Query Board

Query Board

This section gives decisive investment rationales to our subscribers on the stock queries they have raised to our research team.

Seya Industries Limited (SIL) is engaged in the business of di-chloro benzidines and nitro anilines. It is engaged in the manufacturing and export of pigments, pharmaceuticals, agrochemicals and rubber chemical intermediates and operates in five segments, namely, speciality chemical intermediates, organic chemical intermediates, inorganic chemical intermediates, agrochemical intermediates and pharmaceutical intermediates. On a standalone quarterly basis, for Q3FY20, the net sales decreased by 50.24 per cent to Rs 52.09 crore from Rs 104.67 crore in Q3FY19. PBDT decreased by 71.39 per cent YoY to Rs 9.08 crore in Q3FY20. In Q3FY20, the net profit contracted by 68.56 per cent YoY to Rs 7.10 crore. On an annual front, the net sales increased by 19.25 per cent to Rs 412.78 crore for FY19, from Rs 346.16 crore in FY18.The company’s PBDT increased by 37.94 per cent to Rs 122.24 crore for FY19, as compared to Rs 88.62 crore for FY18. In FY19, the net profit rose by 68.88 per cent to Rs 88.49 crore, from Rs 52.40 crore recorded in FY18. The debt servicing of SIL has been irregular in the recent past as indicated by over-utilisation of its working capital limits. The company has also delayed in payment of debt servicing obligations towards its term loans, thus indicating a poor liquidity position for SIL. Hence, we recommend EXIT from the stock.

Arcotech Limited is a nonferrous engineering company and produces various nonferrous alloys such as phosphor bronze, nickel silver, nickel-brass, cupronickel, aluminium bronze, tin-bearing copper and silver-bearing copper. These alloys are produced in the form of semis, including ingots, foils, bus bars, rods, as well as terminals and connectors. On a standalone quarterly front, its net sales declined significantly by 97.65 per cent to Rs 2.75 crore in Q3FY20 from Rs 117.24 crore in Q3FY19. The company has incurred an operating loss of Rs 5.02 crore in Q3FY20 as compared to an operating loss of Rs 60.57 crore incurred in the same period for the previous fiscal year. A net loss of Rs 12.53 crore was incurred in Q3FY20 as compared to a net loss of Rs 49.61 crore in Q3FY19. On an annual basis, net sales were reported at Rs 452.11 crore in FY19, down by 42.35 per cent from Rs 784.22 crore in FY18. The company incurred an operating loss of Rs 68.35 crore in FY19 as against an operating profit of Rs 76.15 crore reported in the previous fiscal year. The company incurred a net loss of Rs 92.15 crore in FY19 as against net profit of Rs 3.91 crore reported in FY18. Arcotech has reported net losses for the last four consecutive quarters and we do not see any fundamental drivers to stay invested in this stock. Thus, we recommend you to SELL the stock. 

Indian Railway Catering and Tourism Corporation Limited is engaged in offering internet ticketing, catering and tourism. The catering and hospitality segment includes railway catering and non-railway catering.

The company offers mobile catering as well as static catering through food plazas, executive lounges, budget hotels and a central kitchen.The internet ticketing segment includes online booking of train and air tickets, catering, tourism and portal shopping. The travel and tourism segment develops tourism.

It is engaged in offering ‘state special’ tourist trains, corporate travel services, outbound air packages and cab rental services. On a quarterly standalone front, the company reported net sales of Rs 715.98 crore in Q3FY20, increasing by 64.59 per cent from Rs 435.01 crore in the same period for the previous fiscal year.

Its operating profit was Rs 284.68 crore in Q3FY20, increasing significantly by 141.71 per cent from Rs 117.78 crore in Q3FY19. Similarly, in Q3FY20, net profit surged by 179.66 per cent to Rs 205.8 crore from Rs 73.59 crore in Q3FY19. Since the company is enjoying virtual monopoly with its business model offering major tourism-related services in all aspects under one roof, any increase in prices of its services would result in a slight increase in fares benefitting IRCTC’s revenue.

Moreover, IRCTC is currently bracing for a hit on operational profitability as the virus pandemic has brought the travel and tourism activities in the economy to a complete standstill. Once the fears and troubles of this pandemic disappear, IRCTC has the best possibility to bounce back. Taking into consideration the company’s strong earnings’ profile, diversified business segments, debt-free status, and most importantly, a high entry barrier to the business, we recommend HOLD.

Tejas Networks Ltd. (TNL) provides carrier grade communications equipment and solutions for the telecom industry. The company is also a supplier of optical networking equipment to telecom carriers across the world. Tejas Networks offers solutions for third-generation (3G) backhaul, enterprise connectivity including Ethernet Private Line (EPL), Ethernet Virtual Private Line (EVPL), E-Tree and Ethernet Virtual Private Tree (EVP-Tree) cable multi-system operators, government broadband, etc.

