This article provides a fundamental analysis of Eveready Industries India Ltd (Eveready), The Waterbase Ltd (Waterbase) and Titagarh Wagons Ltd (TWL).
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.
Analysis of Eveready Industries India Ltd
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Dr Vijay Malik’s Response
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Financial Analysis of Eveready Industries India Ltd:
Eveready Industries India Ltd (Eveready) has been showing modest sales growth of about 6-7% per annum since last 10 years (2005-14). Profitability margins are highly fluctuating. Operating profit margin (OPM) has been varying from 13% in FY2005 to 6% in FY2007 to again 13% in FY2010 and then to 5% in FY2012. Similarly net profit margin (NPM) has been fluctuating from 15% to negative 8%. Company has made losses in 3 out of last 10 years (2005-14). There is frequent occurrence of infrequent items as in 4 out of 7 years when it made a profit; the net profit (PAT) is greater than profit before tax (PBT). In FY2014, the net profit margin is 1%, which is hardly encouraging.
Eveready has made cumulative PAT of INR 233 cr. in last 10 years. However, the cumulative cash from operations (CFO) over last 10 years if INR 791cr. which is surprising. The company does not seems to have liquidated its inventory because current assets are more or less in the same range of INR 250-350cr. over the years. Hence, one should study the cash flow from operations in details to understand the reasons for it being very high in comparison to cumulative PAT.
Margin of Safety in the market price of Eveready Industries India Ltd:
Current valuation of Eveready, at P/E ratio of about 45 (based on EPS of latest 4 quarters) is very high compared to the operating performance of the company.
Reported financial numbers indicate that Eveready does not have a stable business model. Profitability is not certain, extraordinary items seem a frequent event. Valuation is high with little margin of safety. I believe that, in current market, an investor can get many other attractive opportunities for investment.
However, we recommend that an investor may read the following articles to assess the PE ratio to be paid for any stock, 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, a low PE ratio of the company’s stock may be signs 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.
- 3 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
These are my views on Eveready Industries India Ltd. You should do your own analysis before making any investment decision regarding Eveready.
I would suggest you to make an investment checklist for buying stocks and look for stocks that match the parameters of that checklist. You may find my checklist for stock selection here:
Final Checklist for Buying Stocks.
Hope it helps!
Regards,
Analysis of Waterbase Ltd
Q: Hi Vijay you are doing a great job. I need your views on The Waterbase Ltd and Titagarh wagons Ltd.
Dr Vijay Malik’s Response
Thanks for writing to me!
Financial Analysis of Waterbase Ltd:
Waterbase Ltd seems to be recovering from shambles since last 5 years. Period of 2005-10 seems to be very bad for the company. Sales declined from INR 100cr. to INR 28cr. Company was making operating & net losses. However, since FY2010, there seems to be a good turnaround of the company operations.
Waterbase Ltd has grown at good pace since FY2010. Sales have grown from INR 46cr. in FY2010 to INR 228cr. in FY2014. Company has reversed its loss making streak of previous years and now making consistent operating profit margins of 8-10%. Similarly, net profit margins have also improved and stabilized at about 4-6%.
Operating Efficiency Analysis of Waterbase Ltd:
Operating efficiency has also improved, with company showing improved asset turnover, decreased receivables days and improved inventory turnover. Company has been able to reduce its debt as well. FY2014 also saw Waterbase raising equity capital as well.
Overall, Waterbase seems a good turnaround story since last 5 years. Only concern is that the asset turnover has increased from about 2 in FY2010 to 15 in FY2014, which seems too good. An investor should compare the asset turnover and working capital management parameters with other players in this industry of seafood processing. If an investor is convinced post such analysis, then I believe that Waterbase is a good business to be associated with.
Market also seems to have recognized this turnaround of Waterbase Ltd and its share price has run up quite a lot in last 1 year.
Analysis of Titagarh Wagons Ltd
Financial Analysis of Titagarh Wagons Ltd:
Titagarh Wagons Ltd (TWL) seems to be on a consistent decline path. Sales have declined from INR 690cr. in FY2009 to INR 260 cr. in FY2014. Operating profit margins have declined from healthy 17-18% in FY2010 to operating losses in FY2014. It is the trend in net profits as well.
Operating Efficiency Analysis of Titagarh Wagons Ltd:
Company is showing deteriorating performance on all the operating efficiency parameters. Asset turnover and inventory turnover has deteriorated. Receivables days have increased. Company is not able to collect money from its customers.
I believe that an investor can find many other good opportunities in current markets.
These are my views about Waterbase Ltd and Titagarh Wagons Ltd, based on preliminary analysis. You should do your own analysis before taking any investment decision about Waterbase Ltd or TWL.
Hope it helps!
Regards,
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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.
