Analysis: Nibe Ltd

The current section of the “Analysis” series covers Nibe Ltd, formerly known as Kavita Fabrics Ltd. The company has recently entered the defence, aerospace and electric vehicles markets. Most of its sales are from trading activities.

To benefit the maximum from this article, an investor should focus 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.

Nibe Ltd: Detailed Fundamental Analysis

Nibe Ltd was originally named Kavita Fabrics Ltd. It was owned by the Chandak family with operations of making synthetic fabrics in Surat, Gujarat.

FY2014 annual report, page 15:

company manufactures synthetic fabrics in the form of semi‐finished sarees and dress materials…Semi‐finished sarees and dress materials manufactured by the Company are further processed by our customers before selling to the end‐ users.

The company had come up with an initial public offer (IPO) in Feb. 2013 when it raised ₹5.1 cr at the BSE SME exchange at ₹40/- per share (Source).

Over the years, the business of the company suffered and its share price declined from the IPO price of ₹40/- to a low of ₹5.85 in July 2019. The key reason for the decline was the significant deterioration in the business of the company where it was making losses.

When the textile business of Kavita Fabrics Ltd was declining, Mr Ganesh Nibe along with his wife Ms Manjusha Nibhe started accumulating shares of the company from FY2016. By FY2020, when they had acquired a 29.58% stake in the company, they acquired control of the management of the company after making an open offer to the public and raising their stake to 58.47%.

FY2020 annual report, page 23:

with effect from 07/02/2020 upon the change in control and management of the company and Mr. Ganesh Nibe, Mrs. Manjusha Nibe…appointed as Directors

At this time, the name of the company was changed from Kavita Fabrics Ltd to Nibe Ltd and the company changed its object clause to expand the scope of its business activities from textile to EPC, electric goods, aviation, defence etc. (FY2020 annual report, page 18).

Therefore, the current promoter/manager of the company, Mr Ganesh Nibe, got control of the company in FY2020. As per the company’s website (click here), Mr Ganesh Nibe has a working background in sugarcane juice and furnace oil distribution. In 2013, he started his contracting business and in 2021 he entered the defence business.

Therefore, even though, Nibe Ltd had a textile business under previous promoters (the Chandak family), its current business of defence, aerospace and electric vehicles started only in FY2021 when Mr Ganesh Nibe took it over.

From FY2022, the company started incorporating subsidiaries and from FY2023 onwards, it started reporting consolidated financial results. On June 30, 2024, the company has 6 subsidiary companies (Q1-FY2025 results, page 12):

• Nibe Automobile Ltd (earlier known as Nibe E-Motors Ltd)
• Nibe Defense & Aerospace Ltd.
• Karmayogi Manufacturing Pvt Ltd
• Nibe Meson Naval Ltd
• Nibe Technologies Private Limited (earlier known as Indigeneous Casting Technology Pvt. Ltd.)
• Nibe Space Private Limited

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 Nibe Ltd, we have analysed consolidated financials from FY2023 onwards and standalone financials before that.

Financial and Business Analysis of Nibe Ltd:

As mentioned earlier, until FY2020, the textile business of the company was deteriorating and then the current promoters took over the company and changed its business. Thereafter, the sales of the company increased from ₹1.4 cr in FY2020 to ₹282 cr in FY2024. Further, sales have increased to ₹366 cr in the 12 months ending June 2024 (July 2023-June 2024).

During this time, the operating profit margin (OPM) of Nibe Ltd has also improved from operating loss to 13% in FY2024. In addition, the net profit margin (NPM) of the company has also improved from a net loss to 7% in FY2024.

To understand the performance of the company in more detail, an investor needs to read the publicly available documents of the company like annual reports, management commentary, corporate announcements etc.

After going through the above-mentioned documents, an investor notices the following key aspects that any investor needs to keep in her mind while she makes any predictions about the performance of the company.

1) Rationale for taking over control of Kavita Fabrics Ltd:

When Mr Ganesh Nibe took control of the company, in 2020 after acquiring shares from the market, promoters and the open offer, by that time he had spent a total of about ₹3.48 cr as acquisition cost. The below table contains the data on the acquisition of shares taken from the BSE website.

After spending about ₹3.5 cr, in Feb. 2020, what Mr Nibe bought/received from earlier promoters was just a publicly listed company on paper.  All the fixed assets/plant, investments etc. were already moved out of the company and only furniture & fixtures of net value of about ₹90,000 were left.

FY2020 annual report, page 94:

In any case, Mr Nibe seemed to have no interest in the textile business of the company, its plant, its customers etc. as he soon changed the object of the company to include EPC, electric goods, aviation, defence etc. (FY2020 annual report, page 18). He shifted the office of the company from Surat to Chakan, Pune (FY2021 annual report, page 55). He soon started trading activities in the company and then started constructing manufacturing plants focusing on defence & aerospace in Pune.

So, the acquisition of Kavita Fabrics Ltd was not for its textile business, customers or its manufacturing plant. Mr Nibe could have easily established his business independent of the acquisition of Kavita Fabrics Ltd by just starting a new company in Pune and commencing trading or manufacturing activities.

It seems that the acquisition of Kavita Fabrics Ltd was to acquire control of a company having a listed status.

One key reason for such an acquisition could be to have a good reputation while bidding for tenders/entering into negotiations with other companies/counterparties. However, such agreements can easily be entered even by a private company if the counterparty finds value in the offering.

The other reason can be the ease with which investors can put money in the company and then exit whenever they want by selling shares in the market, which seems one of the reasons because after taking control by Mr Nibe, the company has raised money from multiple investors via preferential allotment of equity shares. In addition, the promoters have been allotted a significant number of warrants in FY2023 and FY2024, which they converted into shares by exercising them.

Similar to acquiring Kavita Fabrics Ltd and converting it into Nibe Ltd., currently, Mr Nibe has acquired control of another BSE-listed company, Anshuni Commercials Ltd and renamed it Nibe Ordnance & Maritime Ltd. Anshuni Commercials Ltd used to be a company trading in gems & jewellery, which had nearly shut down its business with nil sales in FY2022, FY2023 and FY2024 and nil fixed assets (Source: Screener).

On June 30, 2024, in Anshuni Commercials Ltd/Nibe Ordnance & Maritime Ltd, Mr Ganesh Nibe holds a 69.98% stake, Ms Manjusha Ganesh Nibhe holds a 20% stake and Nibe Ltd holds a 5% stake (Source: BSE).

Therefore, it seems that Mr Ganesh Nibe is interested in acquiring public-listed companies with almost nil business activities.

An investor may ask the company/promoters why they are not able to do any business activity that they plan to execute in Anshuni Commercials Ltd/Nibe Ordnance & Maritime Ltd under the existing business setup of Nibe Ltd or by creating its wholly-owned subsidiary.

Advised reading: How to do Management Analysis of Companies?

2) Very frequent resignations of many key executives of Nibe Ltd:

Ever since Mr Ganesh Nibe took over Kavita Fabrics Ltd and started his business activities by renaming it Nibe Ltd, outside people with access to critical events/information have resigned one after another repeatedly. The list includes statutory auditors, internal auditors, chief executive officer (CEO), chief financial officer (CFO), company secretary as well as independent directors.

The number of people who have resigned from each of these posts within a short history of a few years is more than any other company that we have analysed to date.

For example, take the case of statutory auditors:

• Mr Nibe got control of the company in Feb. 2020 and the company changed the statutory auditor of the company for FY2021 to Sharp Aarth & Co (FY2021 annual report, page 67).
• Soon, the statutory auditor changed again, in FY2023, to R T Jain and Co. LLP (FY2023 annual report, page 56)
• The very next year, FY2024, the statutory auditor of the company was changed to Bhatter & Co.
• However, even Bhatter & Co. has resigned now, and in the AGM for 2024, the company is taking approval to appoint a new statutory auditor: Kailash Chand Jain & Co. (FY2024 annual report, page 6)

Internal auditor:

• FY2020: M/s. Mahesh Bairat & Associates
• FY2021: M/s. JCA & Associates
• FY2022: M/s. DPNS & Co
• FY2024: M/s. ADV & Associates

Secretarial auditor: No one could stay for more than one year.

• FY2020: M/s. R.M. Mimani & Associates
• FY2021: M/s. Gautam Tiwari
• FY2022: M/s. Madhura Ubale
• FY2023: M/s. NKM & Associates
• FY2024: M/s. Yogesh Choudhary & Associates

Company secretary and compliance officer: No one stayed for more than one year. FY2024 saw three people holding the position one after another.

