The current section of the “Analysis” series covers Dynamic Cables Ltd, an Indian company that manufactures power cables, including LT, HT, EHVC, railway signalling cables, etc. Recently, it has also entered the solar cables segment.
To benefit the maximum from this article, an investor should focus on the analysis process instead of looking for good or bad aspects of the company. She should learn to interpret 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 improve her stock analysis skills.
Dynamic Cables Ltd: Detailed Fundamental Analysis
Dynamic Cables Ltd does not have any subsidiaries or other child entities. Therefore, it reports only standalone financials.
We believe that while analyzing any company, an investor should always look at the company as a whole and focus on financials, which represent the business picture of the entire company including its subsidiaries, joint ventures etc. Consolidated financials of a company present such a picture. Therefore, if a company reports both standalone as well as consolidated financials, then in such a case, it is advised that the investor should prefer the analysis of the consolidated financials of the company, whenever they are present.
Further advised reading: Standalone vs Consolidated Financials: A Complete Guide
Therefore, in our analysis of Dynamic Cables Ltd we have analysed standalone financials for the last 10 years (FY20115-FY2024).
Financial and Business Analysis of Dynamic Cables Ltd:
In the last 10 years, Dynamic Cables Ltd has increased its sales at an annual growth rate of 13% from ₹260 cr in FY2015 to ₹768 cr in FY2024. During the last twelve months i.e. Jan. 2024-Dec. 2024, the company increased its sales to ₹935 cr.
Over the last 10 years (FY2015-2024), the operating profit margin (OPM) of Dynamic Cables Ltd has been varying in the range of 4% to 11%. The OPM increased from 4% in FY2015 to 8% in FY2016; thereafter, it declined to 5% in FY2018 and then increased to 11% in FY2020. OPM, then, declined to 7% in FY2021. In the recent period, the OPM has recovered to 10%.
The net profit margin (NPM) of the company has been equally volatile; however, in recent years, it has increased to 5% from the level of 1% in FY2015.
To understand the reasons for such low margins and fluctuations in the business performance of Dynamic Cables Ltd over the years, an investor needs to read the publicly available documents of the company like annual reports, red herring prospectus (RHP) of its initial public offer (IPO) in 2017, credit rating reports by Brickworks, CRISIL and India Ratings, as well as its corporate announcements.
After going through the above-mentioned documents and article, an investor notices the following key factors, which influence the business of Dynamic Cables Ltd. An investor needs to keep these factors in her mind when she makes any predictions about the performance of Dynamic Cables Ltd.
1) Fragmented industry leading to intense price-based competition; low pricing power of Dynamic Cables Ltd:
The cables and conductors industry is highly competitive as numerous organized and unorganized players produce similar products where a customer can easily replace the product of one supplier with another without any major impact on functionality.
Credit rating report by CRISIL, January 2024, page 1:
strengths are partially offset by intense competition of un-organized players in cable industry
Red herring prospectus (RHP), November 2017, page 102:
Our Industry is fragmented consisting of large established players and small niche players.
Apart from Indian manufacturers, Dynamic Cables Ltd also faces competition from cheaper imports from countries like China.
FY2018 annual report, page 13:
Your Company is exposed to competition risk particularly from China. The increase in competition can create pressure on margins
As a result, Dynamic Cables Ltd has to compete primarily on price to gain orders from customers.
Red herring prospectus (RHP), November 2017, page 23:
there are a large number of players manufacturing same or similar products. Thus, competition in these markets is based primarily on demand and price…other manufacturers and suppliers of similar products may be able to sell their products at prices lower than our prices
As a result of intense price-based competition, Dynamic Cables Ltd has very low pricing power over its customers.
Credit rating report by Brickworks, Oct. 2018, page 2:
ratings are however constrained by thin profitability margins in line with volatile raw material costs , intense competition which limits the pricing power of company in the industry,
Credit rating report by CRISIL, February 17, 2022, page 2:
Exposure to intense competition: This restrains the ability of players command pricing and grow rapidly as also constraining the profitability.
Red herring prospectus (RHP), November 2017, page 92”
Weaknesses:…Low bargaining power with customers
The pricing power of Dynamic Cables Ltd is also impacted by the fact that the company does not have any long-term supply contract with any customer and has to supply customers order-by-order.
Red herring prospectus (RHP), November 2017, page 18:
we have not entered into any contracts with any of our customers and we cater to them on an order-by-order basis.
Moreover, whenever Dynamic Cables Ltd seeks govt. business, then it has to participate in tenders where the lowest-priced bidder is given preference. This, in turn, impacts the pricing power of the company.
Transcript for annual general meeting (AGM), 2024, page 12:
Govind Saboo: I believe that government business is 100% tender based.
Red herring prospectus (RHP), November 2017, page 18:
Further we have been procuring business from Government entities, which are undertaken through bidding process
Also read: How to analyse New Companies in Unknown Industries?
2) Volatility in raw material prices leading to fluctuating profit margins of Dynamic Cables Ltd:
For making wires, the company uses aluminium and copper. Both these commodities are cyclical and witness sharp price fluctuations.
