When the going is good, one tends to put caution to rest. There is also the problem of feeling confident as everything that one touches turns into gold, well, almost everything. Agreed that when the markets rise, several undeserving stocks appear attractive, but as always we are playing devil's advocate. After all, for every good stock to invest there are also many Kingfisher Airlines type stories that are brewing that one needs to be careful about. Last month, Kingfisher Airlines was declared a wilful defaulter.
As always, curiosity got the better of me and I started to look into the fundamentals, especially accounting signs that were similar to Kingfisher. I did not get into digging around endlessly and looked into a few basic factors like cash earnings and operating profits. Kingfisher had negative cash flow from operating activities in 4 of the last 5 years.
Generating revenue from the very core operations is most basic necessity for any company to exist. Likewise, even if a company had other source of income, its operating profits including other income should yield positive in the long period. Even in this aspect, Kingfisher failed and was loss making in 4 of the past 5 years. Here are 12 companies that are debt laden and with several signs of going the Kingfisher way.
|Company Name||Cash from operations (₹cr)||Operating profit (₹cr)||Total debt (₹cr)||Debt to equity||RoCE (%)|
|Sterling Holiday Resorts||-10||5||274||1.19||-2.45|
|New Delhi Television||-76||31||224||1.15||7.66|
|Hindustan Organic Chemicals||-1||-87||196||-1.71||-125.9|
|Indo Tech Transformers||-18||-37||125||20.5||-5.96|