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.
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:
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.
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%
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.
