Abrasives and precision component maker Wendt India, a Rs.10 face value stock quoted at OVER Rs.1400, market cap of around Rs.300 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 not all that great with a flat topline at Rs.26 crore and net profit sliding 30% on a YoY and 15% on a QoQ at Rs.3.90 crore. Its equity capital is tiny at Rs.2 crore, explaining why it is ‘small cap’. The export turnover was at Rs 4.69 crore, down 13% (YoY) due to lower sales to Germany, France, UK, US, Singapore, Indonesia, and Malaysia. The company has stated that drop in profits was on account of higher raw material cost, rise in fuel cost and the continuance of the inflationary trend in the economy and high rupee volatility.

The German parent holds 39.87% stake and CarborundumUnivsersal 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.