• FY2020: Mr. Rakesh Narayan Todkari
• FY2021: Mr. Rayyan Tajak (from 7th July 2020 to 7th January 2021) (FY2021 annual report, page 18).
• FY2022: Ms Kruti Patel (from 10^th August 2021 to 21^st January 2022. (FY2022 annual report, page 22).
• FY2023: Ms Priya Pandey (FY2023 annual report, page 47)
• FY2024: There were numerous changes in the company secretary and compliance officer:
  • Priya Pandey (from 26/06/2023 till 20/12/2023)
  • Rupali Vaidya till 15/03/2024
  • Shruti Purohit till 05/04/2023
• FY2025 ongoing: Mrs Komal Bhagat

This pattern of quick resignations is not limited to people in supervisory functions like auditors. The company has seen very high churn in other key managerial positions like chief financial officer (CFO) as well as chief executive officer (CEO).

Chief financial officer (CFO):

• Mr Hemant Dilip Wani was appointed CFO on Feb 7, 2020, when Mr Nibe acquired the company.
• Mr Wani resigned soon and thereafter, Mr. Gangadhar Chakote was appointed CFO on 07.02.2022; however, he also resigned on 11.03.2022.
• Thereafter, Mr Hemant Wani was made CFO (FY2023 annual report, page 2)
• However, he again resigned in April 2024 and then Mr Ravi Kumar Pareek was made the CFO (Corporate announcement dated April 22, 2024)
• Mr Pareek also did not last long and nearly after 4 months, on August 31, 2024, he resigned from the position.

Chief Executive Officer (CEO):

• The company appointed a CEO in FY2023: Mr. Sachin Raosaheb Shinde (FY2023 annual report, page 2).
• However, he resigned soon and then the company appointed Mr Balakrishnan Govind Swamy as CEO.

Independent directors:

• Shyamkant Sitaram Pawar: appointed in FY2020, resigned in FY2021.
• Aditya Joshi: appointed in FY2021, resigned in FY2023.
• Manish Purshottamdas Kella appointed in FY2022, resigned in FY2023
• Gaurav Brahmdev Thakur appointed in FY2023, resigned in FY2024

When an investor notices such high churn/resignations in the people at key positions, then she should be concerned and enhance her due diligence to find out what is leading to such behaviour by important functionaries of the company.

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

3) Business activities of Nibe Ltd:

In recent years, the company claims to establish multiple plants in Pune and Bengaluru and as a result, it has started the sale of “manufactured goods”. In FY2023, the company said that it has 3 plants in Pune out of which 2 are already operational; however, the third plant is under construction and will be complete by the end of FY2024.

FY2023 annual report, page 36:

company has strategically expanded its operations has already set-up Two plants and one more plant is going to be operation by the end of financial year 2024. All the 3 plants are within the MIDC area of Chakan.

However, in FY2024, the company said that it has 2 plants in Pune and one in Bengaluru. It seems that it decided against completing the third plant in Pune.

FY2024 annual report, page 48:

company has strategically set-up two plants in Pune and one plant in Bangalore.

Nevertheless, Nibe Ltd generates its revenue from the sale of both goods and services. Within the sale of goods, it supplies both own-manufactured goods as well as traded goods.

As per the latest data of FY2024, the majority of its sales activity involved the trading of goods. Out of the total consolidated revenue of about ₹282 cr, the sale of trading goods constituted ₹161 cr. Moreover, in FY2024, sales from manufactured goods have declined from FY2023.

An investor may note that in trading goods, vendors procure goods from one end and supply them to customers at the other end with very little value addition. Therefore, trading vendors have limited competitive advantage because what one vendor can supply to the customer, another vendor can also supply.

Going ahead, an investor needs to monitor if trading goods continue to constitute a large portion of the company’s business.

Also read: How to do Business Analysis of a Company

4) Corporate filings done by Nibe Ltd:

Over the years, Nibe Ltd has regularly intimated stock exchanges and public shareholders about all the developments related to its business. These updates include even instances where the company decides to source steel from manufacturers for trading i.e. for selling this steel to other customers.

Presentation for Q2-FY2023 results, November 2022, page 7:

The Company has joined hands with ArcelorMittal Nippon Steel India Limited and JSW Steel Limited for trading of steel business.

The company has updated exchanges about multiple purchase orders (PO) where it needs to supply goods over a long that it has received without disclosing the name of the customer.

