Sumit’s Portfolio

Portfolio Update –

Decided to exit Transteel after much deliberation. Despite good growth and rerating prospects, I wasn’t able to build conviction in this company. Here are my rationale for the decision –

1. Negative cashflow : Despite reporting profits, the compay has consistently shown negative free cash flow in recent years. This means the company is spending more cash than it’s generating, which could indicate potential liquidity issues. For example, in the fiscal year ending in March 2024, the company reported a net profit of ₹111.1 million but had a negative free cash flow of ₹422 million​ (Simply Wall St).

2. High Accrual Ratio: The company’s accrual ratio is quite high (0.66 for the year ending March 2024), which is generally considered a negative sign for future profitability. A high accrual ratio can suggest that the profits reported might not be sustainable​(Simply Wall St).

3. Legal Proceedings and Regulatory Delays: Transteel Seating and its promoters are currently involved in ongoing legal proceedings. Additionally, there have been certain delays in submitting returns to various government authorities. These issues could lead to financial penalties or other regulatory actions, which might impact the company’s operations and reputation​(FinoWings).

4. Lack of sufficient differentiation : I couldn’t find any significant differentiation in its business model indicating there could be margin pressure as it tries to scale its operations.

5. Poor customer reviews : As pointed earlier in the thread, the customers seem to be dissatisfied with its products and service.

6. Poor employee reviews : A cursory look at sites says that employees are unhappy in the company as well. (Ambitionbox).