This article provides fundamental analysis of Steel Authority of India Ltd (SAIL), Swaraj Engines Ltd, Jubilant Life Sciences Ltd and Satluj Jal Vidyut Nigam (SJVN) Ltd
Steel Authority of India Ltd
Q: Hi, Can you please provide your views on SAIL?
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Financial Analysis of SAIL:
Steel Authority of India Ltd (SAIL) is a company that has destroyed shareholder’s wealth over the years. In last decade (2005-2014), it has retained earnings worth of INR 41,698 cr. (416.98 billion) whereas its market cap has increased by only INR 8,234 cr. (82.34 billion). Shareholder’s wealth of about INR 33,000 cr. (330.00 billion) has been lost over last decade. It fails miserably on the test of management highlighted by Warren Buffett that the management should at least produce $1 in market value for $1 of earning retained. If any company is not able to do this, then it should consider distributing its earnings to shareholders, in form of dividends, rather than keeping it with itself and in turn investing in a suboptimal business.
SAIL’s topline (sales) has been almost stable since last 7 years (2008-2014). Sales have grown at meager 1% to 4% per annum. Operating profitability (OPM) has declined from 28% in 2008 to 8% in 2014. Despite the increase in sales, from INR 40,000 cr. in 2008 to INR 47,000 cr. in 2014, the operating profit has decreased from INR 11,200 cr. in 2008 to INR 3,900 cr. 2014. Similarly, Net profitability (NPM) has declined from 19% in 2008 to 6% in 2014, indicating that during 2008-2014, despite increase in sales, net profit decreased from INR 7,500 cr. (2008) to INR 2,600cr. (2014).
When a company does not make sufficient money to fund its capital-intensive business, which itself is very low yielding, then it starts relying on debt financing to fund its cash requirements. The same thing has happened in case of SAIL. Over last decade, total debt of SAIL has increased to almost five times, from INR 5,700 cr. in 2005 to INR 24,267 cr. in 2014. This huge debt will hurt the company in times of stress, as lenders will keep demanding their interest and principal whether the company is doing good or bad.
Therefore, looking at the past performance of Steel Authority of India Ltd (SAIL), it does not seem an attractive business to invest in. An investor can find many better opportunities in the current markets.
However, you should do your own analysis before you make any investment decision related to SAIL or any other company.
Hope it helps.
Swaraj Engines Ltd
Q: Hello Dr. Vijay, I am big fan of your blog. I have been trying to research on my own as you showed in https://www.drvijaymalik.com/2015/01/stocks-analysis-stepwise-process.html. I wanted to make sure I am on the right path.
I have looked into Swaraj Engines Ltd; it has 5 years Sales growth of 23.92 % and 5 years Profit growth of 26.22 %. PE of 15.93. Promoter holding: 50.60 %. M&M and Kirloskar are major stakeholders. Only negatives I saw are that it is dependent on Agriculture, which is dependent on rainfall. Also 85% of sales are to M&M’s own Swaraj tractors. However, M&M being a major stakeholder, I do not think this will be a big issue. Management turned around in 2009 and has company has been steadily moving up since. Please give me your feedback sir.
Thanks for your feedback. I am happy that you found the article & the website useful and started doing your own stock analysis. Helping individual investors to do own research, is the motto of www.drvijaymalik.com It is pleasing to see your analysis.
Financial Analysis of Swaraj Engines Ltd:
Swaraj Engines Ltd seems a good business. The company has been consistently growing at 20-25% over last decade (2005-2014). Sales have grown from INR 124 cr. in 2005 to INR 600 cr. in 2014. The growth in sales has not been at the cost of profitability as the operating margins (OPM) are consistently healthy at 15-18% over the years. Similarly, net profitability (NPM) is also consistent at 11-12%.
Swaraj Engines Ltd is collecting is profits in cash from its customers as cumulative profit of last 10 years is INR 336 cr. and cash from operations is INR 350 cr. Company is paying tax at healthy rate of 30-32%. These are signs of an overall good business.
Due to this healthy operating performance, Swaraj Engines Ltd has not faced the need to raise debt to fund its plans. It is a debt free company. It has been sharing fruits of its growth with shareholders as the dividend outflow has increased at an annual rate of 18% from INR 8 cr. in 2005 to INR 36 cr. in 2014, which is in line with the overall growth of the company.