For example, in the announcement dated August 16, 2024 (click here), Nibe Ltd highlighted that it has received a PO from a “leading Infra and Defence Company” for ₹79.6 cr, which it needs to supply by January 2028.

In the announcement dated September 7, 2024 (click here), the company highlighted that it has received a PO from “a leading infra & Defence Company” for ₹50 cr, which it needs to supply by March 2028.

Within the last few weeks, the company has made multiple announcements (click here and here) about its inclusion in a consortium that aims to launch satellites forming a “Private Earth Observation Constellation”. However, all these announcements are related to general understanding/memorandums of understanding (MoUs).

This collaboration is for general understanding and both parties may enter into further agreements/contracts with regard to specific projects

These MOUs are valid for a period of 12 to 24 months as stated in the respective agreements…Sign and execute comprehensive, long term definitive agreement within the time period after due negotiations and discussion with each of the party as stated above

Similarly, on September 17, 2024 (click here), the company disclosed that its proposed manufacturing plant at MIDC, Shirdi was granted “Mega project” status by the Govt. The company further highlighted that the proposed investment for this project is ₹1,200 cr; however, currently, the project does not have land allocation.

at a proposed investment of Rs. 1200 crores…Under the Mega Project Status…300 acres of land would also be made available to the Company by MIDC, Shirdi

Moreover, currently, an investment of ₹1,200 cr seems very high when compared to the size of the company whether seen from the perspective of net worth (about ₹161 cr on March 31, 2024), cash flows from operations (₹18 cr in FY2024) or profits (PAT of ₹19 cr in FY2024). Until now, the company has completed its plants by raising debt and equity dilution (preferential allotment and warrants).

Nevertheless, all these announcements by the company indicate a very positive future prospect for Nibe Ltd, which is reflected in the rising share price of the company, which has increased by about 50 times in the last 2-2.5 years.

Nevertheless, an investor needs to be cautious and do her due diligence before she projects the future performance of the company as in the past, there have been instances where companies influenced their share price by making positive corporate announcements, which later on, SEBI found to be false.

For example, take the case of Urja Global Ltd, which made fake announcements of supplying a fake mineral “Zacobite” to a Japanese company, Nippon Shinyaku Co Ltd. The announcement led to a sharp increase in the company’s share price. However, later on, SEBI found that all of it was fake. The Japanese company denied signing any contract with Urja Global. SEBI barred Urja Global Ltd and its executives from the market for 2 years (Sources: SEBI, CNBC TV18)

The top brass of Urja Global — now barred by SEBI from the markets — thought nothing of thinking up the non-existent Zacobite, which it was purportedly going to supply to Nippon Shinyaku Co Ltd. Simply put, Zacobite does not exist. Not on the Periodic Table, not even on a Google search. That’s right. The company decided to sell a product that does not exist.

Therefore, it is advised that investors should be very cautious while analysing corporate announcements made by companies and always cross-check the developments mentioned in these announcements from independent sources like customers, media and govt. authorities’ websites.

In the last 10 years (FY2015-2024), the tax payout ratio of Nibe Ltd has been very irregular due to fluctuating business where it made profits in some years and losses in others. Going ahead, when the business of the company stabilizes, then an investor should monitor its tax payout ratio to check if it is in line with the standard corporate tax rate in India.

Recommended reading: How to do Financial Analysis of a Company

Operating Efficiency Analysis of Nibe Ltd:

a) Net fixed asset turnover (NFAT) of Nibe Ltd:

Over the years, the net fixed asset turnover (NFAT) of Nibe Ltd used to be high in double digits as most of its operations seem to be trading in nature. Nevertheless, since the last 3 years, when the company started investing in manufacturing plants, its NFAT has declined to 3.5-4.5 levels.

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 use its manufacturing plants efficiently.

Further advised reading: Asset Turnover Ratio: A Complete Guide for Investors

b) Inventory turnover ratio of Nibe Ltd:

In recent years, the inventory turnover ratio (ITR) of the company has increased from 0.4 in FY2021 to 17.6 in FY2024. An increase in ITR indicates an improvement in the inventory utilization by the company.

Going ahead, as the company increases utilization of its plants to sell more “manufactured goods”, an investor should keep a close watch on the inventory position of the company to understand whether it is able to maintain/improve the efficiency of its inventory utilization.

