Godha Cabcon share is currently trading at ₹0.85, with a market cap of ₹56.6 crores. Given the buzz around it, I decided to dig into the fundamentals and growth outlook of the stock.
First things first, Godha Cabcon is a micro-cap penny stock. These are stocks with market capitalizations between ₹50 crores and ₹500 crores and share prices under ₹10 per share. I’ve noticed that many new and retail investors are drawn to micro-cap penny stocks. They’re inexpensive and highly volatile, meaning their prices can change dramatically in a short time. If the price skyrockets, there’s a chance to make significant gains, but the downside is just as sharp, often leading to wealth destruction.
So, let’s delve into the fundamentals of Godha Cabcon share and see whether it’s poised to become a multi-bagger or if it might turn into a multi-beggar.
Also read- Yes Bank Fundamental Analysis: Is It a Good Buy in 2024?
About the company- Godha Cabcon share
Business Overview
Godha Cabcon, established in 2007, is based in Indore. The company manufactures aluminium conductors used in overhead electricity transmission and distribution lines. Their product range includes All Aluminium Alloy Conductors, Aluminium Conductor Steel Reinforced, and both Armoured and Unarmoured Cables. Godha Cabcon also produces electronic cables and conductors. At Present firm has the highest production capacity in Madhya Pradesh and also has the latest machines having the best technology.
Business Model
Godha Cabcon is a leading manufacturer of AAAC Conductors, ACSR Conductors, AAC Conductors, and AB Cables. The company operates a manufacturing unit in the Industrial Area, Sanwer Road, Indore (M.P.). They supply their products to the State Electricity Boards of Jabalpur, Bhopal, and Indore.
Revenue Model
Revenue Breakdown for FY22:
-Sale of Products: ~96%
-Sale of Services: ~2%
-Other Income: ~2%
Industry Analysis
Market Size: The domestic wires and cables market is valued at ₹450-500 billion, representing 40-45% of the Indian electrical industry. (Source: Company’s Annual Report 2023-24)
Product Types: Wires typically have a single conductor, while cables consist of multiple conductors for transmitting electricity, data, or signals.
Growth Drivers:
-Increased demand due to replacement activities.
-Rapid urbanization in India.
-Rising popularity of green products.
Opportunities:
-Lucrative prospects for manufacturers of specialized cables and conductors.
-Interlinked growth with other sectors like power, railways, real estate, steel, cement, refineries, and infrastructure.
-Beneficial impact from government procurement policies and strategic diversification.
Discover the Indian Hotels Fundamental Analysis: Is the 25% Discount Coupon Worth it?
Shareholding Pattern
| Shareholders | Sep 2023 | Dec 2023 | Mar 2024 | Jun 2024 | Aug 2024 |
|---|---|---|---|---|---|
| Promoters | 11.48% | 11.48% | 7.97% | 0.02% | 0.00% |
| FIIs | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| DIIs | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Public | 88.52% | 88.52% | 92.03% | 99.98% | 100% |
A drastic reduction in promoter holdings from 11.48% to 0% is unusual and suggests they might have sold shares after creating hype, possibly at high prices.
Promoters exiting signals a lack of confidence in the company’s future growth and stability, which can be concerning for investors.
With no promoter holding, the stock is fully owned by public shareholders, leading to increased price volatility and unpredictable movements.
A sharp rise in price or trading volume followed by promoter exit could indicate a “pump and dump” scenario aimed at drawing in retail investors, leaving them to bear the losses when the stock price crashes.
After promoters exit, the stock often experiences a price drop as the demand created by the hype fades and investors realize that the fundamentals may not support the inflated price.
Current Fundamentals of the company- Godha Cabcon share
The stock, currently priced at ₹0.86 with a market capitalization of ₹57.30 crores, falls into the micro-cap penny stock category.
Return on Equity (ROE): At 0.74%, the ROE is significantly below the benchmark of 10%, reflecting an inefficient use of shareholder capital in generating profits.
Return on Capital Employed (ROCE): Also low at 2.14%, indicating limited returns from the company’s capital investments.
Net Profit Margin: The company achieved a remarkable 107% growth in its Net Profit Margin in FY 2024. However, the margin still stands at a modest 3.03%.
Earnings Per Share (EPS): The EPS is ₹0.08, demonstrating some consistency in earnings.
Debt to Equity Ratio: At 0.03, the company maintains a healthy balance, with assets primarily financed through equity.
Interest Coverage Ratio: With a ratio of 9.3, the company comfortably covers its interest payments with its earnings before interest and taxes (EBIT).
