Kabirdass Motor Company IPO

Business of Kabirdass Motor Company

Kabirdass Motor Company manufactures and markets electric bikes and scooters under the “Xite” brand. The company was incorporated in Nov 2006 and is part of the Kabirdass Group of Companies which has a history of 42 years.

Kabirdass Motor manufactures and markets scooters and bikes that range from 250 Watts to 1500 Watts and has sold 1852 scooters and bikes in the space of 21 months.

The company is targeting students, senior citizens and house-wives for its electric bikes and scooters and currently has 33 distributors spread across Tamil Nadu, Karnataka, Andhra Pradesh, Orissa and West Bengal. The key benefits of this product are that it is cost – efficient and environmental friendly. The 250 Watts scooter doesn’t need a license or a registration and that makes it easier for people to buy and use the scooter.

Kabirdass Motor Company: Finances

For the year ended March 2009, Kabirdass Motors had total revenues of Rs.  337.64 lakhs and made a Net Profit of Rs. 21.60 lakhs on it. For the year ended March 2008, the company had total revenues of Rs.249.46 lakhs and profits of Rs. 3.47 lakhs.

There is a component of “Other Income” worth Rs. 77.16 lakhs in its total revenues for 2009. This is a non – recurring one time income that has accrued out of transfer of license of K1500SI (a high speed electric scooter) to Hero Ecotech Ltd.

The EPS for the company for 2008 was Rs. 0.04 and for 2009 it was Rs. 0.18. The Return on Net Worth for 2008 was 0.41% and for 2009, it was Rs. 2.29%.

Objective of the IPO

Presently, Kabirdass outsources all the parts for their scooters and bikes and then assembles the final product. Kabirdass is going for an IPO in order to raise funds so that it can create some parts in house. This will help the company lower its cost and increase profitability. The company also plans to expand its capacity to 2 lakh units. The company estimates that the total cost for this project would be Rs.10,128 lakhs and they would spend the majority of their funds on these items:

  1. Land: 1,320 lakhs
  2. Plant and Machinery: 3,802 lakhs.
  3. Brand Promotion: 2,000 lakhs
  4. Margin Money for Working Capital: 1,000 lakhs

Strengths and Weakness of Kabirdass Motor

Here is a look at the major strengths/ opportunities and weaknesses / threats for the company from its prospectus:

Strengths / Opportunities:

1. Cost Effectiveness: The biggest strength has to be the fact that there is hardly any maintenance cost and the running cost turns out to be 40 paisa per kilometer.

2. Growing Market: The current market for electric scooters is estimated to be Rs. 250 crores and is expected to double in a year’s time.

3. Group Companies: Although Kabirdass Motors does not have a long operating history, the group companies have been operating profitably and have shown steady progress over the years.

Weaknesses / Threats:

1. Promoters Not Infusing Their Own Funds: For the purposes of expansion – the company is going to raise money from the public and take bank loans, but, the promoters are not going to infuse their own funds in the company.

2. Products are still maturing: The product line is evolving, which means there are alterations in the product design and this effectively raises the fixed costs of the company.

3. Imported Battery: Presently, the battery needs to be imported and no one has developed a quality product.

4. Reliability: The product is not advisable for use in the rainy season or for long distances.

5. Competition: The Company may face intense competition from large domestic players as well as cheap exports from China.

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