I was checking my monitorables tracker for Deep and I noticed the following fact -
In Q2FY25 concall, Guidance for PEC contract revenue and EBITDA margins was given as 100cr from second year at 40%+ EBITDA margins.
Now in Q2FY26, Guidance is raised to 140-150cr sales with 50% EBITDA margins.
So I think they are having better than expected progress on this contract.
P.S:
Whatever Deep’s management says they not only complete it but better it!
Please ask which subsidiary does not have an audit trail facility. If it’s Kandla, the receivables figures are even less reliable.
The more we get to know Deep, the more complex it becomes
Edit: It looks like Kandla, since AR 24 does not have this qualification
Long post ahead
A charge is a lien created against the company’s assets for a loan. So if you take a secured loan, the company has to register a charge on behalf of the loan provider so that in event of default, the loan provider can claim the proceeds from the sale of the said asset. So a charge of Re. 1 means the loan amount is either equal to or less than Re.1
All Working capital loans taken by Deep Industries are hypothecated against its Current Assets (65% of which are trade receivables). In fact, even some term loans (with maturity of more than one year) are secured against trade receivables.
Concept of Margin Requirement and why is it relevant
Suppose my Current Assets are Rs. 100 crores. If the bank gives a 25% margin, I will get a loan of Rs. 75 crores. If ay any point my Current Asset value falls below Rs. 75 crores, say 70 crores, I will have to deposit Rs. 5 crores (75-5) with the bank. This is also known as Margin Call.
Conversely, I can avail more loan if my Current Assets increase.
Deep Industries Ltd.
DIL Index of Charges.XLSX (19.5 KB) Source: Ministry of Corporate Affairs
Please refer to the excel above containing all charges yet to be satisfied. (Satisfaction of charge occurs when either the loan is repaid or asset is removed from the charge).
Row 22; Charge Holder PNB Investment Services Ltd. ; Date of Creation 23/01/2023
As depicted in the first pic of the post, PNB Investment Services is the Security Trustee for charges against the company’s Current Assets. The amount of charge is a whopping Rs. 237. 50 crores.
Interestingly, this charge was created (loan taken against current assets) only weeks after the acquisition of Dolphin, where around 150 crores of receivables (Current Assets) were added in the balance sheet of Deep Industries. The receivables, which by the way are outstanding from a very long time and for whom no provision has been made yet. (A provision would reduce the trade receivable balance and hence reduce the amount of total current assets, which could trigger a margin call)
Similarly, just months after the acquisition of Kandla Energy, another charge was created on 8/09/2025 (refer row 2 of the excel) in favour of Axis Bank Ltd. Axis bank has too provided Working capital Loans to the company.
Notice a pattern? Acquire companies cheaply, with high receivables. Keep the receivables in the consol books. Do not make a provision (which would reduce current assets). Ask the auditors to not verify those receivables. Take working capital loans against those receivables. Acquire companies cheaply.
There is a clear benefit to the management by not writing off receivables. If it did, its working capital sanctions would get affected, drastically. Imagine the impact of a 300 crore write off in the current assets on the outstanding working capital loan limit.
Furthermore, the current borrowings, excluding current maturities of long term debt has almost increased by 8 times as at 31.03.2025 when compared to 31.03.2024! I would not be surprised if this figure increases further.
I once asked a question on the Kandla acquisition, Why now? I have gotten my answer. Free onboarding of 200 crores of receivables which will enable them to take loans against them faster. In fact this could also be the reason why management is not letting the auditors verify those balances. Kandla also did not have a audit trail per se. So there are no internal controls, external verification or other confirmation regarding these balances against whom such gigantic loans are taken. They needed to take a WC loan faster and hence hurried on the Kandla acquisition to increase their book value of current assets.
This in my humble opinion establishes a clear motive for the management to not take provisions for receivables.