The following chart from Macrotrends shows the history of copper prices (USD per pound) at Comex (Commodity Exchange) for the last 15 years (2010-2025).
The following chart shows the movement of aluminium prices from 2012-2025 from Screener.
In addition, Dynamic Cables Ltd uses XLPE (cross-linked polyethylene) and PVC (polyvinyl chloride) for covering cables, whose prices are dependent on crude oil prices, which are also very volatile. The following chart from Macrotrends shows prices of crude oil from 2008-2025.
Dynamic Cables Ltd disclosed to investors in its RHP that its key raw materials are copper, aluminium, PVC, XLPE etc., which are highly volatile and frequently witness supply disruptions.
Red herring prospectus (RHP), November 2017, page 16:
Aluminium or Copper Rod, PVC & XLPE Compound, Armouring Strip and Copper Tape are the main raw material…are subject to supply disruptions and are very volatile due to price fluctuations
Due to a combination of volatile raw material prices and low pricing power, Dynamic Cables Ltd frequently faces challenges in maintaining its profit margins and faces fluctuations in its profit margins.
Credit rating report by Brickworks, October 2018, page 2:
profit margins are volatile over the years as industry is exposed to raw material (aluminum & copper) price fluctuation
For example, in FY2023, volatility of raw material prices impacted its profitability and its operating profit margin (OPM) declined to 9% from 11% in FY2022.
Transcript of AGM, 2023, page 5:
sharp volatility in input cost due to global uncertainties and higher cost inventory have affected the margins
Credit rating report by India Ratings, January 19, 2024, page 1:
The margin declined slightly in FY23 owing to an increase in the raw material prices
Similarly, in FY2018 when its operating profit margin (OPM) declined to 5% from the high of 8% in FY2016, then the company highlighted that it was due to fluctuations in raw material prices.
FY2018 annual report, page 8:
business landscape in your Company’s operating segments was rendered challenging during the year due to fluctuations in the raw material cost during the period which entails the overall expense cost.
Credit rating agency, Brickworks also highlighted that the profit margins of Dynamic Cables Ltd are exposed to volatility in raw material prices.
Credit rating report by Brickworks, February 2020, page 2:
There is exposure to raw material aluminum & copper prices volatility which can affect the profitability of the company.
Nevertheless, in recent years, Dynamic Cables Ltd has communicated to shareholders that its contracts have price variation clauses, which allow it to pass on changes in raw material costs to its customers.
Transcript of conference call, October 2024, page 15:
if we are disciplined then there is a 100% pass-through. So, I am again reiterating for the benefit of all our viewers that for us the commodity prices are a complete pass-through to our customers because the contracts are designed in such a manner.
Going ahead, an investor should keep a close watch on the profit margins of Dynamic Cables Ltd and whether it is able to protect its profit margins in the wake of supplying commoditized products to customers that have a much higher negotiating power over the company.
Also read: How to do Business Analysis of a Company
3) Initiatives undertaken by Dynamic Cables Ltd to strengthen its business:
3.1) Reduction in reliance on Govt. business:
Dynamic Cables Ltd had faced challenges in catering to Govt. business for two reasons.
First, as discussed above, all of Govt. business is bidding/tender-based where the lowest bidders get priority, which puts pressure on profit margins.
Second, Dynamic Cables Ltd has faced significant challenges in timely recovering its dues from govt. state electricity boards (SEBs) and central electricity boards (CEBs), which have put pressure on its working capital.
FY2018 annual report, page 26:
Company has to mainly depend on the financially weak SEBs & CEBs for its sales. Though the payment is almost secure but the delay in payment is normal feature.
Credit rating agency, Brickworks has highlighted the high dependence on govt. business as one of the key weaknesses of the company in its report in August 2017.
Rating Weaknesses: High dependence on government contracts- Risk of getting orders from government sector since these orders are obtained on basis of tenders put by various companies.
However, in recent years, Dynamic Cables Ltd seems to have successfully changed its customer mix away from primary dependence on Govt. business. As per the company, Govt. business, which used to be about 80% of overall sales 7-8 years back is now about 20% of overall sales.
Transcript of conference call, January 2025, page 9:
So, 5 years back or I think 7-8 years back it was very high. It was I think 80% government and 20% private. Now it is completely inverse
3.2) Focus on high-margin products by Dynamic Cables Ltd:
In recent years, the company seems to have increased its focus on high-margin products like high-voltage cables instead of low-margin products like conductors, which seems to be one of the reasons for an increase in its profit margins in recent years.
FY2024 annual report, page 71:
company has strategically adjusted its product mix towards high- margin accretive products such as high voltage cables and specialty products. As a result, the proportion of low-margin conductors has decreased significantly from 20.60% in FY 2018-19 to 8.56% in FY 2023-24. Concurrently, the share of high-tension (HT) products has risen from 34.90% in FY 2018-19 to 57.78% in FY 2023- 24.
The credit rating agency, CRISIL has also highlighted the increased focus of Dynamic Cables Ltd on high-margin products like high-tension cables, which has improved its profit margins.
