rs 210 Cr!!! It is still around Rs 725 Cr.
So did I miss this seemingly great opportunity around March, 2016? Well maybe because it is a three bagger already and maybe not because it can still go back to where it was! I want to lay out some factors as to why I stayed away from this stock:
- The promoters have given revenue guidance time and again in the past and missed it by huge margins.
- H-acid prices fluctuate wildly year on year and so does this stock. The Chinese factory will soon start production and the temporary benefit to Kiri Industries will vanish.
- Also, the way management handled the debt crisis has been poor. Their stake fell from over 70% to 35% odd within a year in the past. This was due to failure to give additional margins as they had pledged their shares and thus their shares were sold in the open market for recovery of dues.
- The margins (EBITDA) have been poor at 10%. Manish Kiri, the MD, expects to do 20% for 1 or 2 quarters and then it will be back at 10% which is too low for my comfort.
I believe it is better to miss such shady investment opportunities than invest in them and repent later. As they say, better be safe than sorry! India is a land of opportunities. You do not need to take such a “risk” to make money here.