This stock is not suitable for long-term holding due to below aspects:
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Revenue and profitability growth from its major and most profitable vertical (optical network, contributed ~80% of the total revenue in FY23) depends upon two factors: volume and realization. In turn, business must balance the below aspects:
- Unavoidable Debt for upfront capex to achieve the volume growth.
- Persistent margin pressure due to commoditized product – Price realization is market driven as end consumer cares only about the service from the network instead of the product that enables the network.
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Usage of the cumulative cash flow for the periods of 10Yr. and 5Yr. makes it clear that business is least beneficial to the equity shareholders, particularly retail investors (promoter takes a regular paycheck in the form of opex). After taking care of Lender, Capex, WC and taxes, only ~5% of the cash flow reaches in the hands of an equity shareholders in the form of dividend with an ever increasing debt. Here are the numbers :
Usages of Cash | 10Yr. | 5Yr. | |
---|---|---|---|
Direct taxes. | 6% | 8% | Government |
Working capital changes. | 9% | 15% | Customer |
Fixed assets purchased. | 41% | 36% | Supplier |
Repayment of borrowings. | 24% | 20% | Lender-1 |
Interest paid fin. | 16% | 14% | Lender-2 |
Dividends paid. | 4% | 6% | Investor |
Sources of Cash | 10Yr. | 5Yr. | |
---|---|---|---|
Profit from operations. | 45% | 54% | |
Proceeds from borrowings. | 55% | 46% |
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