08 – ONCE A DARLING, NOW AN EVIL

The eighth part of Series “Once a darling, now an evil”. This series is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth.

I am starting this part with one of the company in the business of technology infrastructure management services which has an all-time high price of ~Rs.1221 in 2010 and now last traded price at Rs.0.90.

Glodyne01-min

On the first instance this company having huge sales and profit growth. This creates a temptation to buy with missing out of the opportunity. But after the series of articles, we know to not get tempted with sales & PAT growth.

So, we go deeper ….

Glodyne02-min

Controlled debtor days, good fixed assets turnover ratio, high return ratios. Now, no chance to not getting tempted.

I would like to go further detail of it.

Glodyne03-min

The company continuously having a lower CFO compared to PAT. Also, when we take cumulative CFO V/S cumulative PAT then it was Rs.182 cr of CCFO v/s Rs.422 cr of CPAT. So that company able to generate good profit with good growth but that does not able to convert into the cashflow.

Glodyne04-min

Now, we check the tax rates then as per Cashflow its lower tax rate compared to the income statement which creates a cautious sign. It may be possible that profit has been artificially boosted.

Glodyne05-min

If we look at the common size balance sheet then the majority part of the assets side was other assets which have receivables are most but what others? Is this a manufacturing company or a finance company where fixed assets are lower and other assets are higher?

Glodyne06-min

We can see that changes in reserves are higher than changes in PAT. So again, look it as a suspicious. Because when a company pay a dividend from profit then reserve gets reduce and not pay dividend then remain the same. But here it’s increasing.

Glodyne07-minGlodyne08-min

Now if we look at the FY10 and FY09 reserve constitute then ~Rs.10 cr has increased in securities premium which is due to amalgamation, the capital reserve has increased of ~Rs.9 cr, the general reserve has increased of ~Rs.19 cr and P&L account has increased of ~Rs.59 cr. Such kind of difference was there in all of the years, this creates a question that every year company is getting involved in the M&A or issuing new shares? previous annual reports not available.

Don’t just get blinded with growth & few numbers but focus on cash which is real & every possible aspect.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

07 -ONCE A DARLING, NOW AN EVIL

The seven-part of Series “Once a darling, now an evil”. This series is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth.

I am starting this part with one of the company is trading in a broad range of steel products which has an all-time high price of ~Rs.307 in 2011 and now last traded price at Rs.0.36.

KIND01

On the first instance this company having huge sales and profit growth. This creates a temptation to buy with missing out of the opportunity.

Also, when we look at the debtor days then….

KIND02

Reducing… good…

But don’t forget to look cash flow statement….

KIND03

The company continuously having a negative CFO.

Don’t just get blinded with growth but focus on cash which is real.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

06 – ONCE A DARLING, NOW AN EVIL

The sixth part of Series “Once a darling, now an evil”. This series is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth.

I am starting this part with one of shipbuilding and ship repair company which has an all-time high price of ~Rs.992 in 2008 and now last traded price at Rs.1.20.

ABGS 01

On the first instance this company having huge sales and profit growth. This creates a temptation to buy with missing out of the opportunity.

Also, when we look at the terms of trade (i.e. debtors to creditor ratio)

ABGS 02

Wonderful… should buy it immediately….

But when we go for deepen….

ABGS 02.1

Payable is growing rapidly and it was higher than total expenses. This creates a sense of cautions that which vendor allow to keep this long credit? Also, if the company is capable to pay then why the company is not paying dues?

ABGS 03

When we look at the Inventories, then inventory as a % of sales is higher than the sales. Means company has a good inventory pile up. Also, inventory days are above a year.

ABGS 04

Now, when we look at the common size balance sheet of the company than almost 89% of the balance sheet was in other assets in FY06. It makes me curious that whether it is a manufacturing company or an NBFC. If we go for a breakup of those other assets then the majority of the part was in inventories and remaining? The remaining part was in loans and advances. I don’t have an old annual report but when looking for the FY10 annual report then such things get cleared. That was almost 25% of balance sheet and ~40%+ of other assets in FY10.

ABGS 05ABGS 06

The company also has understated its depreciation. If we compare the depreciation rate with the peer companies then peer company has an almost double rate then the company.

