Mafatlal Industries: Indian Equities

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Mafatlal Industries: Indian Equities
Mafatlal Industries operates in the textile industry engaging in spinning, weaving, and processing of textiles.
The company was de-registered from BIFR in 2011 as a result of restoring its net worth and paying down debts.  It did this by selling one of its properties to the Piramal Group for 600cr and using the proceeds to pay off outstanding debt.
The balance sheet revealed a much more comfortable debt position as at the end of the last financial year as compared to the year before.
Management now plans to incur capital expenditures of 65cr for enhancing processing capacities along with 10cr for power generation.  They also intend to raise additional bank loans to finance these capital expenditures.
The company reported large operating losses in nine out of the last ten years – enough to wipe out equity and then some – landing it with the BIFR.  Apparently, it is stuck with old equipment and high labour costs.  This isn’t helped by aggressive competition from low-cost domestic and foreign competitors.  The weaving/processing segments are fragmented and comprised of a large number of competitors.
Further, the industry suffers from below-par growth of 3 to 5% p.a. relative to other industries.  Therefore, demand growth is unlikely to ease the burden on competition.
The operations are exposed to volatile and rising cotton and polyester prices, which comprises the bulk of the company’s raw materials and adversely impacts profitability.
The company has a significant subsidiary – NOCIL – which is engaged in supplying rubber chemicals.  This business is subject to the risk of heavy dumping of cheap products by Korean competitors.
The company is still in a ‘rehabilitation’ period with BIFR until 2016 unless it pays off all its debts.  Until then, it faces restrictions on paying out dividends to equity holders.  It was also forced to take up spinning activities as part of conditions set out by the Maharashtra government for de-reserving some property that was surrendered to it (and in accordance with BIFR sanctioned schemes).  These are some of the restrictions that equity holders need to be aware as a result of the company being a former BIFR case.
By: AI

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