Credit rating report by CRISIL, January 2024, page 1:
With increased focus of management on manufacturing high margin High Tension cables, operating margins are expected to remain healthy in range of 10-11% over medium term.
Also read: Credit Rating Reports: A Complete Guide for Stock Investors
Going ahead, an investor should keep a close watch on the product mix of the company to assess if it is able to maintain its sales in the high-margin segment or if competition forces it to lower prices or shift to low-margin products.
3.3) New initiatives by Dynamic Cables Ltd to expand business:
Over the years, the company has entered into newer segments to diversify its product offering. For example, in FY2020, it entered into the railways segment.
FY2020 annual report, page 13:
we also got approval for supply of cables to Indian Railways…certain bids are qualified and subsequent purchase orders are awaited from Eastern & Western Railways.
In H1-FY2025, the share of the railway signalling segment reached almost 4% of sales (Transcript of the conference call, October 2024, page 9).
Recently, Dynamic Cables Ltd started producing solar power cables.
AGM presentation, July 2024, page 14:
Expansion of our product portfolio to include solar power cable in view of the growing demand for renewable energy solutions
Also read: How to do Business Analysis of Solar Power Plants
An investor needs to watch the progress of these new segments carefully as in the past, the company has faced difficulties in initiatives like exports.
Dynamic Cables Ltd exports to countries primarily in Africa and Asia. In 9 months-FY2025, exports of the company declined because its targeted countries were facing currency issues and were not able to get US Dollars for payments to the company.
Transcript of conference call, January 2025, pages 5 and 9:
we are exporting today are Asian and African countries.
there was a bit degrowth in the export side…countries where we deal are African and Asian countries, where we were facing some currency issues…there was some currency availability challenges
To avoid such challenges, the company now seems to target US markets and has set up a sales team for the US market.
Transcript of conference call, January 2025, page 8:
We have already set up an exclusive sales team for the US market.
An investor should keep a close watch on the progress of the company’s export business.
4) High regulatory and technological risk faced by Dynamic Cables Ltd:
The company primarily operates in the power transmission segment, which has high regulatory control in terms of the availability of projects as well as product specifications.
The company has to seek approvals for its products from govt. authorities before it can sell these to customers. Moreover, in the power transmission business, whether Dynamic Cables Ltd sells to electricity boards or to private contractors, ultimately, the end-user is govt.
Transcript of conference call, January 2025, page 9:
But some amount is required to get to carry the approvals and to have the interactions, engagements with the approval authority because ultimately end user is government only.
As a result, the company continuously faces strong regulatory control over its products.
Red herring prospectus (RHP), November 2017, page 17:
manufacturing cables and conductors, forming part of the electrical equipment industry, are operated in a highly technical and regulated sector
As the cost and performance of transmission cables is a very important parameters for customers; therefore, cable manufacturers have to continuously improve their products to stay relevant in the continuous improvements in technology brought by large players especially multinational companies.
Such technological challenges create tough competitive situations for Dynamic Cables Ltd.
Red herring prospectus (RHP), November 2017, page 102:
we also face competition from electrical equipment manufacturers in…US and European countries who have advanced technology
Also read: How to study Annual Report of a Company
5) Project execution by Dynamic Cables Ltd:
Over the years, the management of Dynamic Cables Ltd seems to have shown good execution skills. As per the credit rating agency, India Ratings, the company has not delayed in execution of any order in the past.
Credit rating report by India Ratings, August 28, 2024, page 2:
There have not been any delays in the execution of the orders in the past.
As per the RHP, there has been one instance where a customer, Fedders Lloyd Corporation Limited (FLCL) filed a case against the company citing fraud in supplying material, which led to losses for FLCL. In the dispute, FLCL claimed ₹3.75 cr from the company whereas the company filed a counterclaim of ₹3.61 cr.
RHP, pages 212 and 214:
Fedders Lloyd Corporation Limited has filed an application…to register an FIR against the company, for fraud in supply of material…claim dated February 10, 2012 was filed…against the Company for a sum of Rs. 3,75,63,025…The Company has filed a counter-claim in the said matter for a sum of Rs. 3,61,65,264/- against the claimant.
An investor may contact the company directly to understand whether this dispute is still going on and if settled then what were the terms of settlement.
Over the years, Dynamic Cables Ltd has executed multiple capacity expansion initiatives.
Post IPO, in FY2018, the company expanded its manufacturing capacity at Reengus.
FY2018 annual report, page 8:
increase in production due to expansion of the company with commencement of one more unit at Reengus
In FY2019, the expanded manufacturing capacity helped the company to grow its business.
Credit rating report by Brickworks, February 2020, page 2:
Revenue has increased by almost 47.57% in FY19 as compared FY18 due to expansion done in the past. The company had set up a new plant for manufacturing of HT cable up to 66 KV at Shree Khatu shyamji Industrial Area, Reengus. Rajasthan
Thereafter, in 2022, Dynamic Cables Ltd further expanded its capacity to manufacture HT power cables.
FY2023 annual report, page 2:
2022: Capacity expansion in HT Power Cables.
In FY2024, the company spent about ₹20 cr to expand its cable-manufacturing capacity by 22-25%.
