The Curious Case of Manpasand Beverages
Manpasand Beverages (“Manpasand”). Manpasand is a Baroda based company which sells fruit drinks/juices under the Mango Sip and Fruits Up brands. In a short period, the company has seen rapid growth in revenues and profits. In FY16, Manpasand generated 557 crs in revenues and 51 crs in profits. This strong growth was achieved despite strong competition from dominant players like Coca Cola (Maaza), Pepsi (Slice/Tropicana), Parle Agro (Frooti) and Dabur (Real). Company Revenue grew at 5 year CAGR 60% and PAT grew by 70% CAGR. This kind of growth attracted many investors they raised money from Private Equity. They also issued IPO in 2015 and in 2016 they issued QIP.
In FY 16, Parle Agro (Frooti) generated 1270 cr so that means the 30 years old company doing heavy expenses on marketing and sales distribution has just double the revenue of Manpasand Beverage which has negligible Marketing expenses. Manpasand claims they have presence in Rural states but as per the Survey conducted that less than 10% of retailer sell their products. Company also claims they have tie up with IRCTC but they were not yet approved to sell in premium trains.
In FY 15 Manpasand launched its non-Mango products under the Fruits Up and Manpasand ORS brand. Fruits Up comprises (1) fruit-based carbonated drinks (apple, litchi, guava, orange and mango flavors) Fruits Up and Manpasand ORS together generated over 115 crs in revenues in FY16 in less than 2 years of launch. Parle Agro’s Appy Fizz (launched in 2005) was largely considered the clear market leader. However, if Fruits Up’s numbers are to be believed it is already larger than Appy Fizz. Appy Fizz has been heavily doing marketing expenses to gain market share and manpasand claims they are market leader in just a year without doing any advertisement expenses.
Manpasand beverages were just showing in their books that they are paying 4.6 lakh per annum to management. Such a low compensation for senior management of this scale is bit akward.
The Curious Case of Kitex Garments
Kitex manufactures and exports infant garments and derives a majority of its revenues from export of garments to US and Europe. A part of Kitex’s revenues are from sale of fabric to a related party (Kitex Childrenswear) which also manufactures infant garments. Kitex has a concentrated customer base with its top 5 customers (likes of Gerber, Toys“R”Us, Mothercare, Jockey, Carter’s) accounting for over 80% of revenues.
As seeing the ROCE of Kitex garments and Page industries it shows Kitex is world most profitable apparel manufacturing company. Kitex states that their 80% of revenue comes from 5 customer but Kitex accounts for less than 1 % of their total supplies.
When the business was so much profitable and was earning 340 cr FCF there are majorly 2 ways company uses it by paying divided or by paying its Debt but company was doing neither of this two. The interest cost was rising for them but htye were noy paying as they stated they are making offset from their subsidy from Technology Upgradation Fund Scheme (TUFS) of the government. But in the books they have just collected 3,3 cr and yet to received 8.7 cr. Kitex does not earn interest on its cash balance and has not converted from $ to INR and as per the RBI no company can hold $ in their current account for more than a month.
Kitex garments promoter has have a fully owned company under their private names. The company is Kitex childrenwear limited it is related party. KCL uses the same infrastructure , they have same customer , same product line ,same management. And ICRA in its credit rating uses both the companies to determine credit rating as they have strong liknage between both the business. In fact Kitex garments has formed 3 more private companies and atleast 2 of them have exact same business. And they are not merging the company inspite of having everything same business line. Kitex reports their audited results just after 3-4 days of the financial year ending. Practically it is not possible to audit a company in just 3-4 days. Kitex’s auditor is the Cochin-based Kolath & Co which does not audit any listed entity other than Kitex . While Kitex’s audited results demonstrate a high level of efficiency, its secretarial compliance reports show delays in its filings
There are various point I learned from this:
1)Revenue can be overstated or understated there should be reason of how company increase their revenue by new product line , Niche product , Volume growth , etc
2)Investor should have a good clarity in terms of their product supply chain how many distributors, retailers, stock points, warehouses.
3)Understand market size of their company segments and their market share in Industry and should have clear picture of their customers.
4)Management experience in their business segment and their compensation plans are also good indicator to judge efficiency of their work. 5)The linkage between any private company or any other company of promotor of director should also be checked.
6)One should also check background of company Auditor.
Source,
https://2point2capital.com/blog/index.php/a2016/07/14/the-curious-case-of-kitex-garments/
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