Wednesday, March 15, 2006

Pricol Ltd.

I examined the nine-month financial statement of Pricol Ltd.
In summary,
a) The sales have increased marginally (7.4%) over the nine-month period in the last FY (2004).
b) Correspondingly, the PBT have fallen significantly (from 43.9 crs to 28.6 crs; a drop of 34.8%)
c) Notice the rise in interest cost. The nine month interest cost is at 8.43 crs while the financing cost was 4.87 crs in the previous FY. (a 73% rise)
d) Net profit after tax, dep and interest (PAT) is at 22.9 crs while it was 28.09 crs for FY2004-05.

The balance sheet reads ...
Share Capital - 9.00 crs
Loans - 155.90 crs
Investments - 14.75 crs
Net CA - 86.13 crs
FV - 1.00 rupees per share
Dividend per share - 1.00 rupee
CMP - 39.75 rupees/share (15-Mar)

Thus, the NCAV (as per 2004-05 balance sheet would come to negative 7.75). Estimating trends in FY2005-06, I find ...
1. The profits for the year should be around 29 crs. This would mean a P/E of 12.08 on todays CMP.
2. There is no margin of safety here. The NCAV is infact, negative.
3. The company would be in a position to give a dividend of 75 paise only this yr due to the lower earnings. This comes to a 1.89% dividend yield.
4. There is no news of value on the stock too - although it has decent volumes on the bourses.

My take - this stock will not move much from this level for the next few weeks. Further improvements in the stock price will be a function of news or increase profitability. There is no hidden value in the stock that is visible.

PS: I think the company is resorting to some creative accounting practices here. Picture this (look at the annual report) -
> In 2003-04, the company had borrowings of 115.23 crs on 31-Mar-2004 and had accounted for an interest cost of 8.02 crs. Which means we are looking at a financing cost of 7.5%. Fair.
> In 2004-05, the company had borrowings of 155.90 crs on 31-Mar-2005 and had accounted for only 6.83 crs .. a financing cost of only 4.4%. At 7.5%, this should have been around 11.69 crs.
> For 2005-06, the interest cost would close at close to 13 crs. I would like to assume that the increased financing cost is making up for the lower accounting of interest cost in the previous financial year. So, loans would not have increase too much this year. Lets estimate it at around 160 crs.

3 Comments:

Anonymous Amaresh said...

Hello Shankar
Do you mean to wait for few more weeks and then take the call?
I have burnt my hands in this script.
Whenever you see an uptrend please inform me. Please e-mail me your suggestions if possible, my e-mail id is amareshmakal@gmail.com
Thank you
Amaresh

9:26 AM  
Blogger Rohit said...

hey shankar...
i need your views on Manali Petro...
Is it a valid turnarund story.....
let me know what you feel about it as an investment idea....
Thanxs....

11:22 AM  
Blogger Shankar said...

Hi Rohit,

Manali Petro seems good. It's fwdP/E is close to 6 rupees. It has reduced debt in it's B/S which is good. P/BV is 2.5 which is acceptable. It has made profits this year and hence would surely declare some dividends. Even at 50 paise, you would get a div yield of 2.6%.

The stock has however come down from 25 levels to 19 rupees in the last two months. It's consistently going down from 8-Feb onwards, with reducing volumes. Look out for this stock. You can make a decent killing here. Just dont get too greedy. (I had a bad experience when I invested in these small profit stocks and lost close to 1.3 lacs .. why? ... i had just bought these stocks and the mkt tanked by 700 odd pts and these were the first to be hit. Im still suffering coz of them)

- Shankar

9:37 PM  

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