Regarding Inventories
Inventories are also current assets. The management in fact did take an inventory write down as an exceptional item in FY 2025. Here is my theory (the below two paragraphs should not be construed as a statement of fact):
As per regulatory requirements, stock audits should be carried out for all WC limits in excess of Rs. 5 crores. Stock audits are also required to be certified by a practicing Chartered Accountant and the margin requirement for stocks is much less than that of Debtors. (For example, for stock worth 100 crores you will get a loan of 85 crores as against a loan of 60 crores for a 100 crores worth of debtors)
Now when the stock auditors conducted the stock audit, they realised that the stock acquired from these acquisitions are not realisable and hence made them (the management) write down its inventory. There is no such requirement for debtors, lol. The management in fact admitted in an earnings call that these inventories were not realisable.
Some tough questions for the management in the next earnings call in addition to the usual 60% growth guidance ones:
The Game, Mrs. Hudson, is ON.
Short term borrowings are 109cr. Inventory + recievables excluding Dolphin & Kandla receivables stand at around 350cr Rs.
Short term borrowings excluding current maturities of long term debt is at 24cr. Which has increased from 3cr last year. For a company with around 2000cr of operating assets and increasing scale, 20cr jump is literally nothing (So much for your WHOPPING 8X JUMP)
Also 24cr of short term borrowings against 350cr of working capital assets (It’s just too ridiculous to make any argument when facts are such as these)
Same assets maybe hypothecated with different financial institutions for working capital limits.
Also I am pretty sure there would be enough due diligence from the bank side on these old receivables to not lend against them. Even Deep has stated in public forums that these were gotten for miniscule amounts and recoverability of them is to be ascertained over the next two years.
2cr was the amount paid for Kandla energy. Any point you make against Kandla basically irrelevant for me as practically no money was spent to acquire it. (If out of the 300 odd cr receivables, they manage to recover even 3cr, that’s a 50% return on investment, apart from the actual chemical business which should start by next FY)
They rely on the auditor’s report.
This is like asking a thief whether he committed robbery. Of course they are gonna say these are recoverable. It is the job of the auditor to determine whether in fact they are realizable.
Any point you make about no money being spent to acquire Kandla is irrelevant to me. I have explained reasons in earlier posts
This is as per 31 March 2025. As per MCA, the company registered charges worth 37.50 crores from June 2025 to date alone. Let’s say still the working capital is 350 crores. But the working capital is hypothecated against term loans as well. And the term loans figures are pretty big
So anyway I have come to a sudden realisation that writing on Deep Industries is not worth both the reader’s and mine time/efforts.
I will spend time that I could use otherwise to find something on Deep, think of a movie reference to write it on VP and post it here. Existing investors would spend equal time to find wrongdoings in my thesis and post them here.
It’s really not worth it. I am just tired of it all. I am sure others are too.
I hope I am wrong about Deep though. Don’t want my fellow members to lose their hard earned money.
Anyway I would like to apologize if I unintentionally came off as rude or blunt. Trust me it was not my intention. I just wanted my posts to be fun to read. All of this would be worth every second spent if someone learnt something from the convos above. Be assured I learned a lot for which I am really grateful :).
My conclusions on Deep:
It’s a good company, showing real growth, growth drivers. But obviously not plain as white. There sure are grey areas.
This is the last you will hear from me on this thread. Until next time
Indeed your efforts are valuable. Not sure what triggered sudden exit from this discussion but love to see you in other threads as well. Atleast I don’t understand this level of accounting but sometimes and for someone this really helps a lot. Thank you for all your insights.
@kautuk I learnt a lot from this discussion. Thank you.
I was advised by well-meaning friends not to invest in Deep because of CG, but by that time I had earned great returns after 2 years of holding.
I’m an accounting newbie and can’t even think of such research like you did. Thanks a lot for the education. It has certainly made me re-evaluate my holding.
They have sufficient Assets in their book . even if we exclude those acquired debtors, their borrowing amount is just 15-20% of their Fixed assets + other assets like normal inventory debtors levels
So I don’t believe they really need those acquired debtors for working capital
Thank God I didn’t join this community two years ago. Otherwise, I would have gotten confused by all the discussions and sold my investment of around 9,000 shares long before it became more than 3×! I don’t know much accounting. I just saw that the company was profitable, sales were growing, and the business was expanding — that’s why I invested. After reading the discussions here, it feels true that money isn’t always made by overthinking. If the company and its business are reasonably good, just buy and stay quietly invested — the returns come on their own! However, this is my personal opinion. I truly respect all the community members’ opinions.
