Let me admit, my investment decision was based upon very basic analysis like Revenue growth, operating margins, capacity expansion which will lead to more than doubling revenue, attractive PEG ratio and so on and so forth. I haven’t done detailed analysis of Balance sheets and cash flows etc. Thanks to Valupickr forum that has given me broader perspective to get into minute details.
What signifies me presence of Smart investor like Kacholia or Institutional investor like LIC is confronting fact that they might have done thorough analysis. Institution like LIC must have stringent research process to follow as they handle public money to invest. So this is more comforting in waiting that stock will get re rated and company have good fundamentals. Agreed that there is corporate governance issue - but in my opinion it can sorted out with good accounting practices and getting good auditors on board. 8K Miles was also red flagged for some corporate governance issues. But now they have on boarded Deloitte for auditing. In all this makes me to be patient and wait for more period to observe how things move before arriving at decision. So I will continue holding for another 6 months at least
Just to point out LIC has many dud investments…the list is too big…recent example is vakrangee where they hold a huge chunk
Trying to put my thought process on points. Though don’t have clue for all. I welcome members to correct me if going wrong somewhere.
- We all know that Crude oil prices have increased sharply which is raw material for PP. PP being main raw material for fabrics I don’t think rise in raw material price is thing to worry.
- Yes. There is reduction in costs which has no explanation. So leaving it to wild guesses. Power cost reduction is from 2.56 Cr to 2.37 Cr. - less by 7% aprox. Freight cost reduced from 6.18 to 4.84 Cr. - 21% reduction. Packing material cost reduced from 2.28 Cr to 1.92 Cr. - reduction of 15%.
- Net block addition may be due to purchase of new machines for capacity expansion. We have melt blown capacity operational since Oct. 2017. Page no. 92 of AR 2017.
- Trade Payable is reduced from 2.42 Cr to 1.72 Cr in standalone BS - page no. 78. There is reduction of 26%
- There is same increase of 3 folds for FY18 statements as well. I asked a question on same during conf. call. Explanation was not satisfying. But it goes like for 100% revenue jump there is rise in receivables + some more credit is given for new products from melt blown facility for trail orders. Of course, this is for last FY and not FY17. The rise in trade receivables is some reason to worry. I agree.
- Cash and equivalents have rose from 6.41 Cr to 21.51 Cr. during FY17 - details on page no. 89 of AR.
Subsidiary may be working with leased space and leased facilities. All costs become part of operating expenses.
Firstly the accounting equation doesn’t hold,so there may be more ‘errors’ in the annual report.Clearly management have done a very shoddy job.Secondly it is impossible to have zero assets,no matter how much you leased assets you have?Finally the company is not paying taxes even for it’s foreign subsidiaries.How does that work?Similar thing happened with shilpi cables,showed extraordinary revenues with little taxes paid even in the foreign subs.
Just look at the freight costs they have fallen by a third YOY even though sales have increased by quite a bit.Same thing with power and fuel.Even the other expenses have fallen heavily.All these improvements have happened simultaneously?
The fact that they do not have any fixed assets(or they have leased all assets as you say )makes the company more suspicious.Mind you that the company also does not have any inventory (i have subtracted consolidated inventory - standalone inventory) raises more questions.Again the company is not paying any taxes on the subsidiary which is responsible for 40 percent of the revenue and also zero dividends are paid every year.It may have been because of bifr ,that it didnt pay dividends in the past,but why is not paying even a small dividend right now?
i feel when the stock price is down from 182 to current level and there is old management issue. I feel i have accepted that market know more than the reasoning we can think off and punished this stock like anything.
As there are so many good companies to think off… i have moved on from this…
Hope this help to confront with reality. I have gone through Kitex/ canfin etc. and have seen how kitex went from 200 to 1100 and came back and same kind with canfin. Now learned hard way to move on from favorite stories…
My personal opinion and not following this company now.
I agree. This massive reduction in costs needs explanation. Particularly for power costs nose diving. Freight and packing can be effects of GST implementation. Will keep an eye for FY18 AR once out. I hope company will take cognizance of issues raised and improve corporate governance. Once capital being locked - I will wait for some more time for sure. Anyways current price is at dirt cheap valuations and positive cash flows and good BS will ascertain limited downside from current price.
This might look trivial but might also have some reflection on Corporate Governance of Company-
Fibreweb-ANNUAL REPORT 2016-17
Mrs. Soniya P. Sheth Age: 32 years, Qualification: M. A., Nature of Expertise: She is Interior Decorator, Investment consultant & Dynamic professional also having good marketing experience. Name of Company in which she holds Directorship: 1) Kunststoffe Industries Ltd. 2) M/s. Stallion Breweries Ltd. 3) Chemical & Alkali Distributors Ltd., 4) Fiberweb (India) Ltd. She is wife of Managing Director Mr. Pravin V. Sheth.
Kunststoffe Industries Ltd. Corporate Governance Year End: March 2015
Mrs. Soniya P. Sheth Age: 30 years, Qualification: 12th Passed, Nature of Expertise: She is Interior Decorator, Investment consultant & Dynamic professional also having good marketing experience. Name of Company in which she holds Directorship: 1) Kunstststoffe Indus. Ltd. 2) M/s. Stallion Breweries Ltd. 3) Chemical & Alkali Distributors Ltd., 4) M/s. Bharat Capital & Holdings Ltd., 5) M/s Gayatri Pipes & Fittings Pvt. Ltd. 6) Fiberweb (India) Ltd.
Thats lots of qualification in such a short span!
Prefential allotment to New Horizon Master fund to the tune of Rs.40 crores cancelled: