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Thursday, July 01, 2010

Arman Financial and Ganesh Polytex: Avoid!!

Arman Financial:
CMP: 30.30
Market Cap: 12.35Cr
Debt: 9.79Cr (March 2009)
Reserves: 3.25Cr (March 2009)
ROCE: 15.20% (March 2009)
Debt to Equity: 1.34

ARMAN FINANCIAL SERVICES LIMITED was originally incorporated on 26th November, 1992 as an erstwhile Arman Lease & Finance Ltd. The company is a public limited listed company. It issued 28,00,000 Equity shares of Rs. 10 each on 21st August, 1995 aggregating to Rs 280 lacs after receiving an overwhelming response from the public for its public issue which was oversubscribed by 7 times in the category of small investor and more than 22 times in case of applicants with application of more than 1000 shares.

The main objects of the company consist of providing a wide spectrum of financial services both Fund based and Non Fund Based activities which includes term loans, collateral free credit, other forms of credits, thrift and savings and insurance. Arman also plans to render financial services to people by acting as intermediary for banks and financial institutions in the cities, towns, villages of India

1. Company is in Micro finance area which is a "Hot" area.
2. Arman has -ve cash flow from operations for past 3 years or so..
3. Promoter shareholding is decreasing (There is however accumulation of shares in hand of few public investors)
4. Interest cover ratio is 1.68

Conclusion: Company maybe in a hot area of micro finance but since the company does not have access to cheap funds it is always going to be difficult to survive. Banks are supposed to enter into this area (indirectly) and we could see greater competition. No dividend.. low promoter holding.. public shares in the hands of few... stock has already given returns of 350% greater than the Sensex. This is an Avoid at all cost. There could be a freak valuation ... but still whosoever is going to buy the stock at a higher price is going to be the greater "Fool"

Ganesh Polytex:
CMP: 47.55
Market Cap: 63.57Cr
Debt: 61.36Cr
Reserves: 14.12Cr
ROCE: 15.63%
Sales TTM: 198.97Cr
Debt to Equity Ratio: 2.75

Ganesh Polytex produces polyester staple fiber and textured/twisted yarn. company has increased capacity and is expecting a very bright future.. Ganesh has positive cash flows from operations ...unfortunately the stock is already priced at a premium. Debt Equity ratio is high.. and there is preferential capital of 4.5Cr all this makes Ganesh Polytex a very expensive proposition. The company is also in a fiercely competitive business (every business is competitive unless you have a monopoly!!) so I think the promoters are being too ambitious.. Negatives have not yet been factored into the price ..Avoid at the best.. if you like the Indian textile story one should look at Arvind group (now Arvind Mills also has the real estate twist)


Shravan Kumar said...

Arman Financial i bought on 27 rupees 4500 shares now is 20 i have hold or exit..& this company announcement right issue on December 6th.......

What'sUp Prahalad said...

Shravan Kumar:

Personally I do not like Arman.. But theoretically speaking..
we can expect a bounce back.. and finance at the rural level could be an interesting space.. with huge growth opportunities..

I would wait for a bounce back..

=happy investing

Anonymous said...

I think arman is significantly undervalued. their book value is lower than the price. and the promoters hold about 35%. is that less?? i agree that microfinance is a hot issue right now... hence the price drop. But they have been having 100% growth in the last 2 and a half years.


What'sUp Prahalad said...


Microfinance.. is a very tough business.. specially with regulations for how much interest rate these institutes can charge...

Also in Banking there is a concept of "Fractional Reserve" which means if the bank has Rs 100 in deposits it can lend Rs1000 ..

So even if banks give 9% in deposit and charge 14% in interest.. since they can lend 10 times more..
Depositor gets Rs 9 as interest
Bank gets rs 140 as interest (because they can lend 10 times more than their reserves/deposits)

So Microfinance.. is very risky.. as they have to take Rs 100 in loan (say at 10%) and can lend only Rs 100 at 24% ..

its better to stick to a conservative bank.. like corporation or oriental bank of commerce.. which will grow slow and steady..

=happy investing

Tathastu said...

Well, I would not invest in Arman Financial. Who else do you recommend?