Potential investors looking into Amira Nature Foods could be forgiven if
they get unabashedly excited for prospective ownership in the company. The
Indian food company, headquartered in Dubai, which is best known for processing
and distributing
Basmati Rice and other related food products, appears to be,
at first glance, a real steal. It sells its products in over 60 countries and
has been in existence in one form or another for a century.
The stock, currently trading around $12, can be had for just under 9 times
annual profits, for a P/E ratio of 9. Not only that, since going public in
2012, the company has grown its revenue from $203 million to $700 million, and
net profit from $5 million to $42 million. Gross margin, operating margin, and
net profit margins have all been increasing since 2010. Financial leverage has
come down from 6.6 times assets to 2.6 times assets by 2015. Return on Assets
has improved from 2.4% to 9.2%. So has Return on Equity, going from 15.82% to
24.27%, and Return on Invested Capital, growing from 7.4% to 18.3%.
With analyst estimates of 25% growth over the next 5 years, it may seem that
the current earnings per share of $1.46 could expand to $4.61 per share by 2020
if the high expected growth rate is achieved and maintained. If Amira grew its
earnings per share to $4.61 in 5 years time, and the stock traded at the exact
same earnings multiple of 9, you could potentially see your investment compound
by north of 20% over the next 5 years.
While everything looks very promising, there are also some concerns. First,
the most up to date financials are from March 2015. There is concerning because
it has been almost a full calendar year since the financial health of the
company has been reported. Even though the company reports with the SEC through
a 20-F, it is still slightly concerning when you see that an Indian company is
headquartered in Dubai and reports stale financials to the US. To add to this,
the independent auditors they have hired to audit their financial statements,
ASA & Associates LLP, is an Indian based auditing firm, not an established
American auditing firm. It’s just that this long and winding trail should make
you, as a critical analyst, weary.
I also find the cash flow statement concerning. While strong net profit
growth is evident in the income statement, the cash flow statement tells a
different story. Since financials have been reported from 2010, aside from
2012, operating cash flow has always been significantly lower than net income.
This is concerning because if net income is much larger than operating cash
flow, it’s a signal that the company’s earnings quality – the usefulness of
earnings – is potentially questionable. If I were to seriously consider investment
in Amira Nature Foods, I would want to understand why operating cash flow has
been lagging net income so badly.
Prescience Point made allegations last year that Amira was cooking the
books. While I have not gone through the 20-F filing in-depth to verify or
confirm these allegations, I would think it would be prudent to go through the
allegations and see for yourself if they are valid or not. For a stock such as
Amira, I believe it would be prudent to approach potential ownership by
conducting your own research with a critical eye.
You can trust, but always verify. If Amira’s financials check out to be
solid, it could potentially be a very lucrative and attractive opportunity.
For More Information: http://www.modestmoney.com/tread-carefully-with-amira-nature-foods-anfi-stock/31566
