CMI Ltd - Specialized Cables manufacturer


(prabhatg1) #67

Any idea why promoter has pledged there share of 41 Crore
https://www.bseindia.com/stock-share-price/cmi-ltd/cmi/517330/


(Rushikesh Kanthamani) #68

I was anticipating it, as they are having cash problems, as they have very low operating cashflow and negative free cash flow for a while. This is because their major money is stuck in trade receivables as pointed by me in my earlier posts. But valuation wise, i am not so afraid, as stock is trading at a discount to other peers and this is the only stock which is trading at low valuations currently. Company needs cash for smooth running but I dont think they are getting any, thats the prime reason I feel that they have pledged the shares. Another comforting parameter is D/E ratio which is 0.65, so no immediate problem that will take the stock down(they can raise some funds from debt), but if the company manages to maintain low working capital (by keeping inventory and trade receivables low ) then this company has great potential to tap . Hence I feel low downside risk, but huge upward potential.
Small concern-Promoters should not dilute the sharecapital going forward like they have done in the past.
This is my personal view.
Disc- Invested


(harshb232) #69

But given the fat that there major customer is government cash flow is always going to be problem. They need to find a way around this and reduce the dependence on government contraacts.


(Manohar T. Patil) #70

Stock has been on fire in past few days. Appreciated about 60-70% in a matter of a month. Sold all my holdings today at 352 given the sharp run-up. However later came across the Edelweiss report with price target of 462(link below). Just wondering, have I exited too early?

https://www.edelweiss.in/research/stock-specific-reports-1/CMI-Ltd---In-the-right-place-at-the-right-time-4b0c84

Any thoughts from other investors/interested members in CMI…


(Rushikesh Kanthamani) #71

If you ask my personal view, then yes the report is correct, but the stock has not moved because of it(just came yesterday), the stock was highly undervalued as also said by me in many of my previous comments, According to me a correct valuation for CMI is around 420-430, currently a good quarter will be a icing on the cake, I believe that this is a long story to go and it will playout with ateast taking its time like 2-3years and not before that, Cmi is yet to discover its true value as we can see how undervalued it was(inspite of uptick of 65% its still looking undervalued as per sector peers at CMP).It has just started to get some value thats it. At this point I expect some profit booking coming and some/big correction, but long story is intact and I am invested for that story, not for this lump-some.
This is my personal view, not a recommendation ,I am just trying to put my points front, that how big the opportunity is in next 3-5years for CMI.
Fundamentally company is good, my only key concern is the working capital cycle(as it has high trade receivables-but their biggest customer is Indian Railways so not so much worried) which the management told to improve going forward. They are also diversifying the product portfolio which is good. Has great opportunities going forward like

  1. Electrification of railways
  2. Smart cities
  3. Metros rails is bid cities
  4. Infra development

All these opportunity are lying ahead of CMI and co is rightly positioned to en-cash it, but yes it will take time like atleast 2-5years. Dont expect quick money.

Disc- Invested


(Rushikesh Kanthamani) #72

Recent interview of management have a look


(skg) #73

I was checking CMI ltd. I heard MD interview and briefly reviewed the company. It seems it has many clients. But most of them are Govt companies. There might be delay in payments with Govt client.

Good thing was that D/E is 0.7 and PE is 11. also FCF is +ve. I expect company to grow once Baddi location become fully operational. But I am seeking expert advice here before investing in the company.


#74

Investor presentation for 9M FY 2017-18.

