This article provides a fundamental analysis of Shilp Gravures Ltd and Natural Capsules Ltd.
In order to benefit the maximum from this article, an investor should focus more on the process of analysis instead of looking for good or bad aspects of the company. She should learn the interpretation of different types of data and transactions and pay attention to the parts of annual reports etc used to get the information. This will help her in improving her stock analysis skills.
Shilp Gravures Ltd Research Report by Reader
Q: Dear Vijay sir, I was looking for undervalued stocks in industrial machinery sector and came across Shilp Gravures Ltd. I feel this is a undervalued stock on the below rationale:
- P/E is 6.70 in comparison to industry P/E of 38.60.
- Deqt/equity ratio is 0.38 which is very good and
- P/s ratio 0.53.
- promoter holdings have increased
- cash from operating activities is enough to meet the expenditure which i think is one more positive.
I am looking at it for an investment horizon of 3-4yrs whats your views sir ??
Dr Vijay Malik’s Response
Thanks for writing to me!
Financial Analysis of Shilp Gravures Ltd:
Sales of Shilp Gravures Ltd have been languishing since last 5-7 years and profitability has been falling. OPM has seen declined from 41% in FY2008 to 27% in FY2014, which is a cause of concern. NPM has been maintained at almost stable levels, as the company has been able to reduce its interest costs because of debt reduction.
Debt reduction has been possible as Shilp Gravures Ltd has been able to convert its profits into cash and collect it from customers in time. It is evident from the comparison of cumulative CFO and PAT over last 10 years and falling receivables days. These are good signs about the operating performance of Shilp Gravures Ltd.
However, Shilp Gravures Ltd is no longer using its plants and machinery as efficiently as it used to do earlier, which is evident from its falling fixed asset turnover ratio.
Market also has not rewarded it with any enthusiasm. For the cumulative retained earnings of INR 30 cr. over last 10 years (2005-14) its market capitalization has increased by only INR 13 cr. These are not the desirable signs of a good investment.
Overall, there seems to be nothing spectacular about the performance of Shilp Gravures Ltd. Whether it would be able to remarkably improve its performance in next 3-4 years? I am not certain. I believe that an investor can find many other promising opportunities in the current markets.Read: 3 Simple Ways to assess the Margin of Safety in a Stock
You may take guidance the criteria described in the article: Final Checklist for Buying Stocks for selecting stocks for investments.
Natural Capsules Ltd Research Report by Reader
Q: Natural Capsules Ltd is a debt free company and has a P/E ratio of 7.06. I do not have much knowledge of Pharma sector so sir would you please help me out with the analysis so that in future i can approach in a better way the Pharma sector companies. Thanks in advance with regards.
Dr Vijay Malik’s Response
Thanks for writing to me!
Financial Analysis of Natural Capsules Ltd:
Natural Capsules Ltd has shown good sales growth over past many years. However, this sales growth seems to have come at the cost of profitability, as both OPM & NPM for Natural Capsules Ltd have witnessed deterioration since FY2008-09.
Natural Capsules Ltd has not been able to keep its operating efficiency at the stable levels. On the contrary, operating efficiency has been declining over the years, as indicated by increasing receivables days and declining inventory turnover ratio.
These are not the desirable features of any company in any industry.
Stock market also seems to have recognized that the sales growth of Natural Capsules Ltd is not backed by equally strong business performance. Its market capitalization has increased by only INR 24 cr. against retained profits of about INR 33 cr. over last 10 years (2005-14).
Overall, it seems that Natural Capsules Ltd needs to improve its operating efficiency and profitability to create wealth for its shareholders.Read: 3 Simple Ways to assess the Margin of Safety in a Stock
These are my views about Shilp Gravures Ltd and Natural Capsules Ltd. However, you should do your own analysis before taking any investment related decision about any company.
You may use the following steps to analyse the company: “How to do Detailed Analysis of a Company“
If you wish to learn more about analyzing companies which operating in industries, which are, new to you, then I suggest you to read the article:
Hope it helps!
- To know about the stocks in our portfolio, you may subscribe to the premium service: Follow My Portfolio with Latest Buy/Sell Transactions Updates
- To learn our stock investing approach “Peaceful Investing” by videos, you may subscribe to “Peaceful Investing” Workshop-on-Demand
- To download our customized stock analysis excel template: Click Here
- Learn about our stock analysis approach in the e-book: “Peaceful Investing – A Simple Guide to Hassle-free Stock Investing”
- Read more company analysis in the e-book series: Company Analyses
- To register for our upcoming full-day “Peaceful Investing” workshop teaching in-depth fundamental analysis & portfolio management: Click Here
- To pre-register free/express interest for an investing workshop in your city: click here
- 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.