07 – Current temptation, future frustration

Posted on June 20, 2021 by Jimit Zaveri under Current temptation, future frustration

The seventh part of the 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 textile business has a 52 weeks low price of Rs.11.6 and LTP is Rs.38.8, the 52-week high price of Rs.47.8. This company has rewarded ~4.12x of return in a year.

Let’s start looking at the numbers.

We can see that the company has a high volatile OP Margin% and also having losses at a net level in few years.

When we look at the balance sheet then it seems that the company has an issue with higher debt and continues dilution of capital. We can see that though the company has diluted capital, the solvency ratio has worsened.

We can see that the company has huge related party transactions. Also, the major deposit given to the related parties.

Also, we can see that the company has negative CFO and FCF in the last three years which indicates that profits are not getting converted into cash profit.

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

06 – Current temptation, future frustration

Posted on May 23, 2021 by Jimit Zaveri under Current temptation, future frustration

The sixth part of the 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 power generation has a 52 weeks low price of Rs.5.49 and LTP is Rs.45.25. This company has rewarded ~8.24x of return in a year.

Let’s start looking at the numbers.

We can see that the company does have ~Rs.36 lakh of revenue and generating losses due to higher expenses. It can be possible if the business is at a nascent stage. But major expense is depreciation so have to check why huge depreciation charge.

When we look at the balance sheet then it seems that the company has repaid the entire debt and not issue any share capital. But when looking at the loans and advances then it has higher loans and advances & other assets.

The company has Rs.30 cr of loans and advances in FY20 which keeps raising y-o-y. There is no detailed description available for loans.

When we compare payable and receivable with the revenue then both are much higher than revenue. This means the company has to higher pending payment to pay and receive.

In the above image, we can see that the company has bad debts of Rs.5.76 cr in FY16 which was 35% of total debtors. And the company does not have any revenue in that year.

The company has Rs.35 cr of other payables which has advanced for sale of assets. This indicates that the company has made a commitment to sell assets to other parties and taken advances from that party, but still, the company has not sold out that assets. This item helps the company to improve CFO but actually, this is a clear artificial boosting of CFO.

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

I am grateful to Mr.Meihol Jhaveri (Founder of Gatisofttech) for development of Lucky Idiot website.

05 – Current temptation, future frustration

Posted on November 1, 2020 by Jimit Zaveri under Current temptation, future frustration

The fifth 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 series with one of the company which is engaged in import and export agent, representative, contractor, selling agent, the broker on wholesale cash and carry basis for metals, minerals, iron and steel products, pipes, household items, general merchandise etc, has a 52 weeks low price of Rs.4.60 and LTP is Rs.31.65. This company has rewarded ~6.88x of return in a year.

Let’s start looking at the numbers.

When we look at the balance sheet then it seems that the company does not have any issue. It has reduced all debt, also it has huge investments.

Wonderful… The company still available below investment value after 6x price raise.

Let’s go further detail.

If we look at the income then the company does not have any income available. Also, the company is traded at ~530x Mcap/sales.

So this company does not have any business. Only investment of the company is good then this situation seems similar to Bluechip stamp investment made by Sage Mr.Buffett.

Let’s check the investment.

The company has ~30% of investment into liquid assets and all others into unquoted & related party investments.

So the company keeps giving loans to related parties.

The company does not have enough plan assets to fund gratuity.

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

04 – CURRENT TEMPTATION, FUTURE FRUSTRATION

Posted on October 18, 2020 by Jimit Zaveri under Current temptation, future frustration

The fourth 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 series with one of the company which is engaged in Entertainment / Electronic Media Software, has a 52 weeks low price of Rs.3.05 and LTP is Rs.9.20. This company has rewarded ~3.02x of return in a year.

Let’s start looking at the numbers.

We can see that the company has operating level profits but a loss at a net level. It can be possible if the business is at the nascent stage. But major expense is depreciation so have to check why huge depreciation charge.

When we look at the balance sheet then it seems that the company does not have any issue except debt. But when we look at the fixed assets then we get shocked. The depreciation rate is ~40% in FY19 and ~72% in FY20. I have not seen such a high-interest rate in other leading IT companies, there is max ~20% of depreciation rate in other IT companies.

When we move to the next, related parties then….