Skip to main content

Temptation Foods


Temptation Foods is apparently in the business of manufacturing and distributing frozen food products.

The business has posted suspiciously large profits over the recent past and has maintains an apparently healthy debt/equity ratio of around 0.5.

It is also operating in an industry with supposedly unlimited growth potential.

That’s where the good news ends.

The company has bled a substantial amount of cash from operations in each of the past five years (minimum) and maintains absurdly high working capital levels raising questions about the saleability of inventories and recoverability of receivables.  In fact, all of its profits (and much more) appear to be forever tied up in working capital.

Management have a questionable reputation – with several issues that flare warning signs to outside investors.


-        - They are extremely acquisition hungry and determined to grow inorganically by, apparently, any means necessary.  This carries obvious risks of over-expansion where the company stretches its resources to finance acquisitions beyond breaking point

-         - They are prepared to issue shares in the company to finance acquisitions – this, at once, should be the clearest warning sign to outside investors that the shares may be overvalued.  Even if it were undervalued, why would a promoter sell away a portion of the company using shares, which the market is undervaluing, to purchase any asset – rather than use cash or other means?

-        - Excessive issue of preferential warrants and options – this is one of the most repulsive actions management take to gain an edge over minority shareholders.  It may be used for justifiable business expansion and SEBI rules have limited management abuse to a large extent but excessive use of this method should lead shareholders to question management’s true motives.

- Management appears to be distracted by stock market activity – links to Ketan Parekh, market activity pertaining to the acquisition of Kohinoor Foods etc. gives the impression that management is more interested in the stock market rather than concentrating on its business operations.  This type of management is more likely to employ financial gimmicks to boost the company's share price (presumably for acquisitions) rather than rely on the underlying fundamental quality of its business.


History is littered with the examples of financial frauds where the ‘flamboyant’ promoter is aggressive with his company’s stock market activity (check out Barry Minkow of ‘ZZZZ Best Carpet Cleaning Company’ in the US in the 1980s).
-     

Labels:

Comments

  1. The Conservative InvestorJuly 4, 2011 at 10:43 AM

    Thanks for your comment Mohit and welcome to my blog. No, I haven't talked to TF management - I don't think it would make much difference to my view of this company. I think public filings are adequate to make investment judgments (and improving all the time). I'm sure I'll touch on this subject again later in this blog.

    ReplyDelete

Post a Comment

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today...
1 comment
Read more

Under the Radar: India’s Mid-Cap and Small-Cap Equities

Indian stock markets have been one of the worst performers in 2011 – worse than their BRIC peers, worse than the rest of Asia and far worse than the US with the leading indices declining about 25% during the year.  Foreign investors in India have also suffered substantial declines of nearly 20% in INR currency value. There appear to be several reasons for the market’s dislike for Indian equities in 2011, which include persistent inflation (including food inflation, which constitutes the major proportion of the typical Indian household), political paralysis (e.g. rollback of foreign investment in retail etc.) and global concerns about the solvency of several Eurozone countries. As a result, estimated GDP growth for the next financial year has been revised downwards from about 8% earlier in the year to about 6% now - with many market commentators wondering whether this rate of growth is India’s ‘new normal’.  This is still, however, substantially higher than global av...
2 comments
Read more

Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:          ...
Post a Comment
Read more