Credit rating report by India Ratings, January 19, 2024, page 2:
During FY24, DCL has incurred capex of INR200 million, which was funded entirely by internal accruals, to increase its cable production capacity by 22%-25%.
Currently, the company is operating at about 85% capacity utilization level.
Transcript of conference call, January 2025, page 12:
Pranay Shah: And we must be operating at somewhere around 80%-90% utilization levels?
Management: Yes, 85% around.
As a result, the company has proposed another capital expansion of about ₹35 cr, which is expected to be completed in 12-15 months.
Transcript of AGM, 2024, page 11:
Our initial budgeted amount of Capex is 35 CRORS, and that is what our board has approved…we’ll be able to add another 20% for 100 crores of revenue from this capex…timelines of this Capex is around 12 to 15 months
An investor should keep a close watch on the execution of its capacity expansion project to check if Dynamic Cables Ltd can complete it within budgeted cost and time.
Going ahead, investors should monitor the profit margins of the company to check if the company is able to enhance its focus on high-margin products as well as whether the company is able to benefit from the price variation clauses in its customer contracts. An investor should keep in mind the fragmented nature of the commoditized cables and conductors industry and intense price-based competition while she projects the performance of Dynamic Cables Ltd in the future.
In the last 10 years (FY2015-2024), the tax payout ratio of Dynamic Cables Ltd has been on similar lines to the standard corporate tax rate in India. Until FY2019, the tax payout ratio was about 35% and after FY2020, it is in the range of 25% in line with the new corporate tax rate.
Recommended reading: How to do Financial Analysis of a Company
Operating Efficiency Analysis of Dynamic Cables Ltd:
a) Net fixed asset turnover (NFAT) of Dynamic Cables Ltd:
Over the years, the net fixed asset turnover (NFAT) of Dynamic Cables Ltd has been in the range of 10-14. The NFAT declined from 16 in FY2017 to 9.6 in FY2019 due to the operationalization of a new manufacturing unit in Reengus, which took time for optimal utilization; thereby, impacting asset utilization efficiency.
Thereafter, decline in the demand for the company’s products during the Covid pandemic period (FY2020-FY2021), the company’s revenue declined, resulting in a further decline in NFAT to 6.2.
Thereafter, along with the improving performance of Dynamic Cables Ltd, its NFAT has increased to 13 in FY2024.
Going ahead, an investor should keep a close watch on the fixed asset turnover levels of the company to assess whether it is able to optimally utilize its production capacity.
Further advised reading: Asset Turnover Ratio: A Complete Guide for Investors
b) Inventory turnover ratio of Dynamic Cables Ltd:
Over the years (FY2015-2024), the inventory turnover ratio (ITR) of the company has been in the range of 7-8 However, in FY2021, the ITR declined to 5.0 due to business and supply chain disruptions during the Covid pandemic when the company faced with low demand for its products and was stuck with unsold inventory.
Operations of Dynamic Cables Ltd have been highly working capital intensive requiring a large investment in inventory and receivables.
Credit rating report by India Ratings, August 28, 2024, page 1:
elongated working capital cycle on account of higher inventory and receivables for export orders and government counterparties.
Nevertheless, since FY2022, the ITR has recovered to 7.1 in FY2024 indicating that the company is maintaining its inventory utilization efficiency as highlighted by the credit rating agency, India Ratings in its report for the company in January 2024. As per India Ratings, Dynamic Cables Ltd purchases raw materials only after receipt of orders from customers.
DCL’s business is highly raw material intensive, with copper and aluminium being the primary raw materials and accounting for 80%-85% of DCL’s product value…the company places procurement orders only after it receives order from clients, which minimises the impact of fluctuations.
Going ahead, an investor should keep a close watch on the inventory position of the company to understand whether it is able to maintain its efficiency of its efficiency of inventory utilization.
Further advised reading: Inventory Turnover Ratio: A Complete Guide
c) Analysis of receivables days of Dynamic Cables Ltd:
Over the years, the receivables days of Dynamic Cables Ltd have deteriorated significantly from 91 days in FY2016 to 110 days in FY2024. Its receivables days indicate that it takes almost 3-4 months for the company to collect money from its customers for the goods supplied by it.
During FY2020 and FY2021, receivables days had extended to 130 and 148 days respectively.
Such delays in collecting money indicate that the company lack a high negotiating power over its customers and in turn, has to bear the cost of raising money from the bank to meet its funds’ requirements in the interim period making its business highly working-capital intensive.
As discussed earlier, customers of the company include state and central electricity boards, which are financially weak and almost invariably delay payments to the company.
Dynamic Cables Ltd highlighted its tough working capital position to investors in its RHP for IPO.
Red herring prospectus (RHP), November 2017, page 23:
Our Company‘s business is working capital intensive and hence, inventories and trade receivables form a major part of our current assets and net worth.
During the IPO, almost the entire fund raise was budgeted for meeting the working capital requirements of the company. Out of total net IPO proceeds of ₹22.6 cr, it had planned to use ₹21.4 cr for working capital.
