Joint managing director of Kinetic Motors, Sulajja Firodia, tells CNBC-TV18 that they plan to increase the business of the merged entity, Kinetic Motors and Kinetic Engineering, to Rs 500 crore in three years.
The merger of these two companies was approved by the board members recently.
Post the merger, Firodia says that the operating business strength will come from Kinetic Engineering automotive system business.
Below is an edited transcript of his interview with Reema Tendulkar and Sumaira Abidi. Also watch the accompanying video.
Q: With regards to the merger between Kinetic Motors and Kinetic Engineering, could you give us a sense of how you are expecting the synergies from both these companies to come together?
A: The merger was approved by the boards of both the companies recently. This is seen as and intended to be a very strategic move on part of the entire group with an idea of creating value for all the stake holders through financial and operating consolidation of the two entities. Historically, Kinetic Engineering, has been focusing and becoming stronger in the automotive system business. It holds a large stake in Kinetic Motor Company, which holds a strategy stake in Mahindra Two Wheelers.
So through this merger, the shareholders of both the companies will benefit because they will have access and participation from strategic stake in Mahindra Two Wheelers as well as from the operating business of automotive systems. So we believe that this merger will add great value to our shareholders of both the companies, Kinetic Engineering and Kinetic Motor Company.
Q: Could you give us a sense of what the combined financials of both Kinetic Engineering and Kinetic Motor will look like for FY13 once all the amalgamation is done and you have got a full year of operations?
A: The merger will be effected in 2012; we will of course await the final approval of the High Court. Post the merger, let us say FY13, the operating business strength will come from Kinetic Engineering Automotive System Business and the combined entity will also hold 20% stake in Mahindra Two wheelers.
As a part of the deal, we are issuing merger ratio 7.75; so four shares of KEL will be issued to every 31 shares of KMCL. The stake of promoters in Kinetic Engineering will stand slightly reduced from the current stake, but it will still be a controlling stake.
Q: What will the revenues and operating margins look like?
A: In KEL, we are focusing on growth of automotive system business. We have strong order book from clients like Mahindra and Mahindra, Tata, PIAGGIO etc, Tata Nano has been our anchor client in this entity.
Our target is to take this business to something about Rs 500 crore in the next three years. We expect that FY12-13 financials will be close to Rs 250 crore in topline as we move forward. We are expecting the year to be a difficult year due to increased interest rates and increased input costs, I think all around there is need to ensure that there is focus on not only business growth but also on cost reduction.
Q: Can you give us an update on what kind of extension you are looking at for your FCCBs and when exactly is the due date?
A: KEL had issued these FCCBs to foreign investors in FY08 and these are worth USD 80 million listed on Singapore stock exchange. These funds by raised by KEL in order to put up a new expansion unit specifically for transmission gears for passenger cars, with Tata Nano as our anchor customer.
Originally these FCCBs were due for conversion or redemption in February 2013. But we all know that there were certain delays on the Nano Project in the last 2-3 years, so we have requested our bond holders to extend the FCCBs by one more year. So now they will be up for conversion on redemption in February 2014. The idea here being that it will give the company significant amount of time to build up its topline and bottomline.
Also the fact that after the merger, the Mahindra Two Wheelers will be part of KEL shares holding, and Mahindra Two Wheeler is a growing company and for the story to play out and for the business to play out and of that joint venture company to expand significantly will take a bit more time. So this extension will help both in terms of revenue ramp up in KEL and also a new creation through this strategic stake. FCCB extension will have to be approved by RBI and we are in that process right now.
Q: When are you likely to get the approval from bond holders, because you indicated you have put a request, and even from the RBI when are you expected to hear?
A: We have in-principle consent from the bond holders for the same and we have participation in our board from the directors of some of the entities involved in this. So our focus right now is to go to RBI for the extension which we hope to receive in few months.
We are hopeful about this extension because there is absolutely no change in price for conversion, which is an important matter. I think earlier certain companies had gone to RBI where they had requested for a reduction in conversion price; we are only going in for a one year extension therefore we feel the proposal will be well received by RBI.
Kinetic Motor stock price
On March 21, -, Kinetic Motor Company closed at Rs 7.22, down Rs 0.43, or 5.62 percent. The 52-week high of the share was Rs and the 52-week low was Rs .
The company's trailing 12-month (TTM) EPS was at Rs 0.31 per share as per the quarter ended September 2012. The stock's price-to-earnings (P/E) ratio was 23.29. The latest book value of the company is Rs -15.78 per share. At current value, the price-to-book value of the company is -0.46.
READ MORE ON Kinetic Motors
Set email alert for
ADS BY GOOGLE
video of the day
Mkt resilient at current level; bullish auto: ICICI Pru AMC