Analysis: Control Print Limited

Modified: 24-Nov-20

This article provides a fundamental analysis of Control Print Ltd, an Indian player focusing on barcoding and marking solutions.

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.

 

Control Print Ltd Research Report by Reader

Q: Dear Sir, I am highly impressed by your quality research. Hats off to you, Sir!

Please advise me on Control Print Ltd, a small cap stock with market capitalization of INR 200 cr. Revenue and profits are growing decently well over last 5 years. It has a small equity, almost no debt and return on equity is decent. Please advise me on Control Print Ltd. Can it be invested for long term?

Many thanks! Best regards.

 

Dr Vijay Malik’s Response

Thanks for your feedback! I am happy that you liked the articles and found them useful.

Financial Analysis of Control Print Ltd:

Control Print Ltd Financials

Control Print Ltd was languishing with sluggish growth rate until FY2009, however, from FY2010 onwards, the company has suddenly received a boost and its sales have been growing almost at an annual rate of 20% since then. Not only has this growth increased the sales quantum, it seems to have improved the profitability margins as well.

Operating profit margins have improved from 6% in FY2010 to 22% in FY2014. Net profit margins have improved from 1% in FY2009 to 15% in FY2014. This performance seems like a dream coming true for any company. I believe that any investor should study the changes in the management and business model of Control Print Ltd, if any, in depth before making any investment decision based on these financials.

 

Declining Tax Rate: 

The company has been reporting higher net profit numbers consistently; however, its tax rate has been falling. Tax rate has decreased from high of 61% in FY2011 to low of 18% in FY2013 despite the net profit doubling from INR 6 cr. to INR 12 cr. during this period. An investor should analyse the tax deductions/rebates, if any, that Control Print Ltd has been using to lower its tax rates.

 

Inability to Convert Profits into Cash: 

Control Print Ltd seems to be growing at a fast pace while improving profitability, however, it does not seem to be converting its profits into cash. Cumulative net profit after tax (PAT) of last 10 years (2005-14) is INR 65 cr. whereas; it has cash flow from operations (CFO) of only INR 21 cr. during the same period. The primary reason seems to be delays in payments by customers as the receivables days have increased from 84 days in FY2011 to 88 days in FY2014.

An investor should analyse the receivables position of the company in depth before taking any investment decision, as the non-conversion of profits into cash can be due to disputes sales where customers might be contesting the bills raised by the company. It can also be due to aggressive sales booking by the company when it may recognize revenue before it ideally should. Control Print Ltd may or may not be facing these issues; however, an investor should analyse and satisfy herself on these issues before investing her hard-earned money in the company.

 

Growing Dividend Payouts with Increasing Profits:

Control Print Ltd seems to be sharing fruits of growth with its shareholders, as it started paying dividend from FY2012, which was stopped since FY2009. Control Print Ltd has been increasing dividend in line with its report profits, which is a good sign.

 

Reduction in Debt Levels:

Control Print Ltd has reduced its debt from INR 10 cr. in FY2011 to INR 5 cr. in FY2014, which has resulted in improvement in capital structure. Debt reduction is a good sign.

Control Print Ltd is currently available at a price to earnings ratio (P/E ratio) of 13.8, which is slightly above the levels at which I prefer making fresh investments. However, I believe that every investor should have her own stock selection criteria. Therefore, I would suggest you to take the decision on current price yourself.

You may read more about my checklist of buying stocks here: Final Checklist for Buying Stocks.

Control Print Ltd seems to have revived its business strategy since last 5-7 years and have embarked upon a path of growth with improving profitability. However, an investor should analyse the reasons for non-conversion of profits into cash and the varying tax rates before satisfying herself from the reported financial numbers.

Read: 3 Simple Ways to assess the Margin of Safety in a Stock

Also Read: Hidden Risks of Investing in High P/E Stocks

Control Print Ltd does not seem to be rated by any credit rating agency, therefore the benefit of its financial statements having analysed by another third party is not available in its case.

These are my views on Control Print Ltd. However, you should do your own analysis before making any investment decision regarding it.

You may use the following steps to analyze the company: “How to Conduct Detailed Analysis of a Company

Hope it helps!

Regards,

Dr Vijay Malik

 

Readers’ Queries about Control Print Ltd

Share Warrants to Promoters

Sir, Your analysis is excellent. I am posting the following doubts 5 months after the post; I hope they will still be useful for newbies like me.

While researching Control Print Ltd, I found that the promoters have issued themselves 3.75 lakh convertible warrants in 2013. The company does not have any debt. Why does management issue preferential warrants to itself:

  • As part of compensation or for funding the company?
  • Is it better than taking debt?

I see that over the last few years, the total number of shares in issue has increased and the percentage of promoter has also increased. Is it in shareholder’s interest when the number of shares increases without any bonus shares or splits?

Regards,

Author’s Response:

Thanks for writing to me! I am happy that you found the article useful.

As different individuals have the different risk appetite, similarly, it is with the companies. Some seem to prefer debt when short of funds, others prefer equity.

Issuing warrants to raise funds (equity) would depend upon the risk appetite of the company. At end of the day, equity owners won’t ask their money back in tough times.

An existing investor in a company should be concerned about the exercise price of the warrants. If it allows the promoters to convert it in to share at attractive terms, then it becomes a tool for promoters to benefit at the cost of public shareholders. Warrants are a form of stock option.

If the exercise price is sufficiently higher than the current price considering the time after which warrants become convertible, then no concern for other shareholders.

Further advised reading: Stock Warrants to Promoters: How to Analyse

Equity dilution (increasing number of shares without split or bonus) is generally not perceived to be good by investors. However, I believe that it is a company’s decision which also behaves like individuals do when it comes to raising debt or not. Therefore, an investor should decide from case to case basis depending upon the terms of warrants/convertible securities and the purpose of equity dilution.

Hope it helps!

P.S.

 

DISCLAIMER

  • 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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