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Following the Cash Trail

Haldyn Glass is a cash rich company that makes profits out of its operations in case. Should you invest?

The market seems to be in a mood loss with an air of uncertainty about its direction. In a situation like this I would like to stick to a company which is cash rich and makes all the profit out of its operations in cash.

I started hunting for such company applying a few criteria. I began with companies which have traded on all trading days in the past one year. Then, I eliminated companies with a market cap of less than Rs 50 crore and also kept away all the banks and finance companies. Next, I skimmed out stocks which have cash and cash equivalent of more than 5 per cent of the total assets, and ensured that cash flow from operation should be more than 80 per cent of the net profit. This ensured that operations of the company are more cash based and profit is not solely out of substantial amount of non-operational elements. Further to check that a company is not selling too much on credit, I checked that debtors shouldn’t be more than 20 per cent of sales. Finally, I applied the criteriion that three-year average RoE should be more than 20 per cent, three-year annualised growth in sales and profit should more than 20 per cent.

To my surprise what I got was a small-cap company, Haldyn Glass. Incorporated in 1991, Haldyn manufactures clear glass bottles and bottles for liquor, cosmetics, pharma, food and beverages. The company was promoted by Haldyn Corporation which is engaged in the manufacture of Soda Lime Flint & Amber glass containers since 1964. Haldyn’s clients include United Spirits, Pernod Ricard, Amul and Bajaj Corp. International players include Bentos Pharma (Nigeria), Saga Concept (Beirut), Al-maya, Weikfield International and Dabur in Dubai.

The company has grown steadily and so has its installed capacity from 54,000 in FY07 to 1,08,000 units in FY11. Production too has grown to 451 million in FY11 from 242 million in FY07. Haldyn has a total melting capacity of 320 tons/day comprising of two glass melting furnaces.

Quantitative filters based on strict parameters serve as a very good starting point to hunt a company but your final investing decision should be based on qualitative factors and future growth drivers after looking more into Haldyn before you take the call.