Friday, July 15, 2011

Kesar Terminals - whats in store-age?!!

I had written about this about Kesar Terminals (KTIL) here and here. Lets have a small follow-up on the same.

The business:

The business of KTIL is a very simple one. You erect liquid storage tanks at a port, which can store a variety of liquids like chemicals and oils. You rent them out. Simple! Anyone importing or sometimes exporting liquids will need a place to store them at/very near to the port of import/export. KTIL provides this service to such importers/exporters.

  • Currently, KTIL has 64 such tanks with a capacity of 1.27 lakh kiloliters right in front of the jetties at Kandla port.
  • As part of its expansion plan, KTIL has taken possession of 10 acres of land in Kakinada Port in AP, where it plans to put up dry and liquid cargo handling facilities. Also, KTIL has purchased 16 acres of land at Pipavav port in Gujarat where it plans to put up liquid storage facilities and a container freight station.
  • Capex for the same will be Rs.31 cr @ Pipavav for a 36000 TEU CFS capacity and Rs.27 cr @ Kandla for 40000 kiloliters liquid storage capacity.

Currently, the market is valuing this company at an EV of about Rs.48 cr. Now, the business of the company itself is an annuity business. Do a one-time upfront capex and receive rent on it every year. Rentals of course fluctuate as per macro scenario, but KTIL has long term contracts for about 70% of its capacity, meaning that 70% of its tanks will probably never lie 'un-rented'.
Because of the annuity nature of the business, one can attempt a DCF based valuation of the company. Please note that I am not a big fan of DCF. Imho, DCF can be (rather, should be) done only for a limited types of businesses. So, the valuation is merely for reference purpose and I do not claim in my wildest dreams that it is precise and correct! Certain assumptions to the DCF like growth rate of free cash, discounting rate, etc are relative and everybody's assumptions will surely be different, resulting in different results. (That's what makes DCF an analyst's best friend!)






So, after assuming certain things, we arrive at an intrinsic value of Rs.119 per share, against current market price of Rs.83 per share.
So, should one rush to buy the shares, based on this? HELL NO..and heres why..








  • Our calculation is entirely based on past and present situation. However, we have to take into account that the company is going for a massive capex over the next 2 year period. Capex of Rs.58 cr (much more than even the current market cap of the company!)..
  • For this, the company will have to raise a large amount of debt and possibly, dilute equity too. (In my opinion, raising equity at decent valuations must have been the primary reason for the demerger).
  • Due to this, the current free cash, dividend and the more-or-less pretty picture may not last for a period of time in the near future.

So what would I do?

Wait!! To buy more, I would wait for the entire picture on financing to get clearer. How much dilution, how much debt and from whom? (Public deposits/term loans/FCCBs or what?) 

On a different (yet very very important) note, do check THIS out. And consider this...
  • CRL Terminals (the company which was sold) is a similar business to KTIL, having capacity of 2.6 lakh kiloliters. Other financial details of the company are unknown.
  • KTIL has capcity of 1.27 lakh kiloliters plus land at 2 places.
  • CRL was sold for Rs.278 cr. KTIL's market cap is Rs.42 cr, EV is Rs.48 cr.
  • Sooo, a business, just like KTIL, which was just 2 times of KTIL's size, was sold at about 6 times KTIL's EV. This was just FYI. ;-)
Cheers and happy investing!!

P.S.: Me and my good friend Ninad have exactly opposite views on investing in KTIL.. So, with his due permission, this post is dedicated to him! :-D

19 comments:

Manish said...

What is your e-mail ID Neeraj?

Neeraj Marathe said...

Hi Manish,
Its research.neeraj@gmail.com
Cheers!
Neeraj

prakash said...

Yeah!Company proposes QIP/FCCB for 25 cr for expansion.This means almost 40 per dilution in equity.Proposed Capacity expansion is almost double the market cap.Very risky.

Neeraj Marathe said...

Yup,
I agree Prakash..thats why i would wait..
cheers!
Neeraj

Anonymous said...

theres a micro cap in the storage space called Brahmanand Him ......
wht do uthink about it

Anonymous said...

Good logic on comparison with CRl logistics
In the bigger mcap there is a company Aegis logistics which has much larger capacity and also LPg terminals and other gas logisitcs related businesses. which is also expanding at the same time, makes you question if overcapacity in this space could happen if everone in the industry is adding up capacity ....

Neeraj Marathe said...

Hi Anonymous,
Really dont know about Brahmanand.
Hi Anonymous,
There is no pointers i have seen about overcapacity happening in the sector..
Cheers!
Neeraj

ZeeNut said...

Didn't get it. So is NINAD bullish or bearish on Kesar Terminals & why ???

Neeraj Marathe said...

Hi Bosco,
Ninad is not bullish on KTIL coz he thinks there are/would be better opportunities available to allocate capital..
As to why, ask him! And make that lazy fellow write something on his blog! :-D
Cheers!
Neeraj

Rajat said...

Hi

I was going through the reports of KTIL for the last few years, I could not find anywhere the exact capex plans, from where did you get the capex numbers of Rs 31 cr @ Pipavav for a 36000 TEU CFS capacity and Rs 27 cr @ Kandla for 40000 kiloliters liquid storage capacity?


Or is it just a guess based on the expected capacity addition.

Neeraj Marathe said...

Hi Rajat,
The details are based on discussions with the management at the AGM of the company.
Cheers!
Neeraj

Anonymous said...
This comment has been removed by a blog administrator.
Neeraj Marathe said...

Hello Anonymous,
The info mentioned was obtained from discussions with the mgmt at the AGM of the company.
If you want to get info of any company, you can contact the company, thru the CS. Usually most companies respond to genuine shareholder queries. The email as well as the contact numbers of various companies are mentioned on the exchanges ka website.
Dont have any mindblocks, feel free to contact companies' mgmts in case you have doubts/queries.
cheers!
Neeraj

girish said...

good morning neeraj sir,

the honesty with which u write the article needs to be appriciated...and the command you possess on your desicion making has made me your fan...keep up the gr8 work..gud luck...girish gulati

Neeraj Marathe said...

Lol..wats with 'sir'? :-D
thnx a lot!
cheers!
Neeraj

Anonymous said...

Hello Neeraj, do you still track this one ?

Neeraj Marathe said...

Hi anon,
No, not very closely. Made ok ok money in the demerger and didnt look at it much after that..
cheers!
Neeraj

Anonymous said...

Any update in KTIL?

Do you think risk-reward favours investment at this stage?

Thanks,

Anonymous said...

An year has passed. Any further update? The Capex and expansion plans are on the anvil since 3 years. Any idea of the risk-reward at CMP?