ABGS 07

If we look at the taxation as per the Cash flow tax rate then it is substantially lower this creates a doubt that why to pay less tax than actual payment. There can be possible to have an artificially boosted profitability in the P&L account.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

05 – ONCE A DARLING, NOW AN EVIL

The fifth part of Series “Once a darling, now an evil”. This series is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth.

I am starting this part with one of the manufacturing, processing & trading of yarns, fabrics, ready-made garments and towels company which has an all-time high price of ~Rs.582 in 2008 and now last traded price at Rs.0.35.

SEL01

On the first instance this company having huge sales and profit growth. This creates the temptation to buy with missing out of the opportunity.

But when we go for deepen….

SEL02SEL04SEL03

Now, let’s look at the above data then though the company has good growth in sales and profit but not able to generate CFO. This will require to bring external funding in terms of equity and borrowing, and both have increased rapidly. Look at the receivable and inventory as a % of sales than 73%, 69%, 70% in FY08,09,10 respectively. Also, if we look at the debtor days and inventory days both are increasing rapidly.

SEL05

If we look at the taxation then as per the Cash flow tax rate then it is substantially lower this creates a doubt that why to pay less tax than actual payment.

Also, when we look at the investment than the majority of the investment made in subsidiaries.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

04 – ONCE A DARLING, NOW AN EVIL

The fourth part of Series “Once a darling, now an evil”. This series is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth.

I am starting this part with one of the network service company which has an all-time high price of ~Rs.3500 and now last traded price at Rs.1.25. and high of Rs.464 in the year 2010.

GTLL01

On the first instance, this company looks having not a huge problem except debt rising but for understanding it in a better way, we need to go deeper.

GTLL02

If we look at the tax paid in cash flow then that tax outflow is higher than what the company has posted in P&L statement. If we look at the actual PAT and reported PAT then both have a good diversion. This shows that the company has boosted PAT by ~40%+ on an average basis.

GTLL03

Now, if we look at the sales to the related party then that was ~44% and 43% in the FY08 & FY09 respectively. In FY09, ~44% payable was from the related party out of total payables. Company has made ~80%+ investment in its subsidiaries out of investment shown on the balance sheet. In addition, the company has 25+ subsidiaries and few were at Mauritius.

Also, during when the price was traded near too high in the year 2010, the promoter has started putting their stake in a pledge.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

03 – ONCE A DARLING, NOW AN EVIL

The third part of Series “Once a darling, now an evil”. This series is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth.

I am starting this part with one of the company which is engaged in providing Services Incidental to Onshore Oil Extraction which has an all-time high price of ~Rs.347 in 2008, ~Rs.308 in 2011 and now last traded price at Rs.0.42.

SterI01

the company having huge sales and profit growth. Might be having something like a turnaround case or some Capex has started giving result.

But as usual, I get suspected on everything so as per habit I go deeper.

SterI02

Wow…. What a wonderful company!!!

Company has taken a borrowing but does not have to pay any interest on it. I like it, I also get such a loan then can achieve many things with it. 😉

SterI04

Another point is, the company also need not pay any taxes. Wow… no interest and no tax.

SterI03

Huge diversion between CFO and PAT but yes, positive and when looking at the FCF then its huge negative.

Now, more feather to add into it… need to compare consolidated and standalone balance sheet.

SterI06SterI05

Here, when we see that company get ~Rs.800+ cr of cash in FY10 but that cash has gone out in FY11. So, where these much of cash gone? When we check the standalone balance sheet then that cash has gone as an investment.

SterI08

If we look at the few of the items of the balance sheet then we realize that the company has given a huge loan and advances to the related parties. Also, huge other receivable, what meant by others?

SterI07

If we go and check a list of subsidiaries and few data then we can come to know that three subsidiaries out of five doing well but those three subsidiaries do not get a good amount of capital compared with the first subsidiary which is operated in Mauritius. This subsidiary does not have any turnover, not make any investment into the assets then why need such huge capital?

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

02 – Once a darling, now an evil

The second part of Series “Once a darling, now an evil”. This series is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth.

I am starting this part with one of the agro commodity trading company which has an all-time high price of Rs.5500 and now last traded price at Rs.1.60. and high of Rs.506 and Rs.364 in the year 2008 and 2010.

KGNI 01

What a wonderful company!!!! Look at the fixed assets turnover…

But some interesting data…

KGNI 02

Another interesting data….