If investing was just about numbers then all accountants would have been millionaries,
its the risk taking abilities and rosk mangement which ultimately pays you..
For individual investors I don’t think these things matter but if you are institutional investor and investing in crores in one stock so Ideally they have to do all these forensic analysis to determine risk metrics. A different scene is going on now a days due to SIP inflows even many institutions despite knowing many red/orange flags they keep burning money. Ultimately it’s retail investors money 
When a stock you own drops 25% it’s an “opportunity”. When it drops 10% more you call the CEO to verify the thesis and buy more. When it drops 10% more you get annoyed insiders aren’t buying. When it drops 10% more you sell your stock to the investors that are going to make money on the stock.
Think about all the stocks you said you would buy if they ever dropped to a certain price.
When the stock price finally drops, you quickly pivot, “ehh.. maybe I’ll buy it 10% lower”. You do this three more times.
Watchlist companies = a list of stocks you tell yourself you would buy if they drop, but when they do drop you never buy them. You just watch them.
Then the stock bottoms and starts to rise. In an instant you mentally shift from “fear of loss” to “fear of missing out” and you take offers in the stock chasing it 30% higher to get a position.
Stock prices pull on our emotions like a dog on a leash. We all suffer from stock prices driving the narrative in our mind.
The truth is when a stock is down, many times nothing fundamental has changed. It’s simply the market sentiment flipping or a large holder selling.
When a stock moves up, many times the business really hasn’t changed. Investors just got more excited about the story.
When stocks go up everyone is willing to look the other way on almost any issue. When a stock is rising investors pull out a telescope from the closet, climb onto the roof, and look way out into the future to justify paying a higher valuation today.
With all due respect, an appreciation in the stock price does not justify questionable accounting practices.
Enron grew 10 times in 3 years before 2001. It’s stock price increased multifold by at least 5 times before it declared bankruptcy and now what is known as the biggest accounting scandal on Wall Street .
Satyam Computers was the fifth biggest company in India in terms of market capitalisation before Mr. Ramalinga Raju wrote to his board on how he inflated his books.
I am by no means saying that Deep is the next Enron or the next Satyam. Definitely not. But shares becoming more than 3x is absolutely not a justification for not questioning the management.
Skepticism is a competitive advantage. Sales are growing; how are they growing? Are the reasons provided by management justified for a 60% YOY growth performance? Stock is undervalued? Why is it undervalued? Management claims that they are the most experienced in this sector because they have 30 years of experience. If this is really such a high growing high margins sector, why are others not foraying into it. I didn’t see names of any competitors in discussions above. That is not how economics work.
It’s not about “overthinking”. It’s about what’s right and what’s wrong. “It’s about sending a message” - Joker (The Dark Knight)
I would really like others to find flaws in my report and not justify their holdings because the stock grew 3 times in the last couple of years.
Again, I say this with due respect and I apologize if you found the tone to be rude.
This is risk management. I am raising questions that I feel others missed so existing investors can better manage risks. That’s it
Objection, relevance?
P.S. I know I said that it would be the last you hear from me on this thread. But desperate times = desperate measures. I will not add any new thesis though.
Excellent post-mortem!
But I’ll repeat what I’ve said earlier — one doesn’t need to over-analyze or dig endlessly into every micro-detail to “make money in the market.” Investing, at its core, is quite simple. People make it look complicated because they’re either chasing intellectual satisfaction or trying to showcase analytical depth. But wealth isn’t built by collecting spreadsheets — it’s built by taking decisions, taking risks, and staying in the trend. Some people believe that great investing requires them to behave like forensic scientists — but history proves otherwise. Investing rewards clarity, not complexity.
Even legends didn’t get rich by demanding spotless companies.
Warren Buffett himself bought into businesses with risks, regulatory uncertainties, and governance questions — not because they were perfect, but because the risk-reward ratio was attractive. He didn’t wait for confirmation from every auditor on the planet. He looked at value, momentum, price, and business potential — and he acted.
