Business of Kernex Microsystems Ltd.
Kernex Microsystems is engaged in the business of manufacturing, installing and maintaining of anti collision systems as well as conceptualizing, designing and developing certain railway safety and signal systems for Konkan Railway Corporation Ltd. Such systems are suitable for medium to low speed and density railway tracks like in India and other developing countries.
Kernex Microsystems has entered into a technology partnership with Konkan Railway for design, engineering and development of anti collision systems. The company holds exclusive license for manufacturing, installation, commissioning and maintenance of anti collision systems in India. The company is also an outsourced facility for the Konkan Railway Corporation Ltd. for manufacture and supply of Anti collision devices. The company is also a technology partner for the development and implementation of Auto driving device for Metro Sky-Bus Urban transportation System, Advanced Railway Signal Systems (Sat-Dham) and other safety systems.
Kernex Microsystems is the only manufacturer of ACDs in India and also holds the exclusive manufacturing rights as well as exclusive international marketing rights. Anti collision systems have been developed over a period of 5 years and are a result of the collaborative effort of Konkan Railways and Kernex. Konkan Railways deploys the ACD systems for the Indian Railways. Thus there exist substantial barriers of entry for any new players in the market.
Financials
The company has been profitable right from its inception in 1997 and it has grown its turnover from Rs.5.1 crores in 2001 to 53.2 crores last fiscal. However bulk of this growth has come in the last fiscal with the turnover jumping from 18 crores in 2004. The profits after tax have grown from 1.47 crores in 2001 to 8.95 crores last fiscal. The EPS last fiscal has been Rs.12.55. Presently the company is generating a cash surplus of approximately Rs. 2 crores
Objects of the Issue
The money raised from the IPO will be spent on expansion purposes. The manufacturing facility for Anti collision devices will go up from 4200 to 10000 and new facility for manufacturing 1000 Auto Driving Devices will be set up in Shamshabad which is 30 kms from Hyderabad. Additionally there is a plan to establish Intelligent Transportation Technology Centre for simulation & testing of
advanced transportation control systems in Nalgonda District of Andhra Pradesh, which will require a large tract of land for test tracks installations. Kernex Microsystems also plans to establish 4 international marketing offices in New Mexico in USA for North and South America, Mauritius for Africa, Italy for Europe and Bangkok for South-East Asia for marketing the transportation safety systems. The total outlay for all the new projects are estimated to be Rs.99 crores and the company plans to finance this almost entirely through the IPO.
Key Risks
Most of the raw material that Kernex uses is imported and as such the company is vulnerable to exchange rate fluctuations. The materials consumed as a percentage of total expenses is 46.76%.
Currently Kernex is entirely dependent on Anti Collision Systems and related devices which accounted for 99% of the turnover.
Conclusion
The company looks like a good bet for the future riding on the back of major expansion plans, however since the IPO price is not out one cannot say whether it is advisable to subscribe to the IPO or not.
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I.T.
