Wendt India

Abrasives and precision component maker Wendt India, a Rs.10 face value stock quoted at over Rs.1100, market cap of around Rs.230 crore, debt free, with a consistent dividend paying track record, as such does not look like a small cap stock. But its earnings drive home that point. It’s performance for Q3FY13 was flat and ditto for Q4. On a consolidated basis, the company posted a 21% (YoY) rise in net sales at Rs.29 crore and net profit came in at Rs.2 crore, up from Rs.3 crore in previous Q4. The earnings for FY14 were also flat – net sales at Rs.109 crore, up 9% and net profit at Rs.12 crore, up from Rs.13 crore in FY13. Its equity capital is tiny at Rs.2 crore, explaining why it is ‘small cap’.

Explaining the flat numbers, the company has stated that the major industry segments which impacted the domestic business were auto, auto component, steel, heavy engineering, cutting tool, ceramics and cutting tools. However, the export sales demonstrated a remarkable growth with the current year sales at Rs 23 crore, a growth of 36% over the last year. This was mainly on account of higher exports to countries like Indonesia, Malaysia, US, UK, Germany, UAE, Thailand etc.

The German parent holds 39.87% stake and Carborundum Universal holds 39.87%.  Thus promoters stake is at 79.74%.  The company imports over 50% of its raw materials, thus faces risk of volatile rupee but this is partly offset by its export revenue, which accounts for one fifth of its sales. The German parent is not averse to selling off its almost 40% stake and is even ready to offer it to Carborundum but is demanding the market price of Wendt, which is not acceptable to Carborundum. The stake of German parent was bought out by 3M and Carborundum has moved the Company Law Board saying that it has the first right of refusal to buy out shares of the parent. KPMG has suggested a fair price for the buyout which may or may not be accepted by 3M. Coming months could be interesting and this expectation alone will keep the share price buoyant. The company is sitting on a healthy reserves of Rs.90 crore and likewise, bonus hopes remain high. The FY14 EPS of Rs.58 discounts the current price by over 27 times.