Radha Madhav Corporation Limited, is a company into manufacturing of multi product packaging solutions, and is now transforming itself from being only a manufacturer of packaging materials and is emerging as a packaging consultant capable of providing customized packaging and printing solutions.
RMCL is a good and dedicated company, with very impressive results till 2008. However its results have been poor for 2008-09 and also for the June quarter. Well, it could have maintained the same level of profitability and revenues, provided it had not gone in for the aggressive expansion. But, to be able to command high valuations and to be able to sustain one has to expand in this rapidly changing world.
So far, the company's bet of expansion of Daman unit and foray into Uttrankhand has not gone right. They have expanded rapidly by taking on huge debt, as evident from the increase in interest payment from Rs 5 cr on 2007-08 to Rs 12 Cr in 2008-09, and also the increase in depreciation charge. The use of debt for expansion purpose is good, but there has not been a proportional increase in revenue.
Now the concern for me is, that their operating margins have come down substantially even when crude prices are down. It is to be seen if the product mix of the company has changed, bcz its USP had been its margins (difficult to maintain good margins in such an industry), but recently their cost of raw materials has gone up.
Also, at this moment it seems that there interest cost is going beyond their control, and now more than funding their expansion plans, they may have to raise money to fund their working capital needs, and also repay some portion of debt.
However the company definitely has good earning potential as shown in past, and also it does not depend on just one kind of packaging, it has on offer all kind of packaging solutions.
So, as now I would suggest one to sit on the sidelines, and take position in it only when there is some better performance by the company. We may miss out a few percentage gain due to this, but it is always better to be sure while committing money in a particular company.
RMCL is a good and dedicated company, with very impressive results till 2008. However its results have been poor for 2008-09 and also for the June quarter. Well, it could have maintained the same level of profitability and revenues, provided it had not gone in for the aggressive expansion. But, to be able to command high valuations and to be able to sustain one has to expand in this rapidly changing world.
So far, the company's bet of expansion of Daman unit and foray into Uttrankhand has not gone right. They have expanded rapidly by taking on huge debt, as evident from the increase in interest payment from Rs 5 cr on 2007-08 to Rs 12 Cr in 2008-09, and also the increase in depreciation charge. The use of debt for expansion purpose is good, but there has not been a proportional increase in revenue.
Now the concern for me is, that their operating margins have come down substantially even when crude prices are down. It is to be seen if the product mix of the company has changed, bcz its USP had been its margins (difficult to maintain good margins in such an industry), but recently their cost of raw materials has gone up.
Also, at this moment it seems that there interest cost is going beyond their control, and now more than funding their expansion plans, they may have to raise money to fund their working capital needs, and also repay some portion of debt.
However the company definitely has good earning potential as shown in past, and also it does not depend on just one kind of packaging, it has on offer all kind of packaging solutions.
So, as now I would suggest one to sit on the sidelines, and take position in it only when there is some better performance by the company. We may miss out a few percentage gain due to this, but it is always better to be sure while committing money in a particular company.
Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.
To contact the Lead associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
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