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Thakral Corporation: New Lease Of Life From Down Under
Corporate Digest | 25 April 2014
By: Shane Goh
Articles (99) Profile

Since its listing on the SGX Mainboard in December 1995, Thakral Coporation’s core business involves the distribution of consumer products.

Its brand portfolio counts Apple, Acer and Bose as notable names. Presently, Thakral distributes healthcare-related products and electronics. The company’s network spans across 18 countries. Apart from Canada, the other 17 countries are based in Asia.

Source: Company

However, digital camera, which was a key product of Thakral’s distribution arm, faced significant headwinds in 2012, due to the rise of mobile phone cameras. This prompted management to explore profitable alternatives.

In a recent management luncheon, Inderbethal Singh Thakral, managing director of the distribution business unveiled the segment’s repositioning strategy.

Over the next three years, Thakral will focus on three main categories: lifestyle accessories, air purifiers and eco-friendly home appliances as well as beauty and health products.

In 2011, the company diversified into residential real estate investment. The projects are located in Australia.

Jaginder Singh Pasricha, managing director of Thakral’s investment division, shared the unit’s intention to broaden into other real estate segments such as retail or hotel.

Additionally, the unit is considering opportunities outside of Australia as well. It has identified Japan as a potential candidate.

Financial Highlights
In its latest fiscal year, Thakral posted a 33.6 percent gain in revenue, to $413.1 million, driven by high sales of certain fast-moving low-margin items and improved contribution from its investment division.

However, its gross profit margin fell 0.8 percentage points to 6.3 percent. The decline was attributed to a high proportion of sales at low margins and the clearance of aged inventory along with allowances for aging inventory in its distribution unit.

Source: Company

Although Thakral’s investment division contributed a mere 3.5 percent of its FY13 turnover, it was the only profitable segment for the year.

With higher rental income as well as takings from new projects, the segment more than doubled its earnings-before-interest-and-taxes (EBIT) to $9.6 million, compared to a $4.1 million loss recorded by Thakral’s distribution business.

    Investment Merits

  • Thakral’s top management has been with the company for years. This suggests loyalty as well as in-depth expertise and experience.
  • Thakral’s investment division has been profitable every year since it commenced operations in 2011. The unit’s revenue and profits have grown 18.9 percent and 27 percent on a compound annual growth rate over the 3 years to $14.6 million and $9.6 million respectively.
  • Thakral owns the main distributorship of a range of products such as Bose in China.

    Investment Risks

  • Ailing distribution arm, with digital camera as a key product, has been battered by changes in consumer preferences for mobile phone cameras. The new focus towards lifestyle-centric products has not panned out fully. Time will tell.
  • This led to an inventory write off in FY13. If Thakral is unable to offload its products, it may face pressure to continue doing so moving forward.
  • While Thakral’s investment division has fared well for the past three years, it does not guarantee future success. Given the firm’s reliance on the segment to generate profits, any difficulties faced by the unit would have a large impact on Thakral’s financial performance.

SI Research Takeaway
A distribution segment tends to provide the least value add in the supply chain of a business, this leads to minimal profits to be gain. Thakral’s distribution arm accounts for 96.5 percent of its revenue.

While its investment division has delivered annual profits since it began operations, it accounts for a small portion of Thakral’s turnover despite providing the lion share of its EBIT. Presently, it is burdened by its distribution segment.

Looking ahead, I will pay close attention to the performance of Thakral’s new strategy as well as growth continuation of its investment division. The former may lead to a potential bottom line turnaround in the distribution unit.

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

Please click here for more information about this author.

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