Financials
The average ROCE of the company over the last five years was 4.614% which is way below the average for BSE500 companies with average operating profit margins of 12.25% and net profit margins of 2.894%, most of the gap going into depreciation. There is a big surge in all these ratios in FY11 most probably due to high cotton prices. The company increased its fixed asset investment from INR 47.56 crore to INR 59.78 crore. The company is virtually debt free with net current assets + investments of INR 46.57 crore while debt at INR 6.23 crore. The company's asset turnover ratio declined from 1.3 to 0.61 between 2004 and 2010 but it went up in the last year to around 1.0. The company's average total income hasn't risen much over the last seven years. It was at INR 110 crore in 2004-05 and is still the same on an average even though the capital investment has gone up from INR 84 crore to somewhere around INR 140 crore. This shows that the business is very capital intensive (remember Warren Buffett's Berkshire Hathway?). If revenues do not increase, how would the profits go up? The profits are almost stagnant or may be declining due to high depreciation of fixed assets investment.
Promoters
The promoters hold around 75% in the company and dividend payout is on an average 50%.
Mutual Fund Holding
None of the mutual funds hold this stock since the company is very small and floating stock is also small.
Valuations
The company's book value is INR 227.47. At the current market price of INR 105, the company is trading almost near its net current assets - debt of INR 40.6 crore. The business is not very good. So I will wait for a higher margin of safety.
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