Red herring prospectus (RHP), November 2017, page 69:
Due to challenges in the timely recovery of money, at times, the company had to file cases to get its money.
FY2020 annual report, page 66:
The Company has filed claim in the category of operational creditor before CIRP under IBC in respect of corporate debtor amounting to Rs. 1.74 Crores.
Thereafter, the company started taking insurance to ensure that it received the money for supplying its goods.
Credit rating report by CRISIL, May 11, 2023, page 2:
The company has also obtained Credit Insurance that guarantees recovery of receivables
Going ahead, an investor should continue to monitor the receivables position of the company to check if it is able to improve its cash collection from its customers or if it continues to suffer from a very high working capital burden.
Further advised reading: Receivable Days: A Complete Guide
When an investor compares the cumulative net profit after tax (cPAT) and cumulative cash flow from operations (cCFO) of Dynamic Cables Ltd for FY2015-2024, then she notices that over the last 10 years (FY2015-FY2024), the company could not convert its profit into cash flow from operations.
Over FY2015-2024, Dynamic Cables Ltd reported a total net profit after tax (cPAT) of ₹174 cr. During the same period, it reported cumulative cash flow from operations (cCFO) of only ₹136 cr.
It is advised that investors should read the article on CFO calculation, which would help them understand the situations in which companies tend to have the CFO lower than their PAT.
Further advised reading: Understanding Cash Flow from Operations (CFO)
Learning from the article on CFO and the fund flow analysis over the last 10 years will show to an investor that the major reason for cCFO being lower than cPAT is its working capital-intensive business model where a huge amount of money gets stuck in trade receivables and inventory.
Over FY2015-FY2024, Dynamic Cables Ltd saw a substantial amount of ₹194 cr consumed by receivables as its debtors/trade receivables increased from ₹61 cr in FY2015 to ₹255 cr in FY2024. During the same period, incremental inventory requirements consumed ₹100 cr as its inventory increased from ₹27 cr in FY2015 to ₹127 cr in FY2024.
Going ahead, an investor should keep a close watch on the cash flow performance of the company to monitor if it is able to convert its profits into cash flows.
The Margin of Safety in the Business of Dynamic Cables Ltd:
a) Self-Sustainable Growth Rate (SSGR):
Read: Self Sustainable Growth Rate: a measure of Inherent Growth Potential of a Company
Upon reading the SSGR article, an investor would appreciate that if a company is growing at a rate equal to or less than the SSGR and it can convert its profits into cash flow from operations, then it would be able to fund its growth from its internal resources without the need of external sources of funds.
Conversely, if any company attempts to grow its sales at a rate higher than its SSGR, then its internal resources would not be sufficient to fund its growth aspirations. As a result, the company would have to rely on additional sources of funds like debt or equity dilution to meet the cash requirements to generate its target growth.
An investor may calculate the SSGR using the following formula:
SSGR = NFAT * NPM * (1-DPR) – Dep
Where,
- SSGR = Self Sustainable Growth Rate in %
- Dep = Depreciation rate as a % of net fixed assets
- NFAT = Net fixed asset turnover (Sales/average net fixed assets over the year)
- NPM = Net profit margin as % of sales
- DPR = Dividend paid as % of net profit after tax
(For systematic algebraic calculation of SSGR formula: Click Here)
Over the years, Dynamic Cables Ltd has reported an SSGR of about 25%. During the last 10 years (FY2015-2024), it has grown at a rate of 13% year-on-year.
Ideally, as the company has grown at a pace within its SSGR; therefore, it should have achieved its growth without raising any additional debt or equity dilution.
However, an investor notices that during FY2015-FY2024, Dynamic Cables Ltd had to raise an additional debt as well as equity dilution. The primary reason for the same is that SSGR relies on parameters of profit & loss statement and balance sheet. To supplement SSGR, an investor needs to parallelly assess whether the profits of the company are converted into cash flow from operations.
As discussed above, due to the working capital-intensive nature of business of Dynamic Cables Ltd, the company could not convert its profits into cash flow from operations and a significant amount of its money got stuck in additional inventory and receivables.
To meet its funds requirements for growth, over FY2015-FY2024, Dynamic Cables Ltd had to raise an additional debt of ₹70 cr as its total debt increased from ₹49 cr in FY2015 to ₹119 cr in FY2024. Most of the company’s debt is working capital debt.
Transcript of conference call, Oct. 2024, page 8:
So, most of our debt is working capital debt. The term loan is just Rs. 6 crores, Rs. 7 crores
In addition, in FY2018, the company raised an additional ₹23 cr by way of initial public offer (IPO), which was primarily for working capital requirements.
Moreover, the company has raised another ₹96.6 cr by way of preferential allotment of 2,215,319 shares to select investors at ₹436/- per share in June 2024 (2,215,319 * 436 = ₹96.58 cr).
Corporate announcement to BSE, June 21, 2024, page 1:
Board of Directors of the Company in their Meeting held today i.e., Friday, June 21, 2024 approved allotment of 22,15,319…Equity Shares…at a price of 436/-
The key objectives of this preferential allotment, among others, are meeting the working capital requirements of the company.
