BL Kashyap & Sons Ltd (BLK), a Delhi-based realtor focused on short-duration civil construction in the commercial, industrial and residential segments is wearing the joker's cap. It offers itself as a land bank owner, construction company and infra developer all under roof. Though quite obviously this business model has failed, the corporate has been able to divert roughly Rs 500 crore into subsidiary entity Soul space projects.

Soul Space Projects earns virtually nothing, while the entire cost of borrowing Rs 500 crore from banks hits the bottomline of the parent entity by roughly rs 50 crore per annum in interest costs. This leaves nothing as earning for shareholders-which at Rs 65 crore estimated PAT for FY11 works out to an EPS of Rs 2.9 and a Return On Capital Employed of just 1 per cent.

On top of poor financials, the corporate continues to higher family members into high remuneration jobs in the company. These include Vineet Kashyap, his daughter and nephew all drawing salaries of roughly Rs 60 lakh to Rs 1.50 crore per annum and shareholder returns be damned.

Why Banks continue to fund such entities is amazing. Worse they may put in ever more money as BLKashyap the GOI/State sponsored Infra projects which too make no money at all. It is no wonder almost entire Equity of Vineet Kashyap is pledged with lenders.  

Monetisation of Soul Space projects remains the key as this would reduce leverage and improve profitability. The company is planning to exit this venture completely and according to its estimates, monetising would fetch a net sale proceeds of ~Rs, 1bn (adjusted for cost of acquisition, interest and tax). 

The key risks going forth are a : (1) High dependence on commercial and residential segments; and (2) Delay in monetisation of Soul Space which could further weaken balance sheet quality.