Control Print – Deservers attention?

Varadha,

While I appreciate that they would constantly require inventory in order to increase sales, please also note that despite higher working capital requirement, there is no capex requirement. Further, the inventory level has been marginally higher as company increased product range from 3 to 7-8 segment over last 4 years. So there might be working capital efficiency achieve from Minimum scale of operation coming in the newer segments. Having said that, it would be 10-20% lower inventory days in my understanding and not more due to nature of business.

What I see positive is that even after accounting for increased working capital, the company generate free cashflows. The increase in dividend from 2.5 per share in FY14 to 4 per share in FY15 does in a way give indication of promoter willingness to share wealth with minority shareholder. There were concern about promoter getting warrant at 43-63, but then at level of 320/-all shareholder are questioning the promoter issue. The price at which warrant allotted was SEBI determine formula price, at which anyone could have bought share from open market. So to me, it would have great had promoter not diluted equity, still to an extent, it align promoter interest with increase stake in business with shareholder.

Further, the company can almost double the sales from current level without much capex. An indirect way to check cashflow of business is also higher debt raised/ or large equity dilution. As against Rs 19 cr capex in Guwahati, there is no term debt in company. I see that also positive. Increase in working capital requirement is partially financed from working capital limit without much gearing. In my opinion, one way to look at company contribution in working capital being only deducted from free cash flow rather than total incremental working capital can also be a way to look at free cash flow. Of course, that would apply only if company has gearing say less 0.7 times as at higher level of gearing, the bank may not be willing to finance working capital and it may be tricky to that extent.

Last, personally got a good comfort from management, particularly Mr. Shiv Kabra.

To summarize, not a HLL business which would see increase in free cashflow with higher sales, but at the same, not even Infra company which would use cashflow with increase in sale. So increase in sales, does translate in lower free cashflow. If you are looking at HLL type business, then this is not one. But if you are looking at 20%+ growth Sales, 25% growth Profit growth (and also cashflow) with moderate profile promoter for next 3-4 years, I would find Control print fit that segment

Disclaimer: I hold share in the company and my view may be biased. Investor shall do its own due diligence before investing.