Key issue is that the company has significant negative cash flow from operations in last 5 years.
Profits have increased by 40% CAGR but cash flow from operations continue to be negative. Major contributors to this are high receivables (60% of PAT) and high inventory (looks like they’re expecting better demand or poor planning on their end)
Peers like Avanti (to whom it supplies and is in a similar cyclical sector) and Godrej Agrovet continue to have positive CFO with low receivables and inventory costs.
From the RHP: “However, our operating cash flow before working capital changes is positive for all the periods disclosed above. Over the years, cash flows are used in building higher inventory levels, receivables and paying-off creditors in
line with the growth of our business”
However, the company is available at relatively cheap valuations and is offering decent growth. PEG ratio is 0.35 right now. Also, there have been a few instances of decent stock returns even if cash flows are negative like Tejas networks, Inox Wind, etc. Imho feels like a low risk, potential high return or no return bet.
Plus, this is proxy to Avanti in shrimp feed sector where turnaround is expected and valuations here are cheaper. Though Avanti is a better run business (personal observations)
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