Corporate announcement to BSE, May 18, 2024, page 20:
The Object of Preferential Issue:
i. To meet working capital requirements.
ii. Reduction of working capital borrowings, term loan repayment or/and any other outstanding debt
Therefore, due to highly working capital-intensive operations, Dynamic Cables Ltd had to rely on external funds (debt as well as equity) to fund its growth.
An investor arrives at the same conclusion when she analyses the free cash flow position of the company.
b) Free Cash Flow (FCF) Analysis of Dynamic Cables Ltd:
While looking at the cash flow performance of Dynamic Cables Ltd for the last 10 years (FY2015-FY2024), an investor notices that it generated cash flow from operations of ₹136 cr. During the same period, it made a capital expenditure of about ₹109 cr.
Therefore, during this period (FY2015-FY2024), Dynamic Cables Ltd had a free cash flow (FCF) of ₹27 cr (=136 – 109).
In addition, during this period, the company had a non-operating income of ₹38 cr and an interest expense of ₹124 cr. As a result, the company had a total negative free cash flow of (₹60) cr (= -27 + 38 – 124). Please note that the capitalized interest is already factored in as a part of the capex deducted earlier.
To meet this cash shortfall, Dynamic Cables Ltd raised incremental debt as well as resorted to equity dilution on two occasions (FY2018 and FY2025).
Going ahead, an investor should keep a close watch on the free cash flow generation by Dynamic Cables Ltd to understand whether the company is able to generate surplus cash from its business or has to continuously infuse more and more money to meet its working capital-intensive operations.
Further recommended reading: Free Cash Flow: A Complete Guide to Understanding FCF
Self-Sustainable Growth Rate (SSGR) and free cash flow (FCF) are the main pillars of assessing the margin of safety in the business model of any company.
Further advised reading: 3 Simple Ways to Assess “Margin of Safety”: The Cornerstone of Stock Investing
Additional aspects of Dynamic Cables Ltd:
On analysing Dynamic Cables Ltd and after reading annual reports, its credit rating reports and other public documents, an investor comes across certain other aspects of the company, which are important for any investor to know while making an investment decision.
1) Management succession planning of Dynamic Cables Ltd:
The company is promoted by the Mangal family where two brothers, Rahul Mangal (chairman and non-executive director, age 52 years) and Ashish Mangal (managing director, age 49 years) look after the management of the company.
As per the credit rating report by Brickworks, March 2021, page 2, Mr Rahul Mangal looks after finance & plant operations whereas Mr Ashish Mangal looks after the business development & commercial functions.
In addition, Ms Shalu Mangal (aged 45 years) wife of Mr Ashish Mangal, is working in the company as Vice President (Accounts).
As per FY2021, FY2022 and FY2023 annual reports, Ms Aditi Mangal (daughter of Mr Ashish Mangal) and Mr Rasik Mangal (son of Mr Ashish Mangal) joined the company. However, in FY2023, both of them resigned from the company on Oct. 1, 2022.
Nevertheless, as per the FY2024 annual report, Ms Aditi Mangal joined the company as Head of HR and Corporate Communications from February 5, 2024.
FY2024 annual report, page 36:
Aditi Mangal (Daughter of Mr. Ashish Mangal Managing Director): Ms. Aditi Mangal was appointed as Head of HR and Corporate Communications in the company w.e.f Feb 05, 2024 with an annual CTC of Rs. 30 Lakhs p.a.
The presence of the next generation of the promoter family in the executive leadership positions in the company when the elder generation of promoters is still on the board indicates good succession planning as the younger ones can get hands-on experience and guidance.
The presence of a well-thought-out management succession plan is essential in the case of promoter-run businesses as it provides for a smooth transition of leadership over the generations and provides continuity in the business operations of any company.
Further advised reading: How to do Management Analysis of Companies?
2) Related party transactions of Dynamic Cables Ltd with its promoters:
Promoters, Mr Ashish Mangal and Mr Rahul Mangal own companies e.g. Mangal Electrical Industries Pvt Ltd (MEIPL), which use resources of Dynamic Cables Ltd for furthering their business interests.
Dynamic Cables Ltd has given guarantee as well as mortgaged its property to lenders of MEIPL for loans given by them to MEIPL.
FY2024 annual report, pages 79 and 117:
company has provided corporate guarantee amounting of Rs. 500 Lakhs and provided security to HDFC Bank Limited for the working capital credit facility availed by Mangal Electrical Industries Private Limited
Collateral security of company property against borrowing by related party: 5 cr
An investor should be cautious when a company gives guarantees to lenders for loans taken by promoters’ entities. This is because in case the promoter entity is not able to repay the loan, then the lenders will recover the loan from the company. If the company does not pay cash to lenders then to recover their money, they may sell the property given as security by the company to lenders.
Moreover, it seems that MEIPL works out of the premises of Dynamic Cables Ltd as the company has given its property on rent to MEIPL.
FY2024 annual report, page 35:
Dynamic Cables Ltd. has rented its property to Mangal Electricals Industries Pvt. Ltd.
Promoters have been using the company to buy and sell goods to MEIPL.
