Kothari Products Ltd.
Hi,
As a part of my new stock book, here is another stock I read about and I am not convinced about putting money into this company ... any views .. ?
http://google.com/notebook/public/04049812487715803332/BDSLRIgoQ9seI9p8i
Copy-Paste for convinience
April 24, 2007
Kothari Products Ltd. is owner of Pan Parag Gutkha and Pan Masala. Market leaders in the zarda segment. Over the years have seen friends and relatives using the products. Top the mind brands are Rajnigandha, Pan Parag, Pan Bahar, Chaini Khaini, Kuber, Chutki etc. (Gosh I know a lot about these products even though I don't use them ...!)
Business
Indian govt. has banned advertisements related to tobacco products. This has both a positive and negative implication. Negative - Kothari can not advertise about new products or promote new offerings. This also means that a new competitor would have a real tough time getting a foothold in the market.
Also from what I know about "addicts", they are very very brand specific. If someone is used to Rajnigandha, he would not switch to Tulsi even if you give him money to eat it. I have seen people carrying family size pouches in case they are going to places where you dont get that brand.
Lots of anti tobacco campaigns and awareness about harmful efffects of tobacco in youngsters. Difficult to hook new customers.
Absence of new patrons - younger generation is not hooked on to Gutkha and Pan Masala (can compare to newspapers - everytime an old person dies, the customer count comes down by one)
Export business has seen a growth of 15% YoY and need to know more about this. What if company starts focussing on the exports and keep the status-quo at Indian operations.. ?
Market Cap worth 335 crores
Management
Largely a family owned business with the third generation now in business.
I dont really like the management. Copy paste from the annual report ... "Your Directors are to report that the Company's sales during the year under review has been Rs.19160 Lacs as against Rs.21128 Lacs during the previous financial year. The sales have gone down during the year under review as compared to previous year due to anti-publicity campaigns by various organisations. However the Profit before tax during the year has been Rs.8692 Lacs as against Rs.4449 Lacs in the previous year. The Profit after Tax has similarly increased to Rs.7666 Lacs as against Rs.3849 Lacs in the previous year."
They have rightly said that sales have gone done but they have proudly mentioned the fact that PBT and PAT has inccreased. Closer look at the books reveal that profits have increased because of a jump in "other income". This "other income" might or might not reoccur in the future years and reliance on the same is not really prudent. And the fact that management has not highlighted this, makes me a bigger skeptic.
Subsidiaries
Have two subsidiaries - one each in construction and internet space. No details about the revenue of the same.
Please share what you think.
Regards,
http://pseudosocial.blogspot.com
