The curious case of a company that sells both toys and three-wheelers

We explore its bizarre diversification strategies and why it is trading at extreme valuations

OK Play India: Why is it trading at extreme valuations?AI-generated image

dhanak हिंदी में भी पढ़ें read-in-hindi

In our 30 years of researching the Indian market, we have spotlighted some quality companies and some that make most investors pinch their noses. But recently, we discovered a company that warrants its own category - The jack of all trades but master of none.

Introducing OK Play India , a small-cap company that manufactures toys. However, it is also present in commercial vehicle fuel tanks and electric three-wheelers. Surprised? We were, too. The markets though are loving this eccentric diversification. The stock has grown nearly 3x in two years! The euphoria is also visible in its mind-boggling 348 times price-to-earnings ratio .

Our initial research left us with more questions than answers. Are we missing something? Is the market aware of some secrets? Is it giving free toys with its electric three-wheelers?

So, we decided to dive into the books of this bizarre company. What we found left us bewildered.

Projections or pipedreams?

If you thought only politicians make promises bordering on pipedreams, fasten your seatbelts. OK Play believes it can double its revenue from the toy segment every year for the next five years! Not only that, but it also expects its electric three-wheeler and commercial vehicle tank segment to grow 15 to 20 per cent annually.

While we're not saying it's impossible, its historical performance does not work in its favour.

A history of losses

It has incurred losses in four of the last five financial years

FY24 FY23 FY22 FY21 FY20 FY19 FY18
Net sales 184.57 181.45 101.15 91.91 78.81 156.73 142.26
EBIT (ex OI) 21.13 19.99 1.41 7.79 4.28 32.03 24.39
EBIT margin (%) 11.4 11 1.4 8.5 5.4 20.4 17.1
Profit after tax 1.14 -1.96 -7.72 -7.99 -3.62 6.25 2.23
*All numbers in Rs cr

If it achieves this growth rate, it would be the turnaround of the decade, and we might see a Netflix original based on it.

More diversification

Its tale of diversification does not end at electric three-wheelers. Recently, it forayed into air purifiers. It is a commendable venture considering India's fight against pollution. However, from an investment perspective, the capital might be better invested in its core toys segment. Wasn't it supposed to double every year?

Also, one would think that after its disastrous performance in the three-wheeler segment, the diversification would stop. It boasts a partnership with HPCL and aims to deploy its EVs in HPCL 's LPG delivery system (for Delhi). But, till today, the three-wheeler segment is loss-making, with negligible revenue contribution (around 2 per cent in H1 FY24).

Flip-flop decision-making

On November 9, 2023, management announced a share split. But within a month, it raised Rs 43 crore through equity share issues and scrapped that stock split idea. Again, on January 30, 2024, it said that it would undertake a share split.

There is no harm done here, indeed. But why go through so much hassle if there is no value creation in the picture?

A hidden lesson

OK Play's perplexing story reminds us of the famous phrase from Benjamin Graham, "In the short run, the market is a voting machine but in the long run, it is a weighing machine".

Its exciting projections have surely won the market's votes. But will it be able to tip the scales in its favour in the long run when its performance has to weigh up to its lofty projections?

Only time will tell.

Also read: Should you invest in steel stocks now?

Re-written by: Mithilesh Bhaumik

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