Further advised reading: Inventory Turnover Ratio: A Complete Guide

c) Analysis of receivables days of Nibe Ltd:

Since FY2022, Nibe Ltd has had its receivables days deteriorate from 37 days to 50 days in FY2024. It seems that due to its small size, it is not able to collect money on time from its customers.

Nevertheless, going ahead, an investor should monitor its receivables days closely to assess if it is able to timely collect its dues from its customers.

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 Nibe Ltd from FY2021 when Mr Ganesh Nibe took control over the company, to FY2024, then she notices that during this period, the company could not convert its profit into cash flow from operations.

Over FY2021-2024, Nibe Ltd reported a total net profit after tax (cPAT) of ₹20 cr. During the same period, it reported cumulative negative cash flow from operations (cCFO) of (₹7) 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)

The major reason for cCFO being lower than cPAT is a sharp increase in its receivables in FY2023 from ₹3 cr in FY2022 to ₹36 cr in FY2023.

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 Nibe 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)

Until FY2022, Nibe Ltd did not have any stable business model and had nil fixed assets. As a result, the SSGR of the company during this period was meaningless. However, for FY2024, the company had an SSGR of -6%, which is less than the sharp improvement in sales achieved by the company since taking over by Mr Ganesh Nibe.

As a result, the company has to rely on outside funding to meet its capex plans. During this period, the debt of the company has increased from nil in FY2020 to ₹73 cr in FY2024. In addition, the company has raised money by equity dilution via preferential allotment of shares and warrant issuance to promoters.

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 Nibe Ltd:

While looking at the cash flow performance of Nibe Ltd for the last 10 years (FY2015-FY2024), an investor notices that it generated negative cash flow from operations of (₹9) cr. During the same period, it made a capital expenditure of about ₹154 cr.

Therefore, during this period (FY2015-FY2024), Nibe Ltd had a negative free cash flow (FCF) of (₹163) cr (= -9 – 154).

In addition, during this period, the company had a non-operating income of ₹4 cr and an interest expense of ₹12 cr. As a result, the company had a total negative free cash flow of (₹171) cr (= -163 + 4 – 12) Please note that the capitalized interest is already factored in as a part of the capex deducted earlier. In addition, Nibe Ltd also gave dividends of about ₹1.3 cr in FY2024.

The company funded this gap in its cash flow by raising debt as its debt increased by ₹72 cr in the last 10 years from ₹1 cr in FY2015 to ₹73 cr in FY2024. Moreover, to meet requirements for its large capital expenditure plans, it raised significant money, about ₹162.5 cr via equity dilution in FY2023 onwards, in the form of preferential allotment of shares and warrants to promoters and other shareholders.

Going ahead, an investor should keep a close watch on the free cash flow generation by Nibe Ltd to understand whether the company can generate surplus cash from its business or it has to continuously rely on external funds for its business needs. This is especially true in light of the announcement of ₹1,200 cr in MIDC, Shirdi, which is very large in comparison to the size and financial position of the company.

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 Nibe Ltd:

On analysing Nibe 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 of Nibe Ltd:

Currently, the promoter of Nibe Ltd, Mr Ganesh Nibe (age 43 years) is working in the role of chairman & managing director of the company. His wife, Ms Manjusha Nibe (age 43 years) was working as an executive director in the company until August 28, 2023, when she resigned from the directorship (FY2024 annual report, page 51).

Even though the promoter, Mr Ganesh Nibe, is still young; however, an investor may contact the company directly to understand the reasons for the resignation of Ms Manjusha Nibe and whether any person from their next generation is currently working in the company in any executive position.

Understanding management succession planning is essential because as per the above discussion, people in the senior position are not staying in the company for long and it might be that family members of the promoters might be the only people who can provide stability in the leadership to the company.

2) Allotment of warrants to promoters by Nibe Ltd:

As discussed earlier, Nibe Ltd has disclosed expansion plans more than what its internal business cash flows can sustain. As a result, it has raised more debt as well as issued shares to raise money.

• In Feb. 2023, Nibe Ltd raised ₹52.5 cr by issuing 1,440,779 shares to 39 entities at ₹365/- per share. The maximum number of shares 657,534 were issued to A2Z Online Services Private Limited (click here).
• In the same month, the company allotted 1,164,383 warrants to promoters (88%) and non-promoters (12%) at ₹365/- per warrant and received ₹10.6 cr as 25% upfront payment (click here).
• In Nov. 2023, Nibe Ltd raised ₹64.9 cr by issuing 1,272,700 shares to 29 entities at ₹510/- per share. The maximum number of shares 790,000 were issued to Aegis Investment Fund PCC (click here).
• At the same time, Nibe Ltd allotted 204,705 warrants to Mr Ganesh Nibe at ₹510/- per warrant and received ₹2.6 cr as a 25% upfront payment (click here).