KGNI 03

Without a payable and without keeping an inventory, the company has achieved a huge turnover. But only receivables are there….

KGNI 04

(Data of FY07-08) This looks something susceptible…. ~10%+ advances of sales… and that reach to ~71% in FY10. Majority of the companies were investment and finance companies.

One other company which involve in the construction activities, which has an all-time high price of Rs.540 and now last traded price at Rs.0.30.

Sancia Global 01

We can see that the company is into the construction business but the company does not have to keep any of the inventories.

Sancia Global 02

Also, debtor days are growing and CFO is negative though the company has reported net profit. Working capital is responsible for negative CFO.

Sancia Global 03

Advances recoverable is ~45% of balance sheet size in FY2010 and ~43% in FY2009. Also, the company has a contingent liability of ~Rs.725 cr which is ~96% of the entire balance sheet size, 2.27x of sales and 319x of net profit in FY10.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

Once a darling, now an evil

I am going to start this new series with all your love and wishes. Series “Once a darling, now an evil” is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. I am trying to put some of the number-crunching facts by which we have identified ongoing issues in the companies and have saved our wealth. This series is an extension of my previous series Numbers tells you everything, this series I have left in midway due to some technical issues with my database.

I am starting this series with one of the graphic company which has an all-time high price of Rs.2100+ and now traded at Rs.0.25. and high of Rs.13.47 in the year 2007. Due to unavailability of data prior to 2006 and unavailability of the annual report prior to 2010. I have to start showing number analysis from 2006 only.

PEM 01

Wow!!! What a strong cash flow from operating activities!!! From the above data, the company seems strong but….

When we look at the balance sheet with putting P&L with it then….

PEM 02

The company need Rs.193 cr of fixed assets to do a sale of only Rs.97 cr. Sales are just a ~10% of the entire balance sheet size. Debtors of the company were Rs.221 cr and inventory worth of Rs.79 cr compared to the sales of Rs.97 cr in FY06. Debtors were almost 2.28x of sales and inventory was 81% of sales. Look at the below data.

PEM 03

Few more interesting data…

PEM 04

Means when a company sell its services, the company gets payment after 828 days in FY06 and 826 days in FY07. In addition, the company takes 295 days to convert its inventory into the finished products in FY06 and that increase rapidly as COVID-19 has grown.

Now, the question is if a company has higher debtors and inventories then how CFO remains much stronger.

PEM 05

The answer is here. Working capital changes have contributed that boost into the CFO. If we look component of it then debtors have majorly reduced but still in FY07, debtors as a % sales remain as high as earlier due to a sharp fall in the sales.

If we have look at these basic number analyses and not deep crunching then also, we have avoided investment into such company and have saved our wealth. I have not talked about the company’s investment worth of ~Rs.130 cr in its subsidiaries in FY10 and both the subsidiaries are located at Mauritius. Also, ~Rs.134 cr of advances recoverable in FY10. There are many such points but without looking at all such points, we have avoided and saved our wealth.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

YOU, ME & BUSINESS – ISSUE -1 – CEMENT

I am going to explain about the cement, manufacturing process of cement, cost associated with cement, different types of cement, cement industry, consolidation to the cement industry and conclusion.

Kindly visit for detail on cement business —> YOU, ME & BUSINESS – ISSUE -1 – CEMENT

SIMPLE IS BETTER – ISSUE -12 – FUND FLOW ANALYSIS

We have seen in the previous simple is better to issue regarding profit and loss account in Issue-8, balance sheet in Issue-9, Relationship between balance sheet and profit & loss account in Issue-10, and Cash flow statement in issue-11. Analysis of balance sheet is essential for a better understanding of the financial strength of the company. Balance sheet majorly focuses on the sources from where we have brought the fund and at where we have deployed that fund.

Equity and liability side shows us a source of funds and assets side show us an application of the funds which we have brought.

We have to check in detail that does fund get proper utilization which company has to bring or not. For proper understanding, we need to prepare and analysis fund flow statement. Using fund flow analysis, we can come to that fund is effectively utilized by the management or not. This analysis also helps us to know where the fund is going and from where the fund is coming to the business. Does fund utilize to the wrong places or does fund brings from the sources which can be not favorable for the owners of the company?

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -12 – FUND FLOW ANALYSIS