FY2024 annual report, page 35:
Dynamic Cables Ltd purchased DG set of Rs. 27.99 Lakh and sold Cables and wooden scraps of Rs. 113.58 Lakhs to Mangal Electricals Industries Pvt. Ltd.
An investor should be extra cautious while assessing companies that enter into sale and purchase transactions with promoters’ related parties. This is because such transactions have the potential to shift economic benefits from minority shareholders to promoters if the company buys goods/services from the promoters’ entity at a price higher than the market price or sells goods/services to the promoters’ entity at a price lower than the market price.
In addition, promoters have regularly given large loans to Dynamic Cables Ltd, which are regularly paid back within the year. For example, in FY2024, Mr Ashish Mangal gave loans of ₹11.92 cr to the company and took back loans of ₹10.32 cr from the company. Similarly, the company dealt in loans with Mr Rahul Mangal.
FY2024 annual report, page 122:
In the above table, looking at the data of FY2023, an investor would notice that such lending transactions are going on regularly year after year.
In such lending transactions, an investor should be extra cautious if promoters charge interest to the company, which is higher than what the company can get from banks etc. In such cases, the interest rate would be higher than what the promoters can get on fixed deposits from banks. In such cases, these transactions have the potential to shift economic benefits from minority shareholders to promoters.
As per the RHP of the company for its IPO in 2017, Dynamic Cables Ltd was paying an interest rate of 16.85% on the loans taken from its promoter Mr Ashish Mangal.
Red herring prospectus (RHP), November 2017, page 176:
Also read: How Promoters benefit from Related Party Transactions
3) Weaknesses in internal control and processes at Dynamic Cables Ltd:
Over the years, multiple instances indicate that internal controls and processes at the company have a scope for improvement.
3.1) Penalties for noncompliance with statutory norms:
During FY2022, the composition of the board of directors of Dynamic Cables Ltd was not in line with legal requirements. As a result, the stock exchange (BSE Ltd) put fines of about ₹10 lakh on the company.
Corporate announcement to BSE, May 30, 2022, pages 3 and 4:
Composition of the Board of Directors of the Company for the quarter ended on June 2021, September, 2021 and December 2021 was not in line with the Regulation 17(1)
BSE Limited has imposed a fine of Rs. 5,42,800/- (Basic Rs. 4,60,000 + GST Rs. 82,800) for the quarter ended on September, 2021;
BSE Limited has imposed a fine of Rs. 4,60,200/- (Basic Rs. 3,90,000 + GST Rs. 70,200) for the quarter ended on December, 2021
Moreover, to rectify the noncompliance in board composition, one of the promoters, Ms Shalu Mangal (wife of Mr Ashish Mangal, managing director) had to resign from the board of directors.
FY2022 annual report, page 20:
In order to rectify the non-compliance, Mrs. Shalu Mangal (Promoter and Executive Director) has stepped down from the Board of the Company with effect from December 18, 2021.
In addition, during FY2022, BSE fined the company as it did not submit details of related party transactions on time.
Corporate announcement to BSE, May 30, 2022, pages 3 and 4:
Company has not filed/submitted disclosure of related party transactions on consolidated basis to Stock Exchange for the half year ended on September, 2021 within the prescribed time
BSE Limited has imposed a fine of Rs. 23,600/- (Basic Rs. 20,000 + GST Rs. 3,600) for the half year ended on September, 2021
Similarly, for FY2018, the company did not file its results within the legal timeline of 60 days; therefore, BSE Ltd. fined the company for ₹75,000/-.
FY2019 annual report, page 25:
Audited Financial Results for Financial Year ended on March 31, 2018…were not submitted within 60 Days…Company has paid a penalty of Rs. 75,000/-…to BSE Limited for delayed submission
Also read: Why Management Assessment is the Most Critical Factor in Stock Investing?
3.2) Other noncompliance by Dynamic Cables Ltd:
In FY2021, the company did not deposit the dividend amount in a separate bank account within the stipulated timeline.
FY2021 annual report, page 23:
company has not deposited the amount of dividend within five days in a separate bank account as prescribed under 123 Of the Companies Act, 2013
In the RHP, November 2017, Dynamic Cables Ltd disclosed that, in the past, it had not complied with statutory provisions like for allotment of equity shares to promoter, Mr Ashish Mangal (page 17), not complied with accounting standards AS-15 and AS-18 (page 17), discrepancies in the corporate records relating to forms filed with the Registrar of Companies (RoC) (page 17) and delayed filing of forms with the RoC leading of penalties (page 22).
In addition, the company had also made many clerical mistakes in filing forms with RoC (page 17).
3.3) Errors in the annual reports and corporate filings of Dynamic Cables Ltd:
On multiple occasions, the company made mistakes in the data and information presented in its annual reports.
For example, in the indebtedness table, the company disclosed the same amount of debt at the start and the end of the year (₹893,456,198.54) despite an increase in debt of ₹416,480,951.54 during the year. Ideally, the debt at the end of the year should have been about ₹130 cr.
