DHP performance in FY 2024 has been highly disappointing.
1. EBIT margin fell from 28% in FY 2023 to 7% in FY2024
2. Sales dropped by ~51% (from Rs 109Cr to Rs 53Cr this year)
3. What intrigued me the most is that despite the drop in sales and EBIT margin, the net profit and
EPS increased by ~12.7%. Upon digging further I observed two things:
a) Other income increased from Rs 1.6Cr in FY2023 to Rs 26.9Cr in FY2024. This means almost all of the net profit of Rs 26.4Cr is driven by this increase in other income.
b) The tax rate in dropped ~25.8% in FY2023 to ~13.5% in FY2024.
There are two primary conclusions from these observations:
- The quality of earnings deteriorated considerably. Has the management played around with the numbers of other income and tax% to boost earnings? I am compelled to believe that this is indeed the case.
- The firm does not have a moat. At least not as strong or as wide as one would like to think. I think that the business fundamentals have deteriorated considerably. The drastic drop in EBIT and EBITDA margins indicates this. The last time the firm faced strong headwinds was in 2020. But even then it was able to maintain EBIT margin at ~21.3%
Counterviews invited.
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