1. We a see a trend these days to compare operational cash flows to net profits and judging the quality of a company based on this rather simplistic metric. Through this thread we seek to dispel this myth through an investee sapling of ours. #saplingcapital #Saplingframework
2. One of our most favorite technical pesticide manufacturing sapling has often been ridiculed for not generating operating cash flows in line with net profit.
If all that were required to identify great companies was to compare OCF to profits everyone would be a super investor.
3. Going in depth and scratching beneath the surface helps and in this case it required one to study the nature of the trade.The company is one of the largest exporter of technical grade pesticides.
4. The main competition comes from china which for the past 10 yrs used to provide its european customers a credit period of 6 months. This was the trade company functioned in for a large part of its existence.
5. In addition, manufacturing of technical pesticide requires diverse chemicals such as phenol etc not commomly available in india atleast before deepak phenolics came in.Thus companies stocked up on important feed material to ensure smooth operations, soaring up inventory levels
6. Also if one were to do a simple supplier check of company, he would have known that company avails of large cash discounts by paying immediate basis.
7. This if anything is actually a great indicator of company's balance sheet.Not many companies are able to pay in time in India let alone availing cash discounts.
8. Now all of this reduces the operating cash flow optically but none of this impacts the core moat of the company, which is manufacturing niche technical pesticide, come first time in India at scale.
9. Meanwhile the stock is a 100 bagger in last 10 yrs. Excel investors will miss out becuse they fail to realize that their is a real world out there. Where things arent really as smooth as they want then to appear on their excels. End @moatseeker @Rachitpandey299 @chiragdashj
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