Kennametal India Ltd:-Buy/sell:multibagger

Scripscan:Kennametal India Ltd

BSE code:505890


Story:KIL enjoys a leading position in the domestic carbide tool industry. It’s long-standing presence in this sector, superior technology; expansive product profile, wide distribution network, and strong brand equity also support the rating.KIL also receives technological and managerial support from its parent, Kennametal Inc, the world`s second-largest manufacturer of carbide tools. KIL’s outlook remains bright as its fortunes are tied to the uptrend in capex, especially in the automobile and auto ancillary industries.KIL presently derives about 64 per cent of sales from the automotive sector and plans to reduce it to about 50 per cent in the next three to four years. The remaining sales come from aerospace, defence and energy sectors. Its customers include GM, TVS, Tata Motors, Yamaha, BHEL, Northern Railways, Ordinance and Armament factories, Inter Drill Asia, Escorts, Gabriel, Sterling Tools, SKF Bearings, L&T and Mitsubishi Heavy Industry among others. The business continues to be India Centric with exports accounting for only 7% of its revenues.For the full year ended June 2011, Net Sales grew 36.2% to Rs 506.9 cr. Operating margins have improved to 27.3%, an increase of 400 bps from 23.3%. There has been overall reduction of costs as a percentage to sales driving margin growth.KIL posted a 70.4% rise in profit after tax to Rs 88.6 cr from Rs 52 cr in June 2010.Considering the impressive performance in FY11, steady revenue growth, client base, robust financial risk profile, marked by a debt-free balance sheet, high return on capital employed and dividend yield, high promoter holding and a probable delisting of the stock we can buy the stock. The stock could also attract buying from investors seeking defensive buys in the present uncertain scenario & hence could get better valuations despite not so attractive growth expected in FY12.

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