http://www.cmilimited.in/img/pdf/Investor%20Presentation%20-%2024Feb2018.pdf


(manivannan.g) #76

(Manohar T. Patil) #77

Listened to the Q4- Conference call recording. Below are my notes

  • Revenue Expectation FY19 - Incremental revenue of ~ Rs. 200-220 Cr expected from Baddi plant thru improved utilization
  • Management is “hopeful” of FY20 Revenue of 900 - 1000 Crs. at 14% EBITA margin
  • Working capital days increase from 150 to 170 in Q4 attributed to - Baddi plants having some SEB clients and GST impact
  • Since PSU clients are there - working capital days is expected to remain around same level of ~ 170 days (some vague hopes for decline in receivable days were provided but I don’t think it counts)
  • Company expect to have negative cash flow in FY19 as well due to working capital requirements, cash flow expected to be positive only in FY20 and beyond
  • Potential Risk - Slow down in Govt. and PSU spending on infrastructure
  • Exports - FY18 - Revenue 4-5%, FY19 Guidance Revenue ~ 5-10%
  • Approval for Baddi plant from railways is awaited which will enable company to supply to railways directly from Baddi plant. Company expect approval in Jun-Jul’18 and moderate supply to railways during FY19 from Baddi plant.
  • Entire tax of about 13 Crs. for FY’18 is just provision and once the proposed merger gets approved, the tax provision would get reversed
  • Potential impact of Sterlite plant closure on raw material sourcing - Company primarily sourcing Copper rod raw material from Hind. Copper, Hindalco and other sources hence and do not see impact of closure of Sterlite plant
  • Balance sheet - Current Working Capital level - 165 Crs, Plus. Rs. 44 Cr long term loan; No major capex planned for next 2 yrs. as of now;
  • The working capital is expected to increase by about 40 Crs in FY19. leading to finance cost increase by about 10 Cr. in FY19 to fulfill incremental in revenue of 200 Crs. Similar increments in working capital and finance cost is expected in FY20.
  • No dilution in equity planned as of NOW. It would depend on acquisition opportunity if it comes thru.
  • Observation - Management shown quite a lot of willingness to answer any queries from investors in closing comments; I am not sure if they will really do :slight_smile: . Also, did not show case any unnecessary sophistication. Just my inference!

IMHO -Working capital is the key factor which needs to be monitored closely along with company’s ability to meet its incremental revenue expectation. It has a unique opportunity to double revenue without significant Capex.

Would appreciate any comments/suggestions from fellow board member

Disc - Sold out my holdings at 353 in May; Re-entered with intermittent purchases at levels between 323 - 237


(Rushikesh Kanthamani) #78

Thats great update, when was the concall held?..dont know how I missed it.
Yes problem with cmi is the increase in working capital and company has limited money to manage, so bit worried on that front(Negative cash flow). Another question- why company is not paying any tax(why its negative for previous years). I will be very happy if they can decrease some of the working cap or atleast give some path(its uncomfortable currently as they give no proper guidance or plan)
Thanx for the notes.
Regards,
Rushikesh


(Manohar T. Patil) #79

Regarding tax, It probably has to do with Baddi plant and scheme of merger between two entities. They provided some update about it on concall but I could not capture it very well.

The company did not provide any path on reducing the working capital days, probably they don’t have any. Its very difficult for the company at stage to change culture at SEB and PSU which are their clients. Do you have any idea about the working capital days of KEI who are a competitor in similar space with note same.


(Rushikesh Kanthamani) #80

Thanx for your reply, I dont know from where they will fund their working capital needs going forward, lets see I am keeping a close watch on their receivable days.
I dont track Kei, though I dont think Kei has exact same business as CMI, as cmi claims as one of its kind, With large revenue (60%+) coming from railways and over 80%+ from gov orders, I dont thing none other company might be same.
This promoter might have good political influence, just my view


(naveen.p) #81

The more I read and research the company my suspicion on the management integrety is increasing. I did an interest rate calculation to the amount of Debt taken from Amit jain, and the numbers wont add up. My be I am missing somethig here.

I also wont trust companies that show research reports in their investors section on their website.


(Rushikesh Kanthamani) #82

Can you please give all the noted points of suspicion about the company.


(Manojlion) #83

I am a only 3 months into Value investing. So please bear with me for any mistakes. I am looking into the PAT and CFO pattern from the last 10 years

The CFO over the last 8 years have been very poor compared to PAT

Any information as to when ,they will be getting the receivables

is it after the project conclusion or do they receive any payments in between?

My concern is most of the projects are related to Railways ,where in we cannot expect the project to be completed in few years

Disc Invested around 300. Forms 10% of my portfolio


(Manohar T. Patil) #84

Q1- Result for CMI - Not quite encouraging on QoQ or YoY basis.

Disc-Invested


(Manojlion) #85

I am more more concerned to know on how their cash flow is and how much are the receivables and there is no way,a retail investor can know the numbers as they have not released annual report nor do they conduct conference calls
The PAT numbers are not worrying to me and will improve once ,the Baddi plant will be into operation


(Shivasai) #86

Sir

  1. Looks like most of the STWC is blocked in advances ( short term and long term).

  2. Interest of close to 39 crores does not count… what is the interest rate…

these are the two mysteries in the accounts… can anyone explain…


#87

The Baddi plant is now pre-qualified by their biggest customer, Indian Railways. This was flagged by Amit Jain on the FY 18 results con call as a key catalyst to unlock utilzation at the new plant.