Category Archives: Current temptation, future frustration

“Current temptation, future frustration“. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can save our wealth.

13 – Current temptation, future frustration

Posted on April 17, 2022 by Jimit Zaveri under Current temptation, future frustration

The 13^th part of the Series is “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can save our wealth.

I am starting this article with one of the company which is engaged in the business of real estate construction and engineering-focused solutions have a 52 weeks low price of Rs.16 and LTP is Rs.24.5, which is a 52-week high price This company has rewarded ~53% of return in a year.

Let’s start looking at the numbers.

We can see that the company has a strong promoter holding which gives confidence to many people to get attracted to the company.

We can see that all-time high sale of the company with Operating profit.

When we look at the balance sheet then we can see a few +ve as well as a few -ve points also. The company is debt-free with very lower fixed assets that need to be utilized to produce revenue. But when we see at the -ve points, then we can see that another liability has increased rapidly in FY20 & FY21, whereas revenue has not grown at that pace.

Also, when we look at the receivables, they that has grown at a rapid pace. Cash on the book was Rs.16.97 cr in FY18 which has gone in FY19 with high growth in receivables. None of the line items has reported change in such a way.

We can see at working capital then found that the cash conversion cycle has worsened rapidly, due to higher debtor days. 291 days of Cash Conversion Cycle in FY18 to 5.38 years in FY20 and 3.68 years in FY21. This shows highly worsening of working capital.

Now, we look at the related party statement then the real face behind beautiful makeup gets revealed.

Here, I found that the company has huge related parties transactions which help to boost sales growth. When we look at the related party sales to the total sales then

Entire sales of FY19 & FY20 come from a related party and in FY21 also has 63% of sales come from related parties.

The company has taken borrowings from related parties but which are categorized as the non-current liabilities.

This entire series is based on past available data and ignored the future development of companies and the stock market always looks at the future.

12 – Current temptation, future frustration

Posted on November 7, 2021 by Jimit Zaveri under Current temptation, future frustration

The 12^th part of Series “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can save our wealth.

I am starting this article with one of the company which is engaged in the business of manufacturing and selling UPVC pipes and fittings has a 52 weeks low price of Rs.20 and LTP is Rs.80, 52 weeks high price of Rs.85. This company has rewarded ~4.25x of return in a year.

Let’s start looking at the numbers.

We can see that no growth in sales of the company or PAT, especially from FY16-21 (take FY21 as a washout year then also).

We can see at working capital then we found that the cash conversion cycle is improving YoY, due to higher payable days. Also, payable as % of sales improving. At first, we get excited and feel it is a turnaround. But then quote of sage Mr. Buffett comes to my mind – “Turnarounds seldom turn.” So, I try to check deeper. And I found related parties’ transactions.

Here, I found that the company has huge related parties transactions which help to boost sales growth as well as it has outstanding payables which are also higher. I thought to adjust both payables as well as sales to derive ex-related parties’ figures.

If we see adjusted with related parties then cash conversion cycle days increased by 51 in FY18, 61 in FY19, 64 in FY20, and 74 days in FY21.

Investment also parked to associate company.

This entire series is based on past available data and ignored the future development in companies and the stock market always looks at the future.

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

This series contains learning from books –

Financial Shenanigans

Quality of Earnings

The Financial Numbers Game

Creative Cash Flow Reporting

11 – Current temptation, future frustration

Posted on October 10, 2021 by Jimit Zaveri under Current temptation, future frustration

The eleventh part of the Series is “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can be saved our wealth.

I am starting this article with one of the company which is engaged in the business of providing IT Consulting and Software Development Services has a 52 weeks low price of Rs.1.68 and LTP is Rs.7.59. This company has rewarded ~4.52x of return in a year.

Let’s start looking at the numbers.

We can see that sales of the company keeps falling losses at the operating level and not earning profits.

We can see that higher receivable days and lower payable days where we can say that almost 3.96 years of receivables.

The company has ~87% & 89% of other current assets to staff advances in FY21 & FY20 respectively. These advances keep growing and do not get repaid.

We can see that lower return ratio and worsen over a period as financial worsening. Also, the company has worsened with the worst performance.

We can see that majority of borrowings from related parties and interest expenses are very lower still the company cannot able to perform well.

This entire series is based on past available data and ignored the future development in companies and the stock market always looks at the future.

10 – Current temptation, future frustration

Posted on September 12, 2021 by Jimit Zaveri under Current temptation, future frustration

The tenth part of the Series is “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can be saved our wealth.

I am starting this article with one of the company which is engaged in the business of trading has a 52 weeks low price of Rs.9.60 and LTP is Rs.62.2, a 52-week high of Rs.79.2. This company has rewarded ~6.48x of return in a year.

Let’s start looking at the numbers.

We can see that the company has high volatile sales, OP Margin% and not earning profits.

We can see that higher receivable days and payable days where we can say that almost 3 years of receivables and a year of payable. Shocking…..

The major balance sheet item is advance recoverable and for that, there is no provision made by the company.

The company does not have a good return ratio.

When we look at the shareholding pattern then promoters hold only 6.89% now and the remaining hold by the public. If the promoters have trust in the performance of the company then they have to hold higher holding.