Warrants are like stock options where the promoters get the right to acquire new shares from the company at a fixed price by paying 25% of the money upfront. After warrants are allotted to the promoters, then they may approach the company any time within the next 18 months and get shares from the company at the predetermined price irrespective of the current market price of the shares of the company.

An investor would appreciate that anyone holding stock warrants would not exercise them to get shares at a price, which is higher than the price at which he/she can get shares from the market. Therefore, promoters usually convert the warrants into equity shares by paying the balance 75% only if at the time of conversion the price of the equity share of the company is such that the holder of the warrants makes money over her warrant allotment price.

In the case of Nibe Ltd also, promoters exercised their warrants when it was highly beneficial to them i.e. it led to substantial gains of about ₹150 cr.

• On July 22, 2024, promoters, Manjusha Nibe (164,384 warrants) and Bhagesh Ganesh Nibe (27,397 warrants) converted all the warrants allotted to them at ₹365/- per warrant in Feb 2023, by paying the balance 75% amount (₹5.25 cr) (click here). On July 22, 2024, the closing price of Nibe Ltd at BSE was ₹1,931.40 indicating a gain of ₹30 cr to promoters (=(164,384+27,397)*(1,931.40 – 365)).
• On August 1, 2024, promoters, Ganesh Nibe (192,000 warrants), Nibe Dnyaneshwar Karbhari (6,849 warrants) and Nibe Kishor Ramesh (6,849 warrants) converted warrants allotted to them at ₹365/- per warrant in Feb 2023, by paying balance 75% amount (₹5.63 cr) (click here). On August 1, 2024, the closing price of Nibe Ltd at BSE was ₹ 1,869.25 indicating a gain of ₹31 cr to promoters (=(192,000+6,849+6,849)*(1,869.25 – 365)).
• On August 13, 2024, promoter, Ganesh Nibe (629,918 warrants), and one non-promoter, Pramod Bhagchand Ranka (136,986 warrants) converted warrants allotted to them at ₹365/- per warrant in Feb 2023, by paying balance 75% amount (₹21 cr) (click here). On August 13, 2024, the closing price of Nibe Ltd at BSE was ₹ 1,758.65 indicating a gain of ₹87.8 cr to the promoters (=629,918*(1,869.25 – 365)).

(Share price chart: Screener)

Therefore, we believe that investors should be cautious while assessing companies that do preferential allotment of warrants to promoters. This is because many times issuance of warrants is structured to benefit the promoters at the cost of minority shareholders. This is the reason that in the past, SEBI has tightened its rules around the issuance of warrants (Source).

You may read more about our views on the allotment of warrants to promoters along with multiple case studies, in the following article: Stock Warrants to Promoters: How to Analyse

3) Related party transactions of Nibe Ltd:

Over the years, Nibe Ltd has entered into numerous transactions with its promoter-owned entities.

For example, in FY2023, when its own plants were not ready for production, then it took the plant of a promoter entity, Nibe Motors Pvt. Ltd (NMPL) on lease for ₹32 cr.

FY2023 annual report, pages 90-91:

Nibe Motors Pvt Ltd: Enterprises owned or significantly influenced by KMP

Apart from it, there are many transactions where Nibe Ltd has given and taken loans from promoter entity, NMPL On March 31, 2024, the company has given loans of ₹3.94 cr to NMPL. (FY2024 annual report, page 138).

Other than loans, Nibe Ltd has been investing in promoter-owned companies. For example, recently, Nibe Ltd took a 5% stake in Anshuni Commercials Ltd (click here) where promoters, Mr Ganesh Nibe and Ms Manjusha Nibe have purchased about 93% stake and have renamed it Nibe Ordnance & Maritime Ltd. Now, in the AGM of 2024, the company has asked for approvals to enter into related party transactions with Nibe Ordnance & Maritime Ltd (FY2024 annual report, page 22).

