Hi Rajneesh,
I generally don’t like to predict about a company’s stock future as I will be betting on or against collective mood and wisdom of the market that can surprise even the brightest and most seasoned investors (and I am none of them).
But if I were to make a commentary on business model of Shakti Pump, I wont be very enthused and here is why. Again views are personal and won’t rule out any subjectivity in them.
Most of Shakti Pump’s contracts (if I am not wrong) are with government customers and that itself is dealbreaker for me. Although cyclicality and cash flow lumpiness with any government business is a given, what I don’t like is their unpredictability. A business like that should get very low valuations (and not what Shakti Pump is getting today).
Any company (let alone smaller players like Shakti Pump with no bargaining power) doing business with government will always have issues of collections, delays in execution, or policy changes. And if entry barriers or differentiator are not present, they will always have to be the lowest cost bidder to win these tenders which caps their margin. So it’s a double whammy where you have unpredictability in margins and cash flows.
If I were really forced to invest in these companies I will get in when story looks bleak for them (e.g. low margins and valuations) and get out when hype is fully built up (margins and valuations peaking out).
I would worry about terminal values for long term investments and not for short term trading calls. To me a small scale pureplay solar pump business with heavy reliance on government contracts can’t be a long term bet.
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