Had a look at his company since it looked a little interesting from quantitative standpoint.
A few notes from my analysis of it:
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Cash can’t really be counted on since it seems they are some FDRs pledged against which there is a margin money account. I don’t understand the technicalities of this much, but I have a sense that if short term loans rise (which will happen in near future) this cash will be wiped out.
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There is a “Capital Subsidy” income of appx 40 to 50 crores every year – kind of Govt incentives in that sector; so since the company is expanding even foraying into infra for food processing (Mega food park) its getting this incentive. I saw how it should be accounted for, in CAClubIndia and it seems this money should be spread over useful life of assets if they are depreciable assets else they go to P&L as one-time income. Since the AR doesn’t talk much about this subsidy we are left to guess!
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Remove the above “Capital Subsidy” income and your actual core income is hardly much! PBT of appx 18-20 crore at most? So taxes are in line with that considering some deductions they might be getting in the sector.
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Rice segment is hardly material to be reported as a secondary segment, but riding on that they do say they are a “FMCG’ now.
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Most of all what struck me was management is too worried about their “Cheap” valuation! They have actually dedicated pages in the AR to make a case for REVALUATION! Come on now! If you think its cheap, why not quietly buy from the open market and increase your stake?! That would give investors also confidence right?!!
I guess their motive in getting a price rise in the shares may be – pledging shares or selling them!
Overall, a highly cut-throat competitive industry, no differentiation possibility. Promoters’ worry over share valuation is a big red flag!
Also, its an industry where they would have to KEEP RUNNING JUST TO STAY WHERE THEY ARE. (Red queen effect). Can’t really expect much here unless we get to buy at MCAP below 100 crores!
That’s all based on AR 2015 and IMHO.
Parvin
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