The tenth 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 a jewelry company that has an all-time high price of ~Rs.649 in 2013 and now last traded price at Rs.1.05.

In 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 ….

Huge debtor days, Debt/equity increasing so RoE% is due to the higher leverage.

I would like to go further detail of it.

If we look at the common size balance sheet then the majority part of the assets side was other assets that have receivables & inventories. Also, cash getting reduces and borrowings getting higher. Also, when a company growing at a higher rate then what is the need for higher borrowings after using good cash balance?

The company got debt at a lower rate. Curious and that is also at the time of higher interest rate. Also, the company has to pay lower taxes. Wow… lower interest rate and lower taxes.

The company has FCCB which is a more dangerous kind of foreign debt.

Negative CFO in two years and also if we compare cumulative CFO with cumulative PAT then CCFO<CPAT.

The company owns ~39 subsidiaries and associates companies which can be suspicious.

Company has given ~Rs.1400+ cr of loan and advances to subsidiaries companies on interest-free basis and repayment is beyond seven years.

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

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.

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)

Wonderful… should buy it immediately….

But when we go for deepen….

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?

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.

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.

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.

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. 

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.

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….

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.

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.