Valuation: Price to Earnings (P/E) Ratio: The stock’s P/E ratio of 53.27 is lower than the sector average of 79.43, suggesting it may be undervalued compared to its peers.
Stock Performance: The stock has declined by 11.58% over the past year, underperforming its sector by 134.05%.
Current Financials of the Company
Profit & Loss statements and Cash Flows
| Financials (Annual) | FY 2022-23 | FY 2023-24 | TTM | CAGR 3 YEARS |
|---|---|---|---|---|
| Revenue from Sales | 4.35 | 18.00 | 27.3 | -18.3% |
| Expenses | 6.24 | 16.72 | – | -20.7% |
| Net Profit | -1.40 | 0.51 | 1.1 | +225% |
| Cash Flows from Operating Activities | 4.03 | -46.10 | – | -200.4% |
| Net Cash Flows | 1.15 | -0.94 | – | +11.5% |
Annual Revenue: Increased significantly by 314.07% over the past year, reaching ₹18 crore.
Annual Net Profit: Grew by 136.24% to ₹0.51 crore.
Despite these gains, the company’s cash flows from operating activities are declining, highlighting inefficiencies in generating cash from its core business operations.
SWOT Analysis
| Strengths | Weaknesses | Opportunities | Threat |
|---|---|---|---|
| Rising Net Profit Margin. | No Promoter Confidence: Promoter holding is 0. | Electric wire and cable market expected to grow by USD 1.65 billion at a CAGR of 4% during 2021-2025. | Growing competition in the industry. |
| Strong Annual EPS Growth. | Declining Net Cash Flow: Company is unable to generate positive net cash. | India’s electricity generation capacity needs to increase fivefold by 2032. | Change in the govt. policies(Industry is prone to govt. policy). |
| Annual revenue growth of 314.07% outperformed its 3-year CAGR of -18.14%. | Company’s Cash Flows from operating activities is declining year on year. | Govt. initiatives towards power sector transformation. | Scarce availability and price volatility in The company’s Basic Raw Materials are Copper, Aluminum, Steel, PVC etc. |
| Low Debt Levels. | Book value per share has been decreasing for the last 2 years. | Finance Cost Risk | |
| High PE Ratio: PE > 40, indicating the stock is overvalued. |
Auditor’s Report
The Auditor’s Report, issued by M/s. Parin Patwari & Co. for the financial year ending March 31, 2024, includes a qualification related to the realization of loans and advances. This issue has been highlighted repetitively since the previous year.
Audit Qualification: Disclaimer of opinion on the realization of loans and advances.
Management’s Reply: Not applicable.
Interpretation: The repeated concern over the realization of loans and advances suggests ongoing issues in recovering these amounts, potentially affecting the company’s financial stability.
Experts View- Is Godha Cabcon & Insulation Ltd a good buy now?
According to MoneyWorks4Me’s Price Trend analysis, it is classified as semi-strong, indicating the stock is likely to rise somewhat in the short term.
Munafa Sutra: Technical analysis suggests that Godha Cabcon is in an uptrend for the short term. It is recommended to avoid SHORT or SELL trades at this time. Instead, look for opportunities to BUY or go LONG. The stock is trading above an important moving average and has shown consistent strength. There is potential for the stock to rise further, possibly reaching levels of 1.1 or 1.2. Use a stop-loss of 0.97, and if breached, the stock could fall to 0.87.
Bottom Lines: Final Words
Summing up the analysis of Godha Cabcon share, the hype could be justified by its exceptional revenue growth. The company achieved an annual revenue growth of 314.07%, far surpassing its 3-year CAGR of -18.14%. Net profit margin also showed remarkable improvement, growing from -39.83 in FY 2023 to 3.03 in FY 2024, a growth of approximately 107.61%.
However, the company faces significant challenges. Promoters lack confidence, having reduced their holdings to zero—a concerning sign. The auditor’s report contains a disclaimer and cash flows from operating activities are negative in FY 2024, indicating the company struggles to generate cash from its core business. Additionally, the share price declined by 11.58% over the last 12 months and by 52.81% over the last 3 years.
While the stock operates in a sunrise sector, it may be appealing to new and retail investors due to the current hype around penny stocks. However, a value investor would likely avoid it. Given its growing revenues and profits, I would wait for a few more quarters to see if it can overcome its setbacks. Based on my fundamental analysis, now is not the right time to enter this stock for long-term investors.
That’s all for today’s post. Hope you get some valuable insights from here.
Happy reading!
Disclaimer
The blog is meant for informational purposes and serves the general analysis of the stocks. The contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over some time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
Pingback: GTL Infrastructure Share - Is GTL Infrastructure a Good Buy? - Daily Stocks Dekho