Kokuyo Camlin - Turnaround story?

Food for thought
- Company has very powerful brands in the crayons/water paints/ink/pens etc. But is this translating to either pricing power or defensibility of revenues/margins? The answer seems no.

Just taking a look at the financials for the last 10 years -
- The company 3 or 4 loss making years; Cumulative FCF is -ve => has always funded through raising incremental resources
- capital efficiency is volatile with a downward bias at best
- The company could not pass on the raw material hikes - which are linked to crude derivatives; tells me the underlying industry should be highly fragmented and price sensitive;

All these said, can the company turnaround given the new Japanese promoter? may be
- Will start exporting but will it change the fundamental nature of the business - are there world class companies in the crayon/educational crafts business? don't know
- Numbers have started looking good in the first quarter, the rights issue should help

But do we like the fundamental nature of the business?

In Buffett's words - "Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price"

I hope for Kokuyo's sake the business turns around not just P&L wise but as a strong franchise or it will be yet another casualty for a Japanese Strategic Investor in India. And as I am only "hoping" I would stay away from such businesses!

Consolidated	200403	200503	200603	200703	200803	200903	201003	201103	201203	201303
Net Sales	183.1	198.5	196.9	187.7	213.8	283.5	330.7	358.3	383.9	435.9
Total Income	184.1	199.4	197.7	189.3	214.4	283.9	331.3	358.3	386.2	436.6
Total Expenditure	171.7	196.5	187.8	181.6	201.5	264.7	303.7	331.4	370.3	440.3
PBIDT	12.4	2.9	9.9	7.7	12.9	19.2	27.6	26.9	15.9	-3.6
PBIT	8.1	-1.7	4.7	49.2	9.1	14.8	22.4	19.4	9.5	-11.3
PBT	3.1	-7.3	-1.7	45.7	6.5	9.6	16.6	12.1	1.6	-18.8
PAT	1.9	-4.9	-1.5	36.1	3.8	6.1	12	8.6	1.3	-13.4
Cash Profit	6.3	-0.3	3.7	39.9	7.6	10.5	17.2	15.1	8.3	-5.8
Sources of Funds
Equity Paid Up	4.8	4.8	4.8	4.8	6	6	6	6.1	6.9	6.9
Reserves and Surplus	17	12.1	10.5	21.1	42.7	47.5	56.4	64.6	125	111.6
Net Worth	19.4	7	7	20.9	45.3	51.8	62.4	70.8	131.9	118.5
Total Debt	43	49.7	59.8	15.3	20.4	39.4	42.6	43.6	41.6	65.2
Application of Funds
Gross Block	61.1	70.5	75.8	43.1	50.2	78.3	89.9	104.4	110.3	121.9
Investments	0.6	0.6	1.1	1	1	0.8	1.3	2.3	2.2	2.2
Cash and Bank balance	2.2	2.6	1.9	2.4	3.6	2.4	2	1.3	14.5	14
Net Current Assets	33	18.7	20.1	16	38.9	43.3	47.9	8.6	62.5	54.6
Total Current Liabilities	44.8	54.3	60.3	42.8	38	49.3	73.9	112.6	114.9	130.5
Total Assets	114.1	122.7	136.5	84.4	107.4	143.3	180.5	196.1	256.2	270.1
Cash Flow
Cash Flow from Operations	2.6	10.9	9	-13.8	-10.8	12.4	18.6	23.8	-27.3	-3.8
Cash Flow from Investing activities	-6.3	-10.2	-13.2	40.6	-10.3	-25.9	-14.9	-16.8	-8.9	-13.6
Cash Flow from Finance activities	3.8	-0.2	3.4	-26.3	22.3	12.2	-4	-7.7	49.7	17
FCF	-3.7	0.7	-4.2	26.8	-21.1	-13.5	3.7	7	-36.2	-17.4
Ratios
No. of Shares		0.48	0.48	0.48	0.6	0.6	0.6	0.61	0.69	0.69
Market Capitalization	29.8	32.2	61.2	58.5	109.4	50.5	151.8	323.3	237.4	213
Price		67.1	127.5	121.9	182.3	84.2	253.0	530.0	344.1	308.7
Margins
EBITDA	7%	1%	5%	4%	6%	7%	8%	8%	4%	-1%
PAT	1%	-3%	-1%	20%	2%	3%	7%	5%	1%	-7%
Returns
RoE	#N/A	-37%	-21%	259%	11%	13%	21%	13%	1%	-11%
ROCE		1%	4%	37%	7%	9%	11%	9%	4%	-2%
Multiples
P/E		(6.6)	(40.8)	1.6	28.8	8.3	12.7	37.6	182.6	(15.9)
EV/EBITDA		28.2	12.2	9.6	10.1	4.7	7.0	13.6	17.5	-77.3