@suns
Can you please give a little more detail regarding HDFC and IDBI mutual funds picking Sarla?

@abhishek90,

Can you update regarding your friend’s findings?

well, interest on debt is tax deductible so how can that be bad for investors? Raising equity is all about conservative financial management by promoters.

krishnendu,

Please put up a disclosure on whether you hold shares in the company or not as is the normal practice at VP.

rgds
hitesh.

I have recently come accross a stock named Spenta International which is a textile stock operating on a relatively niche area like Socks. Below are the analysis I have made.

Sales Growth :-

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As we can see the company is
making a sales growth CAGR of 16% over last 10 years hence this is a
commendable job and mostly inline with management expectation of making 20% CAGR
for coming 2-3 years but the considering individual years the growth they are
mostly fluctuating which is a cause of concern from strategic point of view of
the management.

Profit Margin :-

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The profit margin both OPM and NPM
is not very satisfactory and mainly on the decreasing side hence it will
clearly show they do not have a bargaining power over it’s consumer. Though
they have recently felt the urgency to create their own brand and increasing
export hence this might be a good step in increasing the Profit Margin but only
time will tell.

Value Creation :-

Pasted image1104×101 6.82 KB

Over the years it is not well
known for creating any value for the share holder but this year it really does
it also from above you can see they have started to giving dividend so the
focus has changed and could have been a very good value investment opportunity.

Tax Payment :-

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Tax payment is at per with corporate
tax [30-34%]rate hence not a problem with that but there is a ongoing dispute
with the IT of 48Laks.

Interest Coverage :-

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Interest coverage is 5-6% always
hence a very good cover they have on their debt.

Debt :-

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Debt is mostly very low and they
have have significantly reduce it in last three years also DE ration is under
control of 0.14-0.16 level.

Current Ratio :-

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Current ratio is good hence we can
conclude there is ample amount of liquidity in the business.

Cash Flow :-

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Cash flow is really good which is a
commendable job by the management and show there conservative mentality also
collection of cash remain stable and consistent.

Self Sustainable Growth Rate :-

This is the parameter by which we
can judge weather a company is able to survive in future from it’s internal
operation without a much requirement of cash inflow into the business.
Generally an average of 30-40% SSGR is good and stable.

Pasted image1104×361 20.6 KB

The company does not have a good
track record of SSGR and mostly on the -ve side hence the future capital
requirement for the company is on the card if they will plan for expansion. As
we have earlier discussed that margin has suffered for the company so this is a
prime reason for -ve SSGR coupled with high depreciation rate of it’s asset
which means they are in a requirement of continuous replacement of their
asset and also they have started paying dividend from this year which is
a good sign for the shareholder but will cost the business. So if the company
wants expand capacity or global footprint they will be requiring cash inflow
outside of their internal business operation though the CFO and free cash flow
is good and the company have ample cash in hand but this will again affect the
Dividend payout plan of the company. So the way I see it if they will be able
to increase Profit Margin this ratio will automatically improve and might not
be a cause of concern.

Valuation :-

Pasted image720×578 23.8 KB

Before taking an investment decision
we have to check couple of point :-

1. PE is at 28 hence on the higher
   side and we have no margin of safety.

2. PEG stands at 0.9 i.e. under one
   which shows there is a ample amount of growth left as the market cap is only
   48Cr.

3. PB ratio is at 2.8 and PS ratio
   is at 1.3 which are really good investment rationale.

4. EV to EBITDA ratio is at 10.8
   hence a good bargain.

5. DCB is -ve and mainly due to same
   reason for SSGR though here we are interested in CFO instead of PAT but as the
   company is good at collecting cash so both are having the same explanation. We
   have to have a Hawk eye on NPM and Sales CAGR.

Any help in this stock will be very helpful for me as I am relatively new in this domain. So if anybody has any information please share your view in this stock.

many thanks,
Krishnendu