This is in extension to my earlier blog-post about Sigachi Industries Ltd -
The Q1 Fy23 -
If you look at the result QoQ , the only thing which caught my attention is de-growth in EPS -7.1% despite 10.3% growth in Net profits (looks like great many stock options got exercised).
At this point we can only speculate on this as company has not shared the balance sheet with the earnings, Another important thing I wanted to see in this Q1 Fy23 earning is the improvement in receivables if any ? but unfortunately no luck company didn’t share the balance sheet or cashflow statement.
The company ended Fy22 with dismal cashflow performance, Companies CFO was merely Rs 5Cr despite making Net Rs 40Cr in profits and if you look at YoY in Fy22 companies receivables went up by 71% although revenues were up merely 7% yoy.
When raised this question over earning call (snippet below), company response was it was due to one time request from their long standing customer and it will correct in next financial year.
I was expecting in this Quarterly some improvement on that but unfortunately balance-sheet and cashflow statement has not been shared by the company.
Another thing which I care a lot while valuing management is - “Do they talk in numbers “ or “do they talk in casually” ? I prefer managements talk in terms of numbers mostly (like they could have said - this much % receivables went up due to this and this much due to one customer have not paid back) with Sigachi I have observed a lot lose ended answers mostly during earning calls, which may not be a bad thing but something I personally like to stay away from.
Also, During Q1Fy23 earning call somebody asked the governance issue related to their Auditors -
This they made it clear outright that there is no conflict of interest as Adi Narayana although started this Audit Firm but today he is not partner and not related to it but yeah his company Usha Kiran Finance got some shares in it but as per them everything happened long back and there is no conflict of interest. ( I don’t want to buy that answer, do you ?) .
Another good question asked on the Royalty which Amit Raj Sinha will receive due to trade mark he owns indirectly.
So, apart from Cashflow’s (I hope company will share soon). This has to be seen if promoters are really serious about fixing the royalty payment terms.
Although there are other concerns raised related to venturing into OTC trading business and Phenol, Although nothing substantial happening there as such but I felt answers were again very lose ended-
They are expecting some revenue from OTC current year but they have not worked on setting up supply chain yet.
The rationale behind doing the OTC trading is to create marketing network that will help in improving MCC sale ¯\_(ツ)_/¯ . I mean really ? how ??
I am not sure how a trading B2C product (OTC) can improve the sales of their B2B product MCC, would it makes more sense to do direct marketing of their MCC product with potential end customers?
Hypothetical scenario - Is it possible the one customer who has not been able to pay last year (30% receivable) actually makes OTC products that now Sigachi is looking to sell ? Who knows… ¯\_(ツ)_/¯.
Another out of the blue announcement was Ethanol last year (During ethanol bull market), from the comment below it seems they had done no homework yet on this but jumped up to announce it in exchanges quickly.
Why would you announce in the exchanges if you don’t have any concrete plans ? ( May be at that time looking at bull market in Ethanol stocks … ¯\_(ツ)_/¯. who knows)
This homework (they talked about in the above snippet) could have been done before haphazardly announcing over the exchanges? I think so, infect that’s how prudent managements do like the recent example comes to my mind is L&T announced l&t b2b e-commerce venture (L&T-SuFin) after the project was live, supply chains were built and website was up.
Would love to know your views about the company, Do share your view in the comment section, and don’t forget to share it with friends.
BLOGS ARE NOT A RECOMMENDATION SERVICE – These are my personal views about Business Quality, Management Quality, Business Execution & Performance.
Thanks,
Dhruva Pandey
Email : dhruva.pandey@outlook.com
Twitter : https://twitter.com/Dhruvapandey
Nicely summed up Dhruva. I feel that this concall was more on the side of not saying something negative to the analysts and giving them sugar coated answers rather than explaining any rationale regarding how do they aim to accomplish all the objectives.