Manaksia Industries: A new story

The first non-large-cap company to have reported financials for the last quarter of FY17 (and effectively the full year) has been the Kolkata-based Manaksia Industries.

One would have cast a dismissive “big deal” except that the company has been the first for a second successive quarter, which tells me of a reinvention in the company’s personality (with much steam left in rebound, if you want to hear it loud and clear). 

There are a number of reasons why I like this company.

One, it is a proxy of the country’s fast-moving consumer goods (FMCG) revolution. Whatever FMCG product needs to be capped or closed in India largely goes to Manaksia (I said “largely”, not completely). So if one is backing the FMCG sector, I would rather put my cash on this proxy than on a thin-margin brand that keeps hitting the sales plateau every few quarters.

Two, this is not strictly a caps and closures company; this a precision engineering company, which explains why the company also manufactures its own equipment whenever it engages in capital expenditure — at a considerably lower cost than peers. Result: a high return on gross block. 

Three, if the assets for every expansion come from within at a moderate cost, then by that logic it flows that the company generates adequate profits. When reinvested, it creates an attractive virtuous cycle. There is proof at hand: the company increased its metal processing capacity (for the manufacture of caps and closures) from 150 tonnes per year to 350 tonnes per year — at such a piffling cost that all was funded from accruals (and likely to be commissioned across the next quarter, if you really want to know). 

Four, the company is more than just a manufacturer; it possesses a rich track record of having pioneered technologies. The company’s recall is that of a PhD holder in a subject where most competitors have barely scraped sectoral matriculation.

Five, this company is managed by B K Agarwal who created the multinational Manaksia Group before it demerged and the brothers went their separate ways. From a purely cultural perspective, the rebound of Manaksia Industries represents his second coming. From the little that I know, this man is not likely to walk into the sunset with a sheathed sword. The last time he grew a nominal company into a multi-business industrial group; this time I am putting a quiet rupee on the fact that he will do the same – if only quicker.

Six, the numbers: Manaksia Industries reported an Ebidta of Rs 14.72 crore in the third quarter with an interest cover of six times with a good component of commission income; in the fourth quarter the company reported a consolidated Ebidta of Rs 12 crore and an interest cover of four times with a decline in commission income.

I am keenly watching the expansion of metal processing capacity (for caps and closures) going on stream with any substantial debt increase as my first lead that FY18 could be substantially better.

I can smell a story building here.

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed