Pricol Ltd. - Investment Research Report

Brief Value Investing Research Report

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Basic Filtering Criteria:

If you apply the stock filter for a price to earnings ratio of 1-10 this stock will not be caught in the net at all and therefore as per our value investing filtering criteria this stock is not worth further investigation at all.

Still this research report for Pricol Ltd. was prepared since one of our readers had specifically queried about this stock. Therefore we go ahead and gather further information that is readily available on many financial websites, which depicts as follows:

	Basic Filtering Criteria:	Importance	Minimum Required	Prcol Ltd.	Pass/ Fail
1	Turnover (Rs. Crore/ Rs. 10 million)	Basic	1000	1126.51	✔
2	Market Capitalization (Rs. Crore/ Rs. 10 million)	Basic	1000	1048.01	✔
3	Price to Earnings Ratio	Critical	Less than 10	24.26	✖
4	Price to Book Value	Critical	Less than 1.5	3.36	✖
5	Dividend Yield	Critical	4-5%	0.90%	✖
6	Uninterrupted Dividend Payment Record	Critical	Minimum 10 years	Skipped in the years 2015 and 2009	✖

Again it shows that the market conditions for Pricol’s shares are not favorable as all the four critical criteria are not met.

A value investor need not undertake any further investigation and waste valuable time.

Still we do the review purely for academic purposes and comparison with the shares listed on our ‘Portfolio Y2K15’.

A. Company Performance

Profitability Analysis:

We present here in this brief company report five-year data as follows:

	Mar'16	Mar'15	Mar'14	Mar'13	Mar'12
Net Sales	1126.51	949.66	891.15	873.89	964.94
Total Expenditure	1019.86	926.38	825.34	813.46	891.21
Operating Profit	106.65	23.29	65.81	60.44	73.73
EBITDA	113.65	25.29	69.44	61.95	75.88
EBITDA %	10.09%	2.66%	7.79%	7.09%	7.86%
Depreciation	34.17	35.26	30.66	31.95	29.19
Other Write-offs	0.00	0.00	0.00	0.00	0.00
EBIT	79.48	-9.96	38.77	30.00	46.69
Interest	9.31	7.89	6.52	16.33	29.79
EBT	70.17	-17.86	32.25	13.67	16.90
EBT %	6.23%	-1.88%	3.62%	1.56%	1.75%
Taxes	16.95	-4.54	16.89	-2.07	9.90
Profit and Loss for the Year	53.21	-13.32	15.37	15.74	7.00
Non Recurring Items	-10.02	-4.68	51.63	0.00	49.42
PAT	43.20	-18.00	67.00	15.74	56.42
PAT %	3.83%	-1.90%	7.52%	1.80%	5.85%

Highlights:

• Very low and unhealthy EBDITA, EBT and PAT Margins;
• Total Operating Expenses indicates quite an ordinary vulnerable business model;
• Inconsistent performance with negative EBT margin in the year 2015;
• Interest costs are not very high

On the profitability parameter the company’s performance is highly un-satisfactory the share shall be rejected.

 Balance Sheet Analysis:

Particulars   (Rs. Crore/ Rs. 10 million)	Mar'16	Mar'15	Mar'14	Mar'13	Mar'12
Liabilities	12 Months	12 Months	12 Months	12 Months	12 Months
Share Capital	9.48	9.48	9.45	11.03	11.03
Reserves & Surplus	289.85	258.06	311.33	245.53	234
Net Worth	299.33	267.54	320.78	256.55	245.02
Secured Loan	33.33	20.01	33.94	50.26	76.76
Unsecured Loan	0	34	10	0	3.44
TOTAL LIABILITIES	332.66	321.55	364.73	306.81	325.23
Assets
Gross Block	451.21	447.1	493.55	502.78	491.14
(-) Acc. Depreciation	277.21	274.89	314.31	322.03	301.37
Net Block	174	172.22	179.25	180.75	189.77
Capital Work in Progress	6.45	3.85	1.73	2.6	1.54
Investments	95.65	52.97	60.38	38.8	30.24
Inventories	115.73	108.28	96.6	106.25	133.79
Sundry Debtors	200.19	164.47	158.97	163.96	180.09
Cash and Bank	6.47	6.76	3.78	2.21	68.47
Loans and Advances	38.46	50.62	82.04	74.51	72.78
Total Current Assets	360.85	330.14	341.39	346.93	455.13
Current Liabilities	265.29	220.08	205.91	250.83	324.33
Provisions	39.01	17.54	12.12	11.44	27.13
Total Current Liabilities	304.3	237.62	218.03	262.27	351.46
NET CURRENT ASSETS	56.56	92.52	123.36	84.66	103.67
Misc. Expenses	0	0	0	0	0
TOTAL ASSETS(A+B+C+D+E)	332.66	321.55	364.73	306.81	325.23
Current Ratio Actual	1.19	1.39	1.57	1.32	1.29
Quick Ratio	0.81	0.93	1.12	0.92	0.91
TOL/ TNW	1.13	1.09	0.82	1.22	1.76

Highlights:

• Very low current and quick ratios (minimum required being 2 and 1 respectively) indicating weak liquidity position of the company.
• TOL/ TNW being below 3 is satisfactory.
• Low levels of debt is satisfactory.

Balance sheet analysis indicates an average performance and at the same time th nothing alarming.

Cash Flow Analysis:

Cash Flow
(Rs. Crore/ Rs. 10 million)
Particulars	Mar'16	Mar'15	Mar'14	Mar'13	Mar'12
Profit Before Tax	60.15	22.53	83.88	13.67	66.32
Net Cash Flow from Operating Activity	115.4	30.16	58.94	59.58	89.83
Net Cash Used in Investing Activity	-92	-31.72	4.67	-31.76	47.71
Net Cash Used in Financing Activity	-23.69	2.95	-62.04	-94.07	-78.38
Net Inc/Dec In Cash and Cash Equivalent	-0.29	1.39	1.57	-66.26	59.16
Cash and Cash Equivalent - Beginning of the Year	1.96	1.37	0.33	67.65	-3.83
Cash and Cash Equivalent - End of the Year	1.67	2.76	1.9	1.4	55.32

Highlights:

Company is generating positive but low net operating cash flows.

Cash Flow analysis reveals a very average  performance and nothing to boast about.

Dividend History:

Dividends Track Record
Announcement Date	Effective Date	Dividend Type	Dividend (%)
30/05/2016	11/08/2016	Final	100%
29/05/2014	30/07/2014	Final	40%
25/07/2013	06/08/2013	Interim	40%
29/05/2013	07/06/2013	Final	40%
29/05/2012	26/07/2012	Final	80%
31/05/2011	11/08/2011	Final	60%
31/05/2010	15/07/2010	Final	40%
30/05/2008	24/07/2008	Final	60%
30/05/2007	18/07/2007	Final	100%
29/05/2006	18/07/2006	Final	100%
24/05/2005	18/07/2005	Final	100%
22/05/2004	07/06/2004	Final	90%
27/05/2003	30/07/2003	Final	60%
21/05/2002	12/08/2002	Final	35%
31/05/2001	02/07/2001	Final	40%
29/03/2000		Interim	40%
28/05/1999		Final	30%
26/05/1998		Final	35%
20/05/1997		Final	35%

Highlights:

• Company has skipped paying dividends in the years 2009 and 2015.
• Even though the percentage of dividends declared appear to be handsome, the fact remains that the face value of the share being just Rs.1, the dividend per share is just Rs.1 or in paise. This combined with very high market price of Rs.110.60; the dividend yield is unacceptably low.

On this parameter the company’s performance is un-satisfactory.

Dividend Coverage from non-operating income

Dividend	0.00	6.28	2.99	6.03
Net Non-Operating Income	0	0	0	0
Dividend Coverage from Non-Operating Income	0	0	0	0

The company does not earn any non-operating income. This is a weakness as for paying dividends there is no back up or nothing to fall back upon other than operating profits. That’s why in 2015, when the company had incurred a loss, no dividend was paid.

On this parameter the company’s performance is highly un-satisfactory.

B.Market Condition:

Price to Earnings Ratio:

At the current market price of Rs.110.60 and Earnings Per Share (EPS) of Rs.4.56 (based on 2016 results) the PE Ratio is 24.26, well above the recommended 10.

The market condition as far is this parameter is concerned is not favorable.

Price to Book Value per Share:

With a book value of Rs.28.09 for the financial year 2015-16 and a price of Rs.110.6, the price to book ratio stands unfavorably well above the recommended maximum of 1.5, at 3.36.

On this parameter the market condition is unfavorable.

Dividend Yield:

We have already seen that Pricol Ltd., is not in a comfortable position to pay uninterrupted dividends. With a low pershare dividend of Rs.1 and a high market price of Rs.110.60, the dividend yield works out to a meager 0.90%

On this parameter the market condition is highly unfavorable.

Distance from 52 week high:

The 52-week high for this share is Rs.124.40 and the current market price is Rs.110.60. The distance to 52-weel high is Just Rs.13.80 or a mere 11.09% away from the 52 week high.

The market condition as far is this parameter is concerned is also not favorable.

Five year Returns:

The five-year return (return measured by change in share price) is 600%. Which means that today’s CMP of the scrip has already appreciated 6 times in the last five years and there is very little possibility for further upside and there is a great possibility that the price may fall steeply back to its five year low in case of a major market crash.

On this parameter the market condition is highly unfavorable.

C. Conclusion:

The company’s performance as well as the market conditions of the shares of Pricol Ltd. are clearly unfavorable and the share does not merit inclusion in any value investor’s portfolio.


Post Disclaimer: Opinions expressed here are the author’s personal opinions. Market conditions have a great bearing on many end results discussed in this report. No disrespect is intended towards the company, it’s management. Investors are advised not rely blindly on the opinions expressed herein but to exercise their own judgment. Neither the author nor the blog shall be responsible for any loss suffered by either acting or not acting based on the opinions expressed herein.

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