On the consolidated financial front, the company has reported a decrease of 52.99 per cent in net sales to Rs 86.66 crore for Q3FY20 as compared to net sales of Rs 184.33 crore for Q3FY19. For Q3FY20 the company reported an operating profit of Rs 6.25 crore and for Q3FY19 the company reported an operating profit of Rs 45.64 crore. In Q3FY20, the company incurred a net loss of Rs 112.06 crore as against a net profit of Rs 32.84 crore posted in the same quarter of the previous fiscal. On the annual front, net sales increased by 17.31 per cent to Rs 900.32 crore for FY19 from Rs 767.44 crore for FY18. The PBT of the company increased by 41.47 per cent to Rs 150.02 crore for FY19 as compared to Rs 106.04 crore for FY18. In FY19, the company gained a net profit of Rs 147.24 crore which is an increase of 38.23 per cent compared to the net profit of Rs 106.52 crore gained in FY18.

The company has recently witnessed reduction in orders from the government, hence has been gaining muted revenues from the government sector. Due to the high fixed cost base of TNL, the profit margins are expected to reduce in future as well. The company continues to face delays in realisation of receivables from certain government sector customers, which has put pressure on its cash flows. Also, TNL is currently surrounded with tough competition from various global players such as Nokia, Ciena, and Huawei, to name a few, who as of now have a more diversified product offering and the advantage of economies of scale. Hence, we recommend DON’T BUY.

Bhartiya International Limited manufactures and exports leather apparel for men, women, and children. The company’s major segments include leather products and textile and textile products. In addition, the company focuses on apparel and accessories manufacturing. Its fashion products include leather outerwear, accessories, textile apparel, and leather finishing and design studio. The company’s development products include city, homes, information technology (IT) parks, industrial parks, retail spaces, hotels and convention centres and interior solutions.

Its subsidiaries include Bhartiya Global Marketing, J & J Leather Enterprises, Bhartiya International SEZ, Bharatiya Fashion Retail, World Fashion Trade, BIL Group LLC, Ultima SA and Ultima Italia SRL. On a consolidated quarterly front, net sales fell by 13.86 per cent to Rs 176.59 crore in Q3FY20, from Rs 205.01 crore in the same period for the previous fiscal year. The company reported an operating profit of Rs 11.16 crore in Q3FY20, down by 22.78 per cent from Rs 14.45 crore in Q3FY19. Net profit was recorded at Rs 2.59 crore, declining by 41.88 per cent from Rs 4.45 crore in the corresponding period for the previous fiscal year.

On an annual basis, the company reported net sales of Rs 748 crore in FY19 up by 5.28 per cent from Rs 710.52 in the previous fiscal year. The company reported an operating profit of Rs 67.17 crore in FY19, up by 24.2 per cent from Rs 54.08 crore in FY18. Net profit increased marginally by 1.89 per cent to Rs 18.96 crore in FY19 as compared to Rs 18.61 crore in the previous fiscal year. The slew of measures being taken by the government to fight the coronavirus pandemic has put textile manufacturers in a spot. The sector is struggling to continue with its production schedule as off-take has almost come to a halt. Furthermore, Bhartiya International reported discouraging numbers in the quarter ended December 2019. A major portion of the company’s revenue is used in expenditure, which has negatively affected profit margins. Thus, we recommend to SELL.

BHEL, a government-owned entity, is India’s largest engineering company and dominates the supply of equipment for power plants in the country. It is engaged in the designing, engineering, manufacturing, constructing, testing, commissioning and servicing of a range of products and services for various sectors such as power, transmission, industry, transportation, renewable energy, oil and gas, and defence. The company also manufactures products such as compressors, valves, rectifiers, pumps, capacitors, oil rigs, as well as castings and forgings. Looking at the consolidated quarterly trends, the company reported net sales of Rs 5,459.24 crore in Q3FY20, registering a fall of 23.33 per cent from Rs 7,120.37 crore in the same period for the previous fiscal year.

Revenue for the quarter was largely impacted by execution headwinds and delay in project finalisation. Operating profit was reported at Rs 473.66 crore in Q3FY20, growing by 7.39 per cent from Rs 441.08 crore in Q3FY19. On the other hand, net profit fell by 18.87 per cent in Q3FY20 to Rs 151.90 crore from Rs 187.23 crore in Q3FY19 due to a significant increase in interest expenses and a reduction in other income. On an annual basis, net sales grew by 5.39 per cent to Rs 29,367.85 crore in the fiscal year ended March 2019 as compared to Rs 27,864.84 crore in the previous fiscal year. Operating profit reported for FY19 was Rs 2,799.45 crore, up by 5.71 per cent from Rs 2,648.12 crore in FY18. Net profit for FY19 grew by 44.13 per cent to Rs 1,194.76 crore from Rs 828.95 crore in the previous fiscal year.

The company’s transformation strategy to diversify in the non-power business sector is likely to aid revenue visibility. To improve the execution of projects, the company is commissioning integrated project management software for centralised and real-time monitoring of projects along with advance planning and pre-engineering. Moreover, the company’s strong project pipeline along with effective cost control should enable it to regain lost ground in an adverse operational environment. Thus we recommend a HOLD.

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