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TVS Srichakra - A reticent company

This is the annual report season. 

Among the ones on my tracker, TVS Srichakra is possibly one of the most reticent companies. Hardly any analyst reports, no CEO interviews, no flashy investor PPTs - pretty hard to figure out whats going on. 

No fancy investors (a.k.a Dolly Khanna, Porinju, Anil K Goel, R. Jhunjhunwala et al). As per ValueResearchOnline, only L&T Mutual Fund holds the stock. Broadly, the market is disinterested in this stock. The stock price is at a multi-year low ! 

What a Value Investor seeks to figure out is - how deep is the Value-Price mismatch?

So what's happening to this stock which was a 20-bagger in just 3 years (2014-2017)? Some hints and questions from the charts. This kind of prep helps you understand the Annual Report better and look for answers. 

One of the ways to find a multibagger (or deteriorating situation) is to read some of these early signs. At a ROCE & ROE of close to 30% (that is a seriously big ROCE for a manufacturing co.!) and reasonable D/E ratio (always see ROCE, ROE and D/E together - Debt magnifies ROE !), this is ideally a great compounder. Question is - is it a true compounder or just a one time wonder?  

Maybe when you read the 2018 Annual Report you might find some answers. See questions and data points below. 

Cash Flow Pistol View
  • The splash of Yellow on the left hand side tells you that the management is on a Capex spree. 
  • Why is the impact of the large capex in 2017 yet to show in 2018 revenues? Growth in Op. Cash Flow is something to look for in Cash Flow Statement this year.  
  • The big purple you see (Debt raising outflow) was more of a short term borrowing to support the large capex. So that should get offset in this years numbers ideally. Is it really offset? 
  • In coming 2 years will we see more purple on left hand side or right hand side? A great multibagger begins when "Green" gets bigger on right and Yellow and Purple get bigger on left. 

  • Will FY 2018 bring FCF back to positive after the major capex last year? 

Profit Waterfall View
  • 2015-16 was a great year for TVS Srichakra. While Rubber prices have been soft, crude price increasing might impact RM (Carbon Black)/logistics costs. What's the way forward? 
  • Key is to look for PBT trend - it tells you if the competitive position is strengthening or weakening. The Chinese were hurting Indian tyre makers badly. 

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