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Q&A: MBL Infrastructure, Mirza International and Equity Dilution

Modified on November 28, 2019

The current article in this series provides responses related to:

  • MBL Infrastructure Limited
  • Mirza International Limited
  • EBITDA, equity dilution and extinguishment of shares



Read: Analysis: MBL Infrastructure Limited

Vijay Malik, good analysis, thanks. I agree with your takeaway.

Food for thought: Let’s assume the company is chasing market share and counts on the industry consolidating with fewer players and higher margins being the end-game – they’d have to stay afloat until this happens, but this might make the company much more profitable down the road. Generally, when growing rapidly, it’s done at the expense of profit margins.

Major red flags for me, however, are revenue recognition and the dividend. Their revenue recognition model can easily be used to move future revenues into today’s reporting period; something similar to what micro-strategy did in the early 2000s. I find 09, 10, 11 (negative CFO) at a high(er) OPM% and then 13, 14, 15 at a low(er) OPM% disturbing. The dividend itself is a fairly small nominal amount but in relative terms, that’s nearly 10% of the PAT – that’s huge in a negative CFO environment.

I did a quick search on insider trading but couldn’t find any trades done by the management. Management selling would be a huge red flag, management buying would put my mind a little more at ease.

Any idea?

Author’s Response:


Thanks for providing your valuable inputs to the analysis.

We agree that theoretically bearing the short-term pain of low profitability in order to wait for consolidation in the industry to enjoy higher/supernormal profits in future can be a logical thinking that the management of MBL Infrastructure Limited might be doing. However, we believe that it is not the optimal strategy for the company due to multiple reasons:

1) This strategy assumes that once the weak players are out and consolidation has happened, the competitive forces would wane. We disagree with this assumption. We believe that with the current abundance of capital availability with large institutional investors searching for investment opportunities and increasing openness of cross-border trade, would always keep on bringing new competitors. These competitors might be new players who would have got any contract due to political linkage and now happily got the backing of large PE firms to execute it. OR these competitors might be large infrastructure firms of other geographies who might be willing to enter into the country.

Moreover, there are much more much larger infrastructure firms (10-100 times larger than MBL), in India, which will never let other companies enjoy supernormal profits.

All in all, we believe that if the thinking of the management of MBL is to reap the benefits when competitive forces would weaken, then it is not the best thinking as competition will keep on arising from hitherto known or unknown sources.

Read: How to do Business Analysis of Companies

2) Moreover, if the strategy was to bear short-term pain, then the company has obviously over done it. The company is facing a cash crunch and now seems to have lost the confidence of lenders in this capital intensive business.

Regarding management selling its stake, we believe that pledging of share is effectively selling the stake in a confounded manner as it allows promoters to cash out/take away the economic benefit of these shares in an indirect fashion.

Read: Why Management Assessment is the Most Critical Factor in Stock Investing?

Hope it provides you with our perspective on the strategy of MBL Infrastructure Limited.

All the best for your investing journey!


Dr Vijay Malik



Sir, while analyzing Mirza International, in management analysis I got confused to check the salary. Should we see the salary of an individual or as a whole management team?

Please check the below table and guide me what should I check…I can see the % as salary is more than 10% for last 5-6 years

Author’s Response:


Thanks for writing to us! We are happy to notice that you have been doing the in-depth stock analysis. The hard work being put in by you is visible and we appreciate that.

An investor should see both the individual as well as cumulative salary while assessing the management quality. We believe that individual salaries exceeding 2.5-3% of the PAT and cumulative salaries exceeding 10% of the PAT are on higher sides. However, an investor needs to look at it from case to case basis considering other aspects of stock analysis as well.

Read: How to do Management Analysis of Companies

Hope it answers your query.

All the best for your investing journey!


Dr Vijay Malik 



Dear Dr. Vijay Malik,

Would like to thank you for providing clarifications to queries and for sharing your in-depth knowledge with everyone.

I have few queries:

  1. Is EBITDA is same as Operating Profit
  2. What is Equity Dilution and how it is going to help the company in distress situation
  3. What is Extinguishment of shares?


Author’s Response:


Thanks for writing to me! Happy new year to you and family as well.

1) EBITDA includes both operating as well as non-operating income. To calculate operating profit from EBITDA, an investor may deduct non-operating/other income from it.

Further Advised Reading: Can we compare EBITDA with CFO to assess quality of profits?

2) Equity dilution is raising funds by issuing additional shares. Companies may raise funds through debt or equity. When companies raise additional funds from equity, then the new shares, which are issued to raise the funds lead to reduction/dilution in a stake of existing shareholders. This is the reason that it is called equity dilution.

Read: How to do Financial Analysis of Companies

3) Extinguishment of shares: whenever a company buys back shares, then it extinguishes/terminates/cancels these shares. This leads to a reduction in the overall number of shares of the company and as a result the earnings per share (EPS) of each remaining share increases.

Hope it answers your concerns.

All the best for your investing journey!





  • 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.

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