And if someone wants to argue about compliance and moral purity, then they should study the journey of Rakesh Jhunjhunwala — The Big Bull. He invested in companies that weren’t PR-friendly, weren’t polished, and definitely weren’t flawless. Yet, he built wealth beyond imagination. Why? Because he understood one thing — “markets reward risk-takers, not spectators.”
Now let’s talk about risk management - Risk management, in my view, is not merely about balance sheets, compliance reports, or forensic accounting. It’s more about “accepting uncertainty and being willing to put your money on the table.” It’s about conviction. And no matter how perfect a company looks — pristine numbers, flawless compliance, squeaky-clean governance — zero risk simply means zero opportunity. Markets reward those who can live with calculated discomfort.
Now, regarding the so-called “potential non-compliance” being discussed — even ignoring it is a risk which isn’t everyone’s cup of tea! I genuinely believe that if someone truly wants to compound their money and build real wealth, they don’t enter the market to moral-police corporate behaviour or lead a crusade for ethical reform. If that’s someone’s purpose, I respect it — but it’s not mine. As far as I’m concerned, I’m brutally practical and I’m here for one reason, and one reason only: to grow my capital. If a stock is rising, enter based on position sizing capacity, set a stop-loss, manage downside, and ride the trend as long as it lasts because, ultimately, the market pays for performance, not perfection - Price first. Profit first. Noise later - that’s it. Don’t lose sleep over compliance gossip - because in the end, portfolios don’t care about virtue — they care about returns.
I don’t care what management whispers behind closed doors.
I care what the chart whispers on the screen.
I don’t judge companies by perfection.
I judge them by returns.
Haha I like your writing style.
Well according to your example of Mr. Buffett, those who think they can think like Buffett and make it big like him should ignore governance issues. I don’t think I am even worthy of saying his name and hence look at these things.
The two examples you gave, Mr. Buffett and Mr. Jhunjhunwala, are just that, examples. Exceptions. The sample size is too low.
What about all of the millions of investors who lost their life savings by investing in Companies like Enron, WorldCom, Satyam, Gensol, etc I can go on and on
Ignoring corporate governance just because one Buffett or One Jhunjhunwala made it big is not sound logic according to my humble opinion. Basing everything on what these individuals have done is not ideal.
The same Buffett talks about how the average Joe (people like me) should forget about analyzing companies and just buy a low cost ETF. If we were to follow everything Buffett said, then we should close down the ValuePickr forum. All of us here are average Joes.
In fact here is what I propose:
After taking into account the possible governance issues, how many of the existing investors increased their risk premium factor? How many demanded a higher margin of safety because of these issues? How many reassessed their holdings based on new findings, deciding whether the valuation is appropriate considering the new issues that came up?
This according to me is risk management.
I am not here to “make money in the market”. I am just an average Joe with a passion for accounting. That’s it. I would have zero regrets if Deep goes 100x from here on. Zero. I do this out of passion.
I don’t judge companies by returns. Returns are manipulated. They are deceptive. Returns are based on emotions.
I judge them by numbers. Because numbers are cold facts. No emotional bias, no confirmation bias. Just cold hearted facts.
And since you talked about Buffett, here’s what he has to say about corporate governance:
“I can’t afford the operation, but would you accept a small payment to touch up the x-rays?” – Warren E. Buffett
This is an extract from his widely read annual letters to investors (year is unknown)
"The letter described a conversation between a seriously ill patient and his doctor, just after an x-ray revealed the bad news about his condition. Rather than accepting the diagnosis of his deteriorating health, the patient immediately responded to the dreadful news by asking the doctor to simply touch up the x-rays. Buffett uses this story to warn investors about companies that try to hide the truth about their deteriorating business’s economic health by touching up the financial statements. Buffett then prophetically adds, “In the long run, however, trouble awaits managements that paper over operating problems with accounting maneuvers. Eventually, managements of this kind achieve the same result as the seriously-ill patient.” (Extract from Financial Shenanigans by Howard Schilit)