FY2018 annual report, page 34:
Similarly, the FY2018 annual report contains multiple typographical errors where figures in words do not match the mathematical figures. For example, Rs.22,13,498/- is mentioned as Rupees Twenty-Two Lakhs Ten Thousand Only; Rs.159,77,038/- is mentioned as Rupees Two Crores Fifteen Lakhs Seventy-Eight Thousand Only and Rs. 5,79,760/- is mentioned as Rupees Forty Seven Thousand Only.
FY2018 annual report, page 24:
In the FY2024 annual report, the company disclosed that Ms Shalu Mangal and her daughter Ms Aditi Mangal, both were working as Head of HR and Corporate Communications in the company.
FY2024 annual report, page 36:
Also read: How to study Annual Report of a Company
Similarly, in Oct. 2024, the company made a typographical error in its intimation of the conference call for discussing quarterly results, which it had to rectify via an announcement dated October 18, 2024.
On February 3, 2025, Dynamic Cables Ltd filed a rectification on BSE as it mentioned that a senior manager of the company was appointed as Vice President (Operations) whereas his actual designation was Assistant Vice President (Operations).
Such errors indicate that the internal controls & processes in the company like the maker-checker mechanism for important tasks have some weaknesses and require strengthening. Otherwise, an investor should be cautious while taking the information disclosed by the company at its face value.
The Margin of Safety in the Market Price of Dynamic Cables Ltd:
Currently (February 27, 2025), Dynamic Cables Ltd is available at a price-to-earnings (PE) ratio of about 27.2 based on earnings of the last 12 months (Jan. 2024-Dec. 2024).
We recommend that an investor read the following articles to assess the PE ratio to be paid for any stock, which takes into account the strength of the business model of the company as well. The strength in the business model of any company is measured by way of its self-sustainable growth rate and the free cash flow generating the ability of the company.
In the absence of any strength in the business model of the company, even a low PE ratio of the company’s stock may be sign of a value trap where instead of being a bargain; the low valuation of the stock price may represent the poor business dynamics of the company.
- 4 Principles to Decide the Ideal P/E Ratio of a Stock for Value Investors
- How to Earn High Returns at Low Risk – Invest in Low P/E Stocks
- Hidden Risk of Investing in High P/E Stocks
Analysis Summary
Overall, Dynamic Cables Ltd has grown its business at 13% year on year over the last 10 years (FY2015-FY2024). However, the company has witnessed fluctuating profit margins. Nevertheless, in recent years, the profitability of the company has improved.
The company operates in a fragmented industry with many players and easy product substitution, leading to price-based competition and low pricing power. The company also faces competition from cheaper imports. The company does not have long-term supply contracts and government business is tender-based, further impacting pricing power.
Major raw materials for the company, aluminium, copper, XLPE, and PVC, are subject to price fluctuations. Dynamic Cables Ltd’s profit margins are affected by volatile raw material prices and low pricing power. While the company states that contracts have price variation clauses, investors should monitor if Dynamic Cables Ltd can protect its profit margins.
Dynamic Cables Ltd has faced challenges with government contracts due to tender-based bidding and delays in recovering dues from state and central electricity boards. In recent years, the company has reduced its reliance on government business.
The company has undertaken to strengthen its business by focusing on high-margin products like high voltage cables, entering new segments like railways and solar power cables.
The power transmission segment is heavily regulated, requiring product approvals from government authorities. The company also faces technological challenges from larger, multinational companies.
The company has demonstrated good project execution skills. However, investors should monitor the execution of capacity expansion projects to ensure completion within budget and time.
Dynamic Cables Ltd.’s operations are working capital intensive, requiring significant investment in inventory and receivables. Over the years, its receivables days have deteriorated, indicating a lack of negotiating power with customers.
Dynamic Cables Ltd has not converted its profits into cash flow from operations, with a significant amount of money stuck in trade receivables and inventory. As a result, the company has to raise more money by debt and equity to meet its high working capital needs. Investors should monitor the company’s cash flow performance.
Dynamic Cables Ltd has had a negative free cash flow. Therefore, investors should monitor the company’s ability to generate surplus cash.
The company seems to have a management succession plan in place. The presence of the next generation in leadership positions indicates good succession planning. However, it has multiple related party transactions with its promoters, including guarantees and property rental. Investors should be cautious of such transactions.
Numerous instances indicate a weakness in internal control and processes at Dynamic Cables Ltd like noncompliance with statutory norms, penalties, and errors in annual reports.
Investors should closely monitor these factors and conduct their own analysis before making any investment decisions regarding Dynamic Cables Ltd.
Further advised reading: How to Monitor Stocks in your Portfolio
These are our views on Dynamic Cables Ltd. However, investors should do their own analysis before making any investment-related decisions about the company.
You may use the following steps to analyse the company: “Selecting Top Stocks to Buy – A Step by Step Process of Finding Multibagger Stocks”
I hope it helps!
Regards,
Dr Vijay Malik
/
P.S.
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Disclaimer
Registration status with SEBI:
I am registered with SEBI as a research analyst.
Details of financial interest in the Subject Company:
I do not own stocks of the companies mentioned above in my portfolio at the date of writing this article.
