I had a preliminary call with the management and followed it up with a letter to their finance department requesting for explanations for their abysmal low margins of 0.2 % PAT and high material costs of 72% .I am awaiting a reply still .

 

I was told by management to expect dividend this year ( 10% ) . While this is possible ( not certain but possible ) I made the point that if the margins are a realistic 10% on PAT basis this company would have an eps of 23 as against just 0.46 last year . Even at a conservative 10 pe it can be a multibagger then.

 

 

 

Disappointed with company interractions - Unable to get even an assurance of a reply to my queries on low margins,high material costs.I found out that retailers are making 8% margins selling bambino product vermicelli and I assume distributor makes at least 4% - So company should have been making at least 12% instead of less than 1% ( despite interest costs ) .They have been trying to hire a cfo for some time now but seems not succesful

 

The concern stems from integrity related or governance related issues - They have 2 promoter firms which are unlisted and my unfounded suspicion is that material costs are high due to bloated purchases which any way is non taxable as agricultural income for the selling unlisted promoter firm but reduces share of profits available to minority share holder.

 

Promoter is Mr Kishan Rao who I believe was accused of fraud in an earlier venture called spectrum power where money was raised from NRIs but not used - Relevant link is below : There are also some news articles related to above arrest which can be googled .Below court judgement relates to 1994 and pronounced in 2000.

 

 

Summary : Even if this may or may not make money for you as a shareholder this does not allow you to remain at peace as a shareholder with constant worries on management integrity .So I am not recommending buy - rather would suggest getting out if someone is already in .