 "Mudar Patherya")
It is that time of the year when small fortunes await those who can read between the lines of quarterly performances, tucked away in the corner of financial newspapers.
This is what I have to show for all those hours buried into newspapers even as my missus continued to flutter her eyelashes, seeking my fleeting attention.
Sumeet Industries: No-brainer yarn spinning opportunity. A company that reported quarterly earnings before interest, taxes, depreciation and amoritsation (Ebitda) of Rs 27.58 crore is being valued for a market cap of around Rs 95 crore (which means on an annualised basis, the Ebitda could well be larger than the prevailing market cap, an investor trust deficit waiting to be corrected). Interest cover was a modest 2.55 times for a growing company in a capital-intensive sector; pre-tax profit was Rs 11.8 crore on an equity of Rs 58 crore (Rs 10 face value). The story gets more interesting when you consider a prospective expansion (manufacturing capacity and power plant) will increase revenues on the one hand and reduce costs on the other, the benefits of which one could start seeing from 2017-18 onwards. So, even as the company is quoted at a ridiculous discounting, this discount could deepen if it can maintain its current run rate and add expansion benefits. Could be quite a two-year story from this point.
Lakshmi Energy Foods: After having reported losses for the past few quarters, here comes the great turnaround. The company reported an Ebitda of Rs 34.2 crore following revenues of Rs 267 crore in the June quarter of 2016-17, compared to one of less than Rs 1 crore in the March quarter of the past financial year. Ebitda margin rebounded from 0.23 per cent in the last quarter of 2015-16 to 12.76 per cent in the first quarter of the current year; interest cover strengthened from nil to 5.6 times (outstanding for a just-turned-around company). Market cap: Rs 225 crore.
Mercator: I plead guilty to writing on this company for the second time in months, but I was compelled by circumstances. After a number of quarters of successive losses, the company turned around during the first quarter of the current financial year.
The consolidated numbers: Profit after tax (before minority interest) of Rs 22.1 crore, compared with a loss of Rs 57.9 crore in the corresponding 2015-16 quarter. The two numbers that have me child-like excited are interest outflow (declined from Rs 60 crore in the June 2015 quarter to Rs 55 crore in the first quarter of FY17 with a corresponding increase in interest cover from two times to three times, indicating improving liquidity) and a company with a consolidated quarterly Ebitda of Rs 165 crore being priced by the market at around Rs 1,100 crore. If only the company can sustain its existing profit run-rate through the succeeding quarters (worst case scenario) and moderate its annual interest outflow to Rs 200 crore for the current year (best case scenario), we could have a vibrant play on our hands.
The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed
