1). Negative Operating Cash Flows - One should try to understand the reason behind the negative cash flows. Is it because the business is bad? Is it because the accounts are manipulated? Or is it because the growth Y-on-Y is such that they need to continuously pump in more and more money in working capital. When you are planning to invest in a company, you always tend to invest with a 5 year horizon. Do you see operating cash flows getting positive at the end of 5 years? Yes, I do feel. Over next 5 years the growth in the business will start tapering off. Less working capital will be needed y-on-y. Operating cash flows will automatically turn out to be positive. - I personally like companies generating negative operating cash flows if the reason is growth !!
2). Interest Income - Notice interest income schedule. Interest income was recorded in FY15 but not in FY16. Company has enough cash and bank balance. Have raised this query to the mgmt through the IR, and I expect their answer in a day or two.
3). High Rebates & discounts - Check the P&L schedule for high rebates and discounts given by the company. What is the reason behind such high discounts and rebates?
4). Loan from Director - Last year Mr. Roy had given a loan of 60cr (convertible). During the year, he converted 10cr of loan to equity. In AR the total loan from director has increased to 61.75cr. It should be 50cr. This means additional loan has been issued by Mr. Roy. If that is the case, has the company taken shareholders approval (I am not able to find any BSE announcement). Mr. Roy gives unsecured loan to the company charging no interest, but gets the right to convert his loan into shares of the company. This shows his confidence in the business.
5). What is export receivable in debtors schedule? This amount of 60,227,514/- reflects in debtors for two years now. This same amount reflects in revenue schedule under sub head "FMCG exports". Please provide the exact details on this. What we understand from this is that the company also exports FMCG. Is this correct? If yes, was this one time order? If no, why have the sales reduced substantially?
7). Pincon looks safe after Mamta Banerjee is back for another 5 years. AR mentions of some "composite license". How is the regulatory environment in West Bengal? Is the government encouraging on shifting from unorganised market to organised market? - http.docx (0 Bytes)
Mamta banerjee has clearly told in one of the communications that she never intends to ban alcohol in West Bengal. States like Andhra Pradesh, UP and West Bengal are planning to introduce liquor in tetra packs so that the good quality liquor cant be mixed with the bad liquor and be sold in the grey market. West bengal is already in fiscal deficit of 6%. This figure is very high compared to the next highest fiscal deficit state of India which has just 2.75% (approx). Think of an individual who is already in debt and has to pay 1 lac every month to service debt, earns 0.90 lac only every month (fiscal deficit of 6%). That individual earns income from two sources - one from his salary of 60000 rs per month and the other from his small part time practice worth 30000rs. Can that individual afford to let go the additional 30000 rs which he is generating from his practice?? If he does, he will push himself in more trouble? This is where is West Bengal currently. They can not afford loosing this simple/no brainer revenue - alcohol contributes 20% to the overall revenue. More, alcohol consumption is deeply routed in the culture of west bengal. You cannot compare situation of Gujarat with that of West Bengal, because its demographics are different. More over, in Kerala and Bihar the ban was more of a political gimmick and not a prudent and a rational decision. The decision was to solely come back in power and win the hearts (votes) of women. This is not the case in West Bengal since Mamta Banerjee is already in. Further, the govt. in more over encouraging the use of tetra packs and such packagings and wants the industry to get organised. Pincon fits well here.
But, Kerala was the highest alcohol consuming state of India. Can you imagine ban in this state? We should think over this and this is a fresh event !!
It has been 4 days back only, when the state opposition raised their voice for ban in West Bengal citing the huge success of this ban in Bihar. Need to take this very seriously.
8). The OPM are low (6%) since almost 60-70% is a trading business. IMIL and IMFL (the manufacturing business) margins are high - close to 8-8.5% and increasing Y-on-Y. Operating leverage will kick in, more and more portion of manufacturing business, and increased market share will all make the OPM close to 14-15% in next 4-5 years.
9). Mr. Roy is a good person. He was wrongly accused before, to which he has been already given a clean chit. Refer the earlier discussions done in the Pincon thread.
10). Top mgmt consists of highly experienced people picked from United Spirits, Radico Khaitan and HUL (for oil business).
Business growing at 60% CAGR is available at a PE of 12 !! Its looks a no brainer !! But, the valuations are not cheap because market is not mad to let the stock trade at this valuation !! The risk is very high. One needs to closely track the business and the political scenario. However, the chance of banning alcohol is almost nil. There has been no evidence of Mamta Banerjee expressing her views against alcohol consumption or banning alcohol outright. All what she has been doing is to increase the states revenue by bringing the alcohol consumption under organised sector, eliminating the hoochs and illicit liquor, thereby safeguarding the lives of the people and introducing liquor (IMFL) in tetra packs.
Disc - Invested with a tracking position. Views might be biased.