It would be advisable to look to companies that reported attractive growth during the first quarter, says Mudar Patherya.
Illustration: Uttam Ghosh/Rediff.com
At a time when the markets appear nervous, it would be advisable to look to companies that reported attractive growth during the first quarter of the current financial year in the hope the trend extends itself.
This column reviews stocks that caught my attention, warranting a closer scrutiny when they announce their second quarter results.
For long, those who bought into the stock lived on hope. It appears their patience might start paying off.
Revenues have transformed: From Rs 2.05 crore in the first quarter of 2016-17 to Rs 11.27 crore in the first quarter of the current financial year.
Correspondingly, the bottom line has evolved: From a company that reported net loss in every quarter of the last financial year (aggregate annual loss of Rs 22.93 crore), to finally succeeded in posting profit during the first quarter of the current financial year.
What I like is an Ebitda (earnings before interest, tax, depreciation and amortisation) margin in excess of 40 per cent and an interest cover of a shade below 4x in the first quarter of the turnaround.
A similar story appears to be playing out. Most seed companies are kharif-driven, so much of what they earn is reflected in their first two quarters (subsequently a holding operation where losses need to be minimised).
The company logged lower revenues in the first quarter of the current financial year (Rs 7.41 crore), compared to the corresponding period of the previous year (Rs 9.74 crore) but transformed from a net loss of Rs 1 crore to a profit of Rs 1.50 crore, indicating a change in corporate strategy.
Interest outflow was virtually steady (though technically one would have liked to see it lower on account of lower revenues, corresponding to a lower working capital outlay); interest cover was comfortably a shade below 4x.
At a time when the Korean twins are virtually dominating the country's consumer electronics space, the sustained turnaround of MIRC comes as a pleasant surprise.
There are various ways of appraising the company's first quarter pre-tax profit of Rs 4.50 crore: One, it is the second successive profit quarter; the company reported larger pre-tax profits in the past two quarters than the losses of the previous three combined.
Waiting eagerly for the second quarter results (which may be affected by goods and services tax or GST), though one must try and comprehend the optimism of people who have priced this stock in excess of Rs 550 crore in one of the most competitive sectors of this country.
There is something positive transpiring at this Kolkata-based pumps manufacturer.
Check revenues across the past five quarters: Rs 37 crore -- Rs 58 crore -- Rs 66 crore -- Rs 102 crore -- Rs 73 crore (the decline could be ascribed to a seasonal effect).
Ebitda has strengthened from Rs 6.17 crore to Rs 11.79 crore across the terminal quarters; interest has increased by a mere Rs 3 lakh during this period, strengthening interest cover.
There will be something to keep one busy if the market weakens further.
Mudar Patherya is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed.