Flat Revenue Growth: Even though the company has been operating in the tea industry for over 80 years, its revenue growth has remained nearly stagnant, hovering between Rs.25 cr. and Rs.34 cr. As a result, the company has been unable to secure a substantial market share in India.
Declining Margins: The company’s overall profit margins have been declining over the past seven years. It has struggled to generate significant profits, highlighting its poor performance.
Increasing Debt: The company’s total debt has risen from Rs. 4 cr. to Rs. 22 cr. over the past five years from FY19 to FY23 respectively, indicating a heavy reliance on external debt to fund its daily operations.
Investment Thesis: The company's stock price is currently trading at Rs. 2200 per share, with a P/E ratio of 103.5x, which is higher than the industry median of 5.4x. The stock appears overvalued based on relative valuation. The company has a total debt of ~Rs. 22 cr. on the books with ~Rs. 34 cr. revenue in FY23. The high leverage balance sheet, lower interest coverage ratio, and poor liquidity ratio has lowered the value of the stock. As per our analysis, the value should be within the range of Rs. 600-Rs. 700.
We maintain a sell recommendation. The company has been in the industry for over 80 years, it has not captured a significant market share. Additionally, over the past five years, the company has not been able to make significant profits, and revenue growth has remained stagnant.
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