I would like to offer the following observations. I am still learning, so please do correct me where I am wrong.
- The website says company has 160 employees, whereas AR 2018 mentions 55 permanent employees.
- There is no provision for employee benefits such as gratuity, leave encashment, superannuation etc. This leads me to believe that these employees are merely daily wagers. Another way of reading this is that there is no requirement of skill or R&D in this work. Does this mean that the scope for developing more/different products is limited?
- There has been no increase in salaries of employees other than KMP.
- Although the company is exporting to several countries, and there has been a depreciation in INR, earnings in forex have fallen to 29.65% from 44.15% of total turnover (as per AR).
- Company’s performance has been inconsistent: Sales growth 10Y = 26.3%, 7Y = 20.5%, 5Y = 25.4% & 3Y = 20.5%. Does this indicate cyclical performance?
- The debtor days in the past 5 years are as follows: 49, 36, 64, 50, 67. This is a concern for me.
- Inventory turnover in the past 5 years: 4, 4, 8, 10, 7. Again, not a good sign.
- OPM last 5 years: 5%, 6%, 7%, 8% & 10%. Not good.
- As mentioned above, the remuneration of the management is ridiculous.
- Another post above mentions that this is a one trick horse. Having a look at the website, I would tend to agree. The photos of the plant show a very basic structure. Going through the ARs, and the figures, one gets the impression that this is a very small concern and the promoters either do not have the hunger to grow or the potential for growth is limited.
- Liquidity is a very big concern. The stock trades with very low volumes.
- J Acid is the highest raw material cost at 68.39% as of March 2018. So if the company starts manufacture of this, it would be a big plus.
- Raw material cost as a percentage of sales has increased each year in the past three years: 72.29% (2016), 76.31% (2017) & 82.46% (2018) [Source: Markets Mojo]
IMHO this company could at the most, be a short-term bet, as also mentioned above. However, I feel that it is currently overpriced.
I welcome your comments on my observations, so that I can improve my knowledge.
Thanks
Sandeep