In the case of Karmayogi Manufacturing Private Limited, in the FY2023 annual report, page 18, Nibe Ltd described it as a company in which the director is interested whereas, in the FY2024 annual report, page 104, it described it as a subsidiary company indicating that the company effectively purchased the company from its promoters.

In FY2022, Nibe Ltd paid the salary of employees of promoter-entity as well. In the FY2022 annual report, page 96, the company described Mr Prakash Bhamare as “Director of Enterprises owned or significantly influenced by Director or their relatives” and paid him a salary of ₹13.25 lac.

An investor would appreciate that each of the transactions that any company does with its promoters has the potential to shift economic benefits from minority shareholders to promoters. For example, if any company buys things from promoter-owned entities at a price higher than the market price or sell things to them at a price lower than the market price, then promoters benefit at the cost of minority shareholders.

Therefore, investors should be cautious and do deeper due diligence on every transaction that a company takes with its promoters.

Also read: How Promoters benefit from Related Party Transactions

4) Certain transactions of Nibe Ltd:

While analysing the annual reports of Nibe Ltd, an investor comes across certain transactions for which she may contact the company to get further clarifications.

For example, in its FY2023 annual report, standalone financials show that the company has bought land for ₹27.02 cr.

FY2023 annual report, page 78:

However, in the consolidated financials, the company disclosed that the purchase of land is only ₹14.38 cr.

FY2023 annual report, page 126:

Ideally, an investor would assume that standalone financials represent the land purchased only by the parent entity. She would assume that the consolidated financials would reflect the land purchased by the parent entity and in addition, any other land purchased by subsidiaries, if any. Therefore, the value of land purchased in consolidated financials should be either equal to or more than standalone financials.

An investor may contact Nibe Ltd to understand what made the value of land purchased in consolidated financials less than standalone financials.

Similarly, in the related party transactions for FY2023, in the standalone section, Nibe Ltd indicated that it took a factory on lease from its promoter entity, Nibe Motors Pvt. Ltd, which it classified as “Enterprises owned or significantly influenced by KMP” for ₹32 cr.

FY2023 annual report, page 91:

However, the consolidated financials did not show this transaction of lease of factory premises from Nibe Motors Pvt. Ltd.

FY2023 annual report, page 138:

Along similar lines, the amount payable on the assignment of the lease to Nibe Motors Pvt. Ltd. of ₹19.33 cr is shown only in standalone financials and is not there in consolidated financials.

During consolidation, usually, the transactions of any parent company with its child entities like subsidiaries are netted off/removed. However, Nibe Motors Pvt. Ltd. is not a child entity of Nibe Ltd and its transactions should not be removed.

An investor may contact the company to understand the reasons why this transaction of lease of factory premises of ₹32 cr is removed from consolidated financials.

Advised reading: How to study Annual Report of a Company

5) Weakness in internal controls and processes at Nibe Ltd:

Over the years, there have been a few instances that indicate a scope for improvement in the internal controls and processes at Nibe Ltd.

For example, the company has been fined by BSE Ltd for multiple non-compliances, which the company had to pay.

FY2024 annual report, page 55:

At times, due to very frequent resignations of key personnel, the company was not able to recruit their replacements in time and such positions stayed vacant.

FY2022 annual report, page 35:

However, there is vacancy in office of Company Secretary and Compliance Officer and Chief Financial Officer.

In FY2021 and FY2022, the company delayed depositing undisputed statutory dues like professional tax, provident fund dues, ESIC dues etc. to govt. authorities (FY2021 annual report, page 68 and FY2022 annual report, page 63).

On other occasions, the company made errors in presenting data in the annual reports and other disclosures. For example, while disclosing the Q4-FY2024 results, the company made a mistake in its cash flow statement and as a result, it had to issue rectified results later on (click here).

Please take note that in statement of standalone cash flows, inadvertently amount Rs. 14,397.28 lacs have been added in Purchase of plant & equipment (Including capital work in progress) and in adjustment for Depreciation expenses…As a result, the consequential derived numbers under the head “Net Cash flow from operating activities” and “Net cash (used) generated from investing activities” by application of the Excel formulae underwent a change accordingly.

In FY2021 annual report, on page 45, the company stated that “During the current period, The Company suffered a loss of Rs. 41,777 as compared to profit of Rs. 18.19 lakhs in the previous year.” Whereas during FY2021 instead of a loss, the company had reported a profit of ₹12.50 lac and in the previous year (FY2020), instead of a profit, the company had a loss of ₹47.87 lac.

