The stock is down 83% since the highs inmay-12.Mcap of 335cr at cmp of 75; nearly 1600cr mcap wiped out in a matter of weeks! Annualised earnings using q1fy13 figures imply fy13 pe of less than one!! Price to sales of 0.2!
Seems like the pledged shares have been on sale, but for how long? Whats going on?
At the end of the day, if the company continues to do sales and profits as they have done in the past, shouldn’t the stock should recover, sharply?
Let’s consider some facts:
Few things have happened recently:
)- AGM was postponed from 24 Jul to be held some time in Aug/Sept (reason? Two directors had to attend the olympics)
)- The board recommended a dividend of 4.6/share recently, or about 6% yield at cmp. Previous 2 yr dividends were 4.2/share. This offers protection to an extent. But AGM needs to happen as well for the approval
Other facts:
)- Unusual increase of goodwill of about 442cr in fy11! Capex/capital wip gone up from 24cr in fy10 to 168cr in fy11, hurting free cash flow. Sundry debtors increased from 165cr in fy10 to 375cr in fy11 to 527cr in fy12. Not good. (but sales has also increased significantly; so maybe, not a big concern?)
)- The company has increased the debt to about 700cr as of fy12 (this could be more; who knows?). But, the company paid 20cr as finance costs in q1fy13 vs 25cr in q4fy12 (12cr in q1fy12). So maybe, some debt has been cleared off. But anyway, until fy10, debt was 100cr, which increased to 600cr in fy11!
)- average of operating cash flows for fy07-fy11 is about 35cr., or about 10% of current mcap. This is comforting. There is about 50cr cash (of course not net of debt), which is about 15% of market cap. Thats ok.
)- Net debt is about 650cr implying EV of about 1000cr. With fy12 ebitda of 500cr, EV/EBITDA comes out to be less than 2x! EV/Sales is about 0.4x!! Private market transaction would happen at atleast twice these multiples! Maybe 6x ebitda as well. This indicates a clear upside of 3x if other risks don’t materialise
If we consider the following returns scenarios:
1). 0x - 5%
2). 0.1x - 10%
3). 0.5x - 35%
4). 1x - 10%
5). 2x - 25%
6). More than 4x - 15%
As such, implied expected value is about 1.4x and deserves some attention. If the only reason this is going down is because some lenders are selling off to recover money, then there wont be an opportunity to catch the train on its way up, if at all it happens.
Haven’t bought yet, but might purchase in blocks of 25% of desired quantity with every 20% fall.
What do you think?