AGM Note: Kingfa Science India shows lot of aggression for growth
The company’s current market share for auto in India is 24 per cent.
Kolkata’s Arun Mukherjee, who dropped out of college to turn a full-time investor at an early age, and Soumya Malani, a London School of Economics alumnus, have come to be known as smallcap aficionados within India’s investor community. They would show up at most AGMs, visit the remotest factories of a company and go chasing end-users to understand their experience with a product in their passionate hunt for good smallcaps. Arun and Soumya share their experiences with such companies from the ground in this space every now and then.
Kingfa India has come a long way, growing at a CAGR of 30-40 per cent, and recorded sales of Rs 700 crore in FY19. The company, which had a PAT of Rs 19 crore last year, aims to double the same this financial year. Topline could also double in 3-4 years, it says.
The company’s current market share for auto in India is 24 per cent. In a couple of years, it has a target of winning over 50% market share.
Current product mix is 80 per cent (auto) and 20 per cent non-auto. This mix may be revised to 60 per cent auto and 40 per cent others in the long run.
Key focus for the company going forward will be in engineered plastic. Total engineered plastic market in India is 50 kt and currently Kingfa sells 3-4 kt out of that. The company plans to launch composite particles (plastic wood) in India. Already, people have been appointed to talk to prospective architects on this aspect. Talks for exports to Malaysia have also been initiated.
It is likely that DSM India will feel the pressure once Kingfa focuses on Nylon. DSM purchased SRF’s engineered plastic business (12,000 tonnes per annum), because it was a complimentary fit (four-wheeler presence added to two-wheeler presence) for it.
Long-glass fibre projects are taken for specific small projects. In future, it is likely that Kingfa will put long-glass fibre line, as volumes come in. The company has started manufacturing paint-free particles and started supply for Hyundai and Maruti. There is a huge opportunity in the biodegradable plastics, which the company is planning to launch in India.
The chakan plant has already started production from September this year. July production volume was 6000 tonnes. This was the highest in the company’s history.
A new model of Fiat Chrysler will have material supplied by Kingfa. MG Hectar consumes about 250 tonnes per month of Kingfa’s material and this shall increase in due course. Maruti’s new, upgraded variants – namely Alto, Ertiga and Baleno –will all have Kingfa material. At present, the supply to Maruti is about 500 tonnes per month, which will increase to 1,000 tonnes per month in six to eight months. Also, the potential business from Suzuki could be 12 kt per annum.
Kingfa China may strategically shift some export business from China to India. Calendar Year 2021 is supposed to be strong export year for the company.
The biggest input from the AGM was that All Kingfa China products will be produced slowly in Chakan and Kingfa India will be global export hub for the group.
Exports will be about 25,000 tonnes in next two years. IKEA supply is gaining good traction. The more they scale up, the more they will procure from Kingfa.
The company has started warehousing facilities in Bangkok and Johannesburg. Export to Johannesburg has also started. The first consignment to Turkey of about 16 tonnes has also been exported.
Electric vehicles should be very good for the business. In the electronic vehicles segment - battery casing, door panels, metal drills are key products for replacement. Kingfa is working with some tier-1 German producer for such projects.
It is likely that EP will be 40 per cent of business and PP will be 60 per cent in next 4 to 5 years. The following could be the key driver for the company going forward:
a) India as the export hub for its products.
b) China-US trade concerns are also creating a long-term strategic push for such a move.
Conclusion: We saw a new KINGFA at the AGM, full of confidence and aggression. The company is set to report highest annual sales and profits since inception this financial year. Anything that can do well amid the slowdown only showcases what it can do when sentiments change for good. We remain positive on the future prospect of the company.
(DISCLAIMER - The writers are partners of SA Investment Advisers, a Sebi-registered investment advisory firm. They along with their family members may have position in the company discussed above.)