Aksh Optifibre fundamental analysis

(insanemaverick) #309

This the classic sign of a bottom forming in a bear market in small caps and mid caps where each and every company will be questioned on their accounting practices. I wonder why these things were not discussed when the price went up from Rs. 20 to Rs. 46.

As they say, the management becomes good when the share price rallies, and the same management becomes a fraud when the prices start capitulating. In all these chaos, it’s easy to forget that this company will be posting profits of at least Rs. 50-60 Crores this year (hence, technically trading at less than 8 PE). One may check out the cash flow from operations which has been consistently going up for the past 4 years. Its become sort of fashionable to cast aspersions on the management of small and mid caps for every damn thing.

If dodgy accounting is going to be the parameter for selecting stocks, then every 2nd company in NIFTY can be examined and holes can be searched for. Lets not forget the big picture just because we are going through deep cuts in mid caps and small caps.

(Mridul) #310

It isn’t that people are questioning only now post correction. Serious doubts have been raised even when it was rising. It is just that people ignore all doubts and questions saying it is noise in good times.

Promoter integrity is paramount, which is a major difference between Aksh and Sterlite, if one wants a comparison. In my opinion though, there is no comparison.

I have been circumspect of Aksh promoters. Balance sheet issues raised by @phreakv6 are worth pondering upon. This is rule book CWIP! With no rise in assets. Many more red flags.

(insanemaverick) #311

Can you please refer to the exact point in this thread where you have articulated your reservations/ issue with Aksh when the going was good. It is easy to point out these things now that there is panic in the mid cap and small cap space. Saying that Sterlite Technologies Management is better than Aksh is no rocket science. I myself hold Sterlite and Aksh in the ratio of 75:25 in the portfolio. I have also articulated this in the thread of Sterlite Technologies that ST will always command a premium to 30-40% in valuation due to these factors.

Ultimately cash flow is the king and you can check out the cash flow statements for the past 3 years if you have any doubts. Will revisit this thread after 4 months and see where we stand on this issue and where the price stands. Let the market decide.

(Mridul) #312

Bro, I don’t think it is necessary to have a post on VP in order to have a stand on promoter integrity. If one is following this company from last 5-7 years, one can see so many red flags, not just one or two.

Cash flows can be manipulated; I don’t look at those in isolation. What is most important for me is the promoter actions. If they have been questionable in the past, i refrain from investing in such companies.

A short note i posted to someone, where i mentioned some of the red flags (mainly promoter actions). If one sees balance sheet and stuff, there are many more.

“[10:46 AM, 5/30/2018] Mridul: I looked aksh opti lil more in depth. The issue here is that promoters have not been trustworthy n hav used every trick in the book to sabotage shareholders. For instance fccbs, insider trading (penalty imposed for non disclosures), delay in commissioning capex (~18 month delay), subsidiaries making losses despite assurance of improvement from last many years, deworsification into fiber services resulting in write-offs, Dubai venture making losses, mkt not sure about 85 cr lens manufacturing diversification seeing history of diversification being deworisification. They import preforms from china, prices of which have been on upward trajectory from last 2 years. Low ebitda margins - Despite repeated assurances and claims of them being cheapest oc provider they have been unable to pass of rm price escalation to the clients. Two, losses in subsidiaries is ever pulling down their product business. Capital allocation track record isn’t anything to speak about. Overall, i feel, mkt is not rerating this company despite so much capex coming live as mkt wants to actually see them walking the talk. Their history doesn’t enthuse confidence. On positive side, it is very well placed technically. And spot prices for optical fiber being very high, they can make a killing if the story plays out as people r expecting. But to me, what matters is promoter integrity and their past. People usually do not change!
[10:46 AM, 5/30/2018] Mridul: By the way, they have subscribed to warrants at 42 sometime back.
[10:49 AM, 5/30/2018] Mridul: They r still claiming depreciation on investments made in service business like voip etc to claim tax benefits. Don’t want to write-off those investments for this reason.”

PS: This is my point of view and i reserve my right to be wrong. I take an investment call based on promoter integrity, which i think is the most important thing. A ‘smart but not so ethical’ promoter tend to work for himself rather than for his shareholders.

(PE_Ratio) #313

On a lighter note, two negatives make this one positive.

(Mehnazfatima) #314

(Shaswat) #315

There are just too many “if(s)” and “but(s)” with this company. And alongside receivables keeps on increasing and the company has no comment to it.

Disc: invested @33

(ukdube) #316

Mridul has raised few very valid points.I too has been extremely chary of management and with extremely low holding (27%).Both issues have been a great deterrence to investment.Mehnazfatima is absolutely right on commodity cycle play.Basic concern remains-is Aksh right company to invest.Since Fatima is closely tracking Aksh, request her to enlighten us.I am still waiting on wings to invest,hold substantial (15%) in ST.

(Akash Padhiyar) #317

Though there is doubt on management integrity, It is not confirmed by any means that they are doing any unethical things…

Infact, the announcement of dividend is far more than shareholder expectation in term of percentage…which should give confidence to shareholders…

From last many quarters revenue profit cash flows are in increasing trend…numbers speaks louder than anything else…

Next quarter results will clear most doubts.
Sentiment has deteriorated due to recent correction but one should not forget every small & midcap is victim of it and aksh is part of it…

Aksh is still very high potential script with question mark on management integrity…

(Mehnazfatima) #318

All the above are correct. This is almost a correct representation of the past performance of the Aksh mngt.

