Dated: 21 Jun 23
Company: Chamanlal Setia Exports Ltd.
CMP: Rs. 174.90

Intrinsic Value Of Chaman Lal Setia Exports Ltd.

In this article we will try to analyze Chamanlal Setia Exports Ltd. based on previous six years of financial statements viz Balance sheet, Profit and Loss statement and Cash flow statement. With this fundamental analysis we will try to gain insight into the financial health, operating efficiency and profitability of the company and finally try to derive the intrinsic value of the stock using Discounted Cash Flow method and the price at which the stock becomes attractive for long term investment.

Chamanlal Setia Exports Ltd. is a leading exporter of high-quality Basmati rice and other agricultural products. The company exports to more than 85 countries worldwide. With an unwavering commitment to innovation, they have branded and added rice for diabetics and brown rice for fitness cautious individuals in their catalogue.

Note: Here we are carrying out only the quantitative fundamental analysis of the company as the qualitative analysis is more subjective and individual views may vary vastly.

Before we enter into the calculation of Intrinsic value of Chamanlal Setia Exports Ltd. we have to make some logical assumptions based on the previous six years financial statements and ongoing yield for 10y Government Of India bonds.

Assumptions:

• The increase in Free Cash Flow is assumed to be Rs. 471.52 lakhs per year for the first five years and then Rs 235.76 lakhs from sixth to tenth year. The growth rate is projected based on the past growth of Free Cash Flow (refer to figure below). In the past Free Cash Flow has increased at the rate of Rs. 943.04 lakhs per year, however, with a conservative outlook we have taken 50% of that figure for the first five years and 25% of that for the next five years.

• Terminal growth rate is assumed to be 0%.
• Discount rate is assumed to be 12%.
• Increase in Revenue is assumed to be Rs. 5371.73 lakhs per year for the first five years and then Rs 2685.87 lakhs per year for the next five years. This growth rate is based on analysis of previous year’s revenues (refer to figure below). In the past revenue has increased at the rate of Rs. 10743.47 lakhs per year, however, with a conservative outlook we have taken 50% of that figure for the first five years and 25% of that for the next five years.

• Free cash flow will be 2% of revenues in future. The FCF/Revenue ratio for the period under consideration has an average of -0.02. However, since we see an upward trending Revenue and PAT figures we assume that the Free Cash Flow will improve to 2% of Revenue as company works to reduce the trade receivables in upcoming years.

Based on the above assumptions we have arrived at two levels as intrinsic value of the firm. One is based on extrapolation of Free Cash Flow and the other is based on Free cash flows derived from extrapolated values of revenues. Both the methods only differ in how the input values are derived; in both the cases the present value is arrived at using Discounted Cash Flow Method.

Free Cash Flow Growth Model

Intrinsic Value: Rs. 23.26

Stock Entry price with 25% margin of safety: Rs. 17.44

Revenue Growth Model

Intrinsic Value: Rs. 47.05

Stock Entry price with 25% margin of safety: Rs. 35.29

The average of the above two stock entry prices works out to be Rs. 26.36. When the stock starts trading below this price it becomes attractive for long term investment.

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Fundamental Analysis Of Chaman Lal Setia Exports Ltd.

Leverage Ratios

Observations:

1. Company is operating with low debt and has managed to reduce the debt levels.

Operating Ratios

Observations:

1. Company has a very high fixed assets turnover ratio indicating that it is very efficient in utilising its fixed assets like property, plant and equipment.
2. Working Capital turnover ratio is low when compared to the performance of fixed assets turnover ratio. This is mainly because the trade receivables (which is a component of current assets in balance sheet) of the company is almost 12% of revenues consistently and even shot up to 19% in year 2022. This is also negatively impacting the company’s cash flow. Company has to implement means to bring down trade receivables. Out of six years observed there were three years when the net cash flow from operations was negative.

Profitability Ratios

Observations:

1. It is noteworthy that the company has managed to improve its PAT, EBITDA as well as PAT and EBITDA margins.

Author

Jibu Dharmapalan

Fundamental Analyst
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Disclaimer: This is not a stock advise. Investors must use their due diligence before buy/selling any stocks.

References:

https://www.bseindia.com/stock-share-price/chaman-lal-setia-exports-ltd/chamanseq/530307/financials-annual-reports/

https://www.clsel.in/annual-reports/

https://www.clsel.in/1501-2/

More about the Company:

Board Of Directors

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