Dolat Algotech Limited

Company’s Business

Dolat Algotech Ltd (former name - Dolat Investments Ltd.) was incorporated on 24th February 1983. The Company is engaged in the business of trading and investing in securities, Commodities (Castor oil, castor seed, cotton seed wash oil, silver, paddy, soya oil, Gold, raw wool, Hair oil and kapaskhali (Cotton seed oil cake)). The corporation stopped dealing in commodities in FY19 and now focuses largely on trading securities. Through the partnership firm Dolat Tradecorp, a completely owned subsidiary of the corporation, it also offers brokerage services. In light of its evolving trading method, namely algorithmic trading, the corporation changed its name. The business of the organisation is straightforward to grasp because there isn’t much to decode.

The company’s performance is positively correlated to the Indian capital and commodities market.

Dolat’s Marked to market income and Premiums on derivatives move sporadically over 2-3 year periods but show a long-term upward trajectory along with dividend incomes.

The cost of employee benefits, STT, dealer professional fees, delivery fees, and brokerage are significant expenses. The Company typically invests the excess liquid resources in mutual fund units and bank deposits to generate dividends and interest in the meantime.

ROIC VS CROIC of the company

ROIC

10-year average - 36%

5-year average - 35%

3-year average - 23%

CROIC

10-year average - 53%

5-year average - 46%

3-year average - 38%

The results are astounding, but they are declining, which is to be expected given how difficult it is to maintain such high rates over an extended period of time. These figures demonstrate that the corporation is not only creating book profits but also cash.

Management Team

Pankaj Dolatrai Shah – Managing director

Neha Purvag Shah – Director (Chairperson of Board)

Shailesh Dolatrai Shah – Director

Sunil Parmanand Shah – Director

Sailesh Kasanji Naik – Director

Monika Amit Singhania – Director

Mr. Vaibhav P. Shah – CFO

Mr. Sandeepkumar G Bhanushali – CS

Managerial Remuneration

Until recently, the managerial compensation was quite modest. When compared to the capital that the managers are required to manage, it is appropriate. The form of the compensation, however, is a drawback. The sole compensation for the MD is a base salary, while other executive directors get compensation in the form of perks like rent with no portion related to ESOPs. Although it is very little, executive directors do have some ownership.

RISKS

  1. The company is a small cap company which brings with it a potential risk of governance problems and substandard internal control and compliance systems.
  2. The company engaged in a lot of related party transactions (Brokering and margin facilities) which are, relative to other business transactions, inherently riskier (related parties – Purvag Commodities & Derivatives Pvt. Ltd, Nirpan Securities Pvt. Ltd, Jigar Commodities & Derivatives Pvt. Ltd, L. C. Raheja Forex Pvt. Ltd, Nirshilp Commodities & Trading Pvt. Ltd, Dolat Capital Market Pvt. Ltd, Shailesh Shah Securities Pvt. Ltd and Dolat Group Family Trust).
  3. Dolat’s performance is contingent upon the broad market performance (liable to volatility in the short run) as well as the competence of the management (change in the management team could be a threat) which adds to the fragility of the company.
  4. Bare minimum information in Annual reports

Disclosure: I have a small position in Dolat Algotech Limited. I have remained invested in this company for over a year now.

Source: ANALYSIS OF DOLAT ALGOTECH LIMITED – Financial Odyssey

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FY22 Performance

Consolidated Numbers

In FY22, Revenue was $292.08 crores (10.57 percent growth YoY), operating profits were $200.79 crores (68.74 percent OPM; 11.09 percent YoY), and total earnings were 167.71 crores (57.42 percent NPM) (14.09 percent YoY). As of the conclusion of the fiscal year, the firm had no long-term debt and a strong current ratio of 1.81. A decrease of 25.39 percent was seen in the free cash flow for the year, which came in at 139.9 crores.

Please feel free to discuss or ask any questions you have about this company

Disclosure: Invested

My main gripe with Dolat is that it is completely opaque. Promoters have other companies also and lots of money just sloshing around. The business model is also not clear.
Neither is it clear how they will scale up.

Yes I agree. That’s why I allocated a small portion of my portfolio to this stock. I Invested purely based on numbers and I believe that the price was/is low enough for the investment to make sense. If they can match or hit 80-90% of Index returns, the prospect of investing makes sense. But there are reasons why one may avoid this stock.

Q1FY23 Result

The company’s consolidated revenues from operation for the quarter slightly increased to 73.33 Crs (YoY - 3.84% and QoQ - -15.9%), operating profits (EBDAT less other incomes) were 45.09 Crs (YoY - -15.95% and QoQ - -24.44%) meaning a 61.5% OPM and net profits for the quarter was 38.65 Crs (YoY - -15.04% and QoQ - -19.02%) meaning a 52.71% NPM.

The profits have dropped QoQ mainly because of loss of revenue and YoY because of a substantial increase in transaction costs including STT (112.39%) and other expenses (68.35%).

Dolat Tradecorp’s revenues for the quarter were ₹24.35 Crs and net profit was ₹10.63 Crs for the quarter.

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Another great write up on Dolat Algotech.

Q2FY23 Result highlights
The company’s revenues from operations increased by 36.92% YoY and 6.91% QoQ to ₹78.4 Crs, its Operating income (EBTDA less other incomes) improved to ₹49.04 Crs (33.54% YoY and 8.76% QoQ) resulting in a 62.55% OPM, its net profits increased by 24.77% YoY and 8.99% QoQ to ₹42.12 Crs resulting in a 48.01% NPM.

Source: Q2FY23 – INVESTMENT VALUATION UPDATE – Financial Odyssey

73d185a8-6ffc-4c2d-aacc-faa4356eda89.pdf (2.5 MB)
Investor presentation uploaded by company in November. Seems company has started disclosing more info on their services. A concall post this quarter results can add more value. I have started investing at current levels for long term and will add more if company is consistent in profits and can demonstarte their Algo trading model performance in all markets.

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Not sure if this was already shared but here is a Moneycontrol article about high-frequency trading firms in India. Out of the bevy of very profitable firms Dolat and Algoquant Fintech are listed in the exchanges.

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Are Dolat, Aqfintech and their brethren the real deal ?

Moneycontrol.com: High Freq Trading firms partially responsible for Adani stocks falling