This is what we are expecting in future from Aksh.

The performance and activities of the mngt when the sector is in down trend determine whether the company deserves to be in the top rung or the lower rung in the sectoral rankings. The past activities of the mngt definitely ensure that Aksh is nowhere near the top rung in the fiber optical sector. That place is reserved for Sterlite tech.

On the other hand, cyclical turnarounds are more about stock price responding to change in eps in percentage terms)…if we analyse the cyclical uptrend in sugar, steel or paper stocks, then we see that in uptrend all companies(good mngt, bad mngt,low debt, high debt) trend up…and those which show the most dramatic change in eps rise the fastest. This is irrespective of the quality of the mngt or the quality of the balance sheet or the past accumulated losses. Therefore, I find no reason to believe that Aksh will not participate n the present cyclical turnaround in optical fibre sector.

In my humble opinion, the demand for the optical fibres may continue to be robust for the next 3-4 years…or even for the 4-5 years as 4G and 5G and FTTH are rolled out globally…but after that I feel that this sector may have its Gillette Mac 3 moment…5G speed and performance should be adequate for most people. After 5G, companies may try to extract more and more from the existing network…then we may have a demand supply balance till the self driven cars which are huge bandwidth guzzlers hit the roads in a big way…maybe around 2030…

Thus in the present upcycle which may extend till 2022 …all the optical fiber makers will show very good profits and will go up quite well.

In the Q1 Aksh is likely to show around 80 paise eps…and from Q2 onwards the eps will be above 1 rupee…thus the fy19 eps is expected to be 4 rupees +…in FY20 as the Dubai capex comes onstream (which manufactures only / solely FRP rods and Optical fibres both of which have higher margins) the eps may be around 5-6 rupees… This is quite a dramatic turnaround in eps from 1.4 rupees in FY18…Hence my expectation that Aksh will perform well in the near future…

(Mehnazfatima) #319

I was going through the results and website of HFCL…

the OFC business vertical turnover for HFCL is around 720 crores and profit from this is around 65 crores…thus giving it an operating profit margin of around 9%

it is adding capacity of 6 million fibre kiolmeters at the end of fy19…to offset the high procurement cost of optical fibers from the market which is bringing down their profit margins…

from the above i gather two things

  1. In FY 19, the margins will continue to be low at around 9% . And even if they maintain a topline growth of 25%…the revenue will be around 900 crores and the operating profit around 81 crores only AND

  2. for FY 20, since the 6 million fiber kilometers of optical fiber manufactured at hyderabad is captively consumed…the margins may then rise from the present 9% to an industry average of 15%…Thus for fy 20 for a turnover of around 1100 crores the profit may be around 150-160 crores…

an operating profit of 220 crores leads to an eps of 1.4…if the operating profit rises by20-25crores in OFC vertical in FY19…that adds to only around 20 paise to eps…

Thus the eps for the year fy19 may be around 1.8 only…

in FY 20, the eps may rise to around 2.3 /2.5 rupees on account of optical fiber business…assuming that other business remains stable…

In my opinion, what leads to a rapid rise in stock price is a drastic rise in eps of the company…but unfortunately, the eps of HFCL may rise at an incremental rate only from 1.4 to 1.8(in FY19) to 2.5 (in Fy20)…

its a good performance but not that may cause the stock price to go on a runaway rally…the huge equity base and also very high daily traded volume may act as a dampner

(Mehnazfatima) #320

thus comparing Aksh to hfcl…insofar as the optical fiber business vertical is concerned…the rise in eps may be from 1.4 to 4 to 5/6 rupees for Aksh optifibre while for HFCL, it may be from 1.4 to 1.8 to 2.5 for the next two years.

Therefore, in optical fiber space the top company remains sterlite tech and the next one is Aksh optifibre…but with the caveat that Aksh may run faster in the next 2-3 quarters…

(Devaki Nandan Tripathy) #321

Aksh management was pretty gung-ho about opthalmic lens production 4-6 qurters back. Around January, they released a press statement too informing trial run is successful.

Any idea what will be its contribution to topline and bottomline in coming quarters?

(Mehnazfatima) #322

I am afraid that the opthalmic blanks vertical may not add much to the eps of Aksh in FY19…they are in the process of scaling up the manufacturing and in setting a distribution channel in India…selling such a huge qty of high value items takes quite some time…maybe in fy 20 /21…but that vertical has got very good potential…once the production and distribution issues in india are sorted out, they may even export these items…but all in due course of time

(Devaki Nandan Tripathy) #323

Thats a pretty long rope they are asking from investors. It should have been the other way around. First they should have imported few lots, created a distribution channel and later shoiuld have gone for production as per demand. Now they have a product, they don’t know how to distribute. Strange!!

(cool_gaurav) #324

Agree with you. Certain Red flags: 1. High Receivables 2. Negative FCF 3. Low Promoter holding 4. Legacy issues. Lets see how story unfolds…