FY2021 annual report, page 16:

Similarly, in the FY2023 annual report, while presenting the financial performance of one of its subsidiaries, Nibe Technologies Private Limited (formerly known as Indigeneous Casting Technology Private Limited) in one section of the annual report, it disclosed that during the year, it made a profit of ₹362.21 lac whereas, in another section, it disclosed that the subsidiary made a loss of ₹300.60 lac.

FY2023 annual report, page 30:

FY2023 annual report, page 145:

In FY2023, the company did not provide for an expected loss of ₹1.36 cr as a result, its profit was inflated to this extent. The auditor of the company highlighted the same in its report.

FY2023 annual report, page 53:

The Company has not made a provision for expected credit loss of Rs 1.36 Crores for the year ended March 31, 2023.

Also read: How Companies Inflate their Profits

Therefore, it is advised that an investor should take proper care while reading the information disclosed by the company in its filings.

For example, in its FY2023 annual report, the company claimed that it had completed final trials of the Advanced Towed Artillery Gun System after five years of testing. Whereas Nibe Ltd came into existence only three years back in FY2020 when Mr Ganesh Nibe took over Kavita Fabrics Ltd.

FY2023 annual report, page 36:

It has made significant breakthroughs in its Advanced Towed Artillery Gun System (ATAGS) program and has completed the final revalidation trial post five years of rigorous testing.

Even as per the website of the company (click here), Mr Ganesh Nibe entered the defence business in 2021.

In 2021, he strategically entered critical heavy defence component fabrication, leading to the establishment of Nibe Limited with four plants in Pune and Bengaluru.

An investor may contact the company directly to understand the timelines of its development of the Advanced Towed Artillery Gun System (ATAGS) program and whether the FY2023 annual report had an error in the presentation of information.

Also read: Why We cannot always Trust What Management Claims

The Margin of Safety in the Market Price of Nibe Ltd:

Currently (Sept 21, 2024), Nibe Ltd is available at a price-to-earnings (PE) ratio of about 94 based on consolidated earnings of the last 12 months (July 2023-June 2024).

Moreover, 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

Nibe Ltd, formerly Kavita Fabrics Ltd, has transitioned from a textile business to focusing on defence, aerospace, and electric vehicles under the new management of Mr Ganesh Nibe since FY2020. The company’s sales and profit margins have improved significantly from FY2021 to FY2024.

Mr Ganesh Nibe and his wife acquired a 58.47% stake in the company by FY2020, shifting its focus from textiles to defence, aerospace, and electric vehicles. ​ The company was renamed Nibe Ltd and relocated its office from Surat to Chakan, Pune.

It has established multiple plants in Pune and Bengaluru, generating revenue from both manufactured and traded goods. ​ However, a significant portion of its revenue still comes from trading activities. ​

The company has seen a high turnover of key executives, including statutory auditors, internal auditors, CEOs, CFOs, company secretaries, and independent directors. It raises some concerns about the culture, work environment and internal stability of the company.

Nibe Ltd has made several positive corporate announcements, including purchase orders and collaborations, which have boosted its share price. However, investors should be cautious and verify these announcements independently. ​

Despite improved sales and profit margins, the company has struggled to convert profits into cash flow, reporting a cumulative negative cash flow from operations of (₹7) cr from FY2021 to FY2024. ​ The company has relied on debt and equity dilution to fund its growth. ​

The company has engaged in numerous transactions with promoter-owned entities, including leasing plants and providing loans, which require a careful scrutiny to ensure fair dealings.

The company has issued warrants to promoters, which have been converted into shares at significant gains, raising concerns about potential benefits to promoters at the expense of minority shareholders. ​

Nibe Ltd has announced ambitious projects, including a ₹1,200 cr investment in a new plant in Shirdi. However, the company’s current financial position may not support such large investments without further external funding. ​

Instances of non-compliance, errors in financial reporting, and delayed statutory dues indicate weaknesses in the company’s internal controls and processes.

Overall, while Nibe Ltd has shown significant growth and improved financial performance under new management; however, investors should exercise caution due to frequent executive resignations, reliance on external funding, related party transactions, and potential weaknesses in internal controls. ​ Investors are advised to conduct thorough due diligence and monitor the company’s developments closely. ​

Further advised reading: How to Monitor Stocks in your Portfolio

These are our views on Nibe 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.