Market has also rewarded Swaraj Engines Ltd, as the increase in market cap over last 10 year (2005-2014) is INR 843 cr. against earnings retained by the company of INR 208 cr. Thereby management has turned every $1 retained by them into $4.2 of market value. This is very good sign of a competent management.
Therefore, Swaraj Engines Ltd seems a good company. Valuation metric of P/E ratio of 15.9 exceeds my investing checklist. However, every investor needs to have her own checklist and decide accordingly.Also Read: Hidden Risks of Investing in High P/E Stocks
As far as the factors like dependence on agriculture and in turn, dependence on rains is concerned, I believe that if an investor has found a company in good business, which is run by good management, she should not worry about changing business environment too much. The competent management would be able to find innovative ways to deal over intermittent challenges.
Hope it helps!
Jubilant Life Sciences Ltd
Q: Hi Mr. Vijay, I am holding Jubilant Life Sciences Ltd @ Rs xx/-. It’s PE < 10 in comparison to Industry PE. From Last two/three quarters, the topline & bottom line figures are not quite impressive. In addition, debt in the company’s book is a worry some factor. I would request you to throw some light in this counter.
Thanks for writing to me!
I appreciate your analysis of Jubilant Life Sciences Ltd as you have rightly pointed out the problem areas in the company.
Financial Analysis of Jubilant Life Sciences Ltd:
Jubilant Life Sciences Ltd (Jubilant) is another such company that has destroyed shareholder’s wealth over the years. In last decade (2005-2014), it has retained earnings worth of INR 1,786 cr. whereas its market cap has increased by only INR 701 cr. Effectively, shareholder’s wealth of INR 1,085 cr. has been destroyed. It has failed miserably on the test of management highlighted by Warren Buffett that if the management should at least produce $1 in market value for $1 of earning retained. Ideally, if any company is not able to invest money in its business profitably, then it should consider distributing its earnings to shareholders as dividends, rather than keeping it with itself and in turn investing in a suboptimal business.
Jubilant has been growing its sales but this growth has come at the cost of profitability. Sales have grown from INR 3,524 cr. in 2009 to INR 5,852 cr. in latest four quarter. However, operating profitability (OPM) has declined from 20% in 2009 to 12% in latest 4 quarters. Despite 66% increase in sales during these 6 years, the operating profit has remained stable at about INR 690 cr. The performance on net profitability is even worse. Net profitability (NPM) has declined from 16% in 2008 to negative in latest 4 quarters, indicating that during 2008-2014, despite increase in sales, net profit decreased from INR 400 cr. (2008) to loss of INR 2 cr. (latest 4 quarters).
In absence of good operating performance, Jubilant is relying on debt financing to fund its cash requirements. Over last decade, total debt of Jubilant Life Sciences has increased to almost eight times, from INR 372 cr. in 2005 to INR 2,905 cr. in 2014. The debt has reached almost 4,000 cr. in 2011. This huge debt will hurt the company in times of stress.
Therefore, looking at the past performance of Jubilant Life Sciences Ltd, it does not seem an attractive business to invest in. An investor can find many better opportunities in the current markets.
However, you should do your own analysis before you make any investment decision related to Jubilant Life Sciences or any other company.
Hope it helps.
Satluj Jal Vidyut Nigam (SJVN) Ltd
Q: Hello can you please also give some light (fundamentally) on SJVN according to me the ratios that you mention are fully satisfied with this stock also. Thanks in advance.
Thanks for writing to me!
Financial Analysis of Satluj Jal Vidyut Nigam Ltd (SJVN):
(INR Crores/10 Millions)
Total 10 Years
Operating Profit Margin (OPM%)
Net Profit Margin (NPM%)
Total 10 Yrs
Cash from Operating Activity
Cash from Investing Activity
Cash from Financing Activity
Net Cash Flow
Cash & Eq. at the end of year
Topline of Satluj Jal Vidyut Nigam Ltd (SJVN) is almost stagnant since last many years. Though profitability margins are good, debt is low, however, I prefer investing in companies, which have grown their business at good growth rates.
However, as there is no single road to success, you should make your own call.
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- The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
- I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
- Currently, I do not own stocks of the companies mentioned above in my portfolio.