DHP India Ltd - Regulators and Fittings

Book value as of 31st Mar - 722/share of which Mutual Funds are 565, current market value in MF should be close to 600. But for the 24.1 Cr profit booking in MF in Q2, company would have barely broken even on a turnover of 48Cr.

Promoters are neither interested to sweat out to improve their top line or share the bounties (MF gains) acquired from the market without sweating.

Happy to have reduced my holdings significantly to position in better quality stocks, leaving a small portion for a revival prospect in future.

Will consider adding if and when the stock quotes below its value in MF holdings, which can be a realistic prospect before a meaningful recovery sets in.

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DHP performance in FY 2024 has been highly disappointing.

1. EBIT margin fell from 28% in FY 2023 to 7% in FY2024
2. Sales dropped by ~51% (from Rs 109Cr to Rs 53Cr this year)
3. What intrigued me the most is that despite the drop in sales and EBIT margin, the net profit and
EPS increased by ~12.7%. Upon digging further I observed two things:
a) Other income increased from Rs 1.6Cr in FY2023 to Rs 26.9Cr in FY2024. This means almost all of the net profit of Rs 26.4Cr is driven by this increase in other income.
b) The tax rate in dropped ~25.8% in FY2023 to ~13.5% in FY2024.

There are two primary conclusions from these observations:

  1. The quality of earnings deteriorated considerably. Has the management played around with the numbers of other income and tax% to boost earnings? I am compelled to believe that this is indeed the case.
  2. The firm does not have a moat. At least not as strong or as wide as one would like to think. I think that the business fundamentals have deteriorated considerably. The drastic drop in EBIT and EBITDA margins indicates this. The last time the firm faced strong headwinds was in 2020. But even then it was able to maintain EBIT margin at ~21.3%

Counterviews invited.

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IMHO FY 2024 is not the correct year to do any kind of comparative analysis due to complete disruption of business amidst slowdown in major markets like North America and Europe. Net Profit includes investment income of ~Rs. 24 cr booked in September quarter , the proceeds of which were reinvested. B2B nature of business in a recessionary environment is prone to such erratic results. We should wait for business environment to normalize to do any sort of analysis.

Disc: Invested

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Any updates from AGM ?
The company continues to struggle and there is no qualitative commentary available in the quarterly financial statements. There is a decent amount of unrealized gain for the investments parts which is in line with the markets. However, the operational performance continues to remain sluggish and worrying.

Disc: Not invested

I suggest we read LN’s note below.

Like so many companies recently, the mgmt seems more interested in the easy profits available in the bull market.

It does not share information about itself and it’s plans. It’s annual report is threadbare of any information other than what is required of it from a regulation point of view.

I had hoped the transfer of ownership from one generation to the next would create more openness and bring a vibrancy to the company. Alas it has been for naught.

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Never expected to see it crack this low. Although reduced my exposure significantly over last few quarters, never had the heart to let go the balance in the manic sell off last 2 sessions.

At 30% discount to its MF holdings, I really hope the fall stops here, however bad the performance and management may be.

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Same here. This is the trouble with such small Cos.

@Lakshmi_Narasimhan_B : Would appreciate your latest views on this business touching upon AGM update, Q1 results, and sudden drop in revenue as well as profitability in the recent times.

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Wish I exited my left-over 10% of peak position size before Q1 result. I won’t bother any longer for this as it has already gone to a near junk status in my portfolio.

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Company after all these years of delegating their cash management responsibility to mutual fund houses, have taken on themselves to manage its cash. Should be celebrated as the management’s graduation day.

Even if the company has redeemed all its mutual funds, what is left for the minority shareholders to redeem on their shares will not get an answer from the mouthless management.

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No individual’s entry or exit matters in this vast ocean of stock market. What truly matters are the company’s fundamentals, market perception, liquidity, prevailing sentiments, and valuation cycles.

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DHP revenue and profits are in a continuous decline and is barely making any money from operations. Most of the profits are due to selling of mutual funds & investments that they hold. There are no signs that DHP is planning to use the proceeds from selling Mutual funds to develop new sources of revenue.

The only trigger for this stock can be the company distributing the proceeds from sales of mutual funds, as special dividend to the shareholders. The company has no intention to do the same.

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One off dividend will actually be negative for many long-time holders @30% tax slabs, due to differential tax rates on dividend & LTCG. God knows who this Counter Cyclical Investment is, relentlessly accumulating the stock and holding 6.39% currently.

Returns the company made from their MF profits will far exceed the cumulative returns generated from their core business. Hope the company will deploy this bounty more sensibly.

Made a final exit today after nearly 2 decades of journey with the stock. Whatever the stock does from here, I have no regrets holding it this long as it has given me the returns far greater than my investment thesis over these years.

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