ICSA was one company which had showed a lot of potential
with its unique business model. Its products that helped the energy companies
capture the transmission losses the business model was considered as a boon for
power generation companies. However the company lost its way in between and
tried to diversify the similar business activity in other energy sector as
well. However despite the management consistently writing about the same in its
management discussion analysis, hardly anything got actually converted.
Amid all this the power sector also witnessed a set back and
with this ICSA also witnessed a severe damage. Power sector which was once seen
as a promising sector in India, started facing issues like non availability of
feed stock leading to lower plant load factor (PLF) and financial worries
leading to delay in on going power plant expansion projects.
And as the power sector witnessed a lull, financial
performance of the company also got severely affected. From FY12 onwards the
company started posting losses and since then the things have gone further
worst. Just to put the figures in perspective for FY12 its losses stood at Rs
178.10 crore as against profit of Rs 125.40 crore posted in FY11. Its losses
increased to Rs 820.61 crore in FY13. Though the losses have declined in FY14
to Rs 620.39 crore and Rs 343.08 crore in FY15, we feel the worst is not yet
over for the company. For FY16 also the performance was poor as the topline stood
at Rs 4.56 crore and net loss was Rs 20.80 crore.
If we take a closer look at the financial performance of the
company a few issues emerge. Extremely long working capital cycle resulting in
negative free cash flows for the company. Over and above that, the company was
highly leveraged. Without cash flow generation it was quite difficult for the
company to even repay its interest cost. Apart from this, as mentioned earlier
its exposure to troubled power sector only added to the woes. Company's key
customers were a few private companies and larger chunk was state electricity
boards. With most of the state electricity boards struggling with their
finances the scenario only got worse. Entire promoter's shareholding is
pledged. A significant amount of correction in prices was mainly led by margin
calls getting triggered which ultimately resulted into liquidation of pledged
shares in the open market.
No wonder the scrip declined on the bourses by more than 99
percent since its peak in 2008. A lesson to learn here is, we always need to
look at the company’s business in detail. Management of the company kept the
investors in dark about the actual scenario. While a lot was committed, it
hardly delivered anything.
Hence while analyzing any company it is necessary to look at
last three years of annual reports to understand whether the management has
delivered what it has committed. If the management has flunked on delivering
commitments, it is better to avoid the counter.
The
stock is trading at Rs 2.80 and had witnessed some momentum in last few
quarters, however we recommend investors to stay away from the counter.
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