How has been the historical performance of Loyal Equipments?

Revenue and Profitability Trends

Over the four-year period ending March 2022, Loyal Equipments’ net sales demonstrated a downward trend, falling from ₹41.44 crores in March 2019 to ₹32.79 crores in March 2022. The peak sales figure was recorded in March 2019, followed by a decline in subsequent years, with a notable dip in the latest fiscal year. The company reported no other operating income during this period, indicating reliance solely on core sales for revenue generation.

Operating profit margins, excluding other income, have mirrored this decline. From a robust 17.81% margin in March 2019, margins contracted sharply to a negative 5.4% by March 2022. This contraction reflects rising costs and operational challenges. Correspondingly, the company’s profit after tax (PAT) margin fell from a healthy 10.86% in March 2019 to a negative 15.61% in March 2022, signalling a shift from profitability to losses.

Operating profit (PBDIT) excluding other income dropped from ₹7.38 crores in March 2019 to a loss of ₹1.77 crores in March 2022. Interest expenses have increased steadily, reaching ₹1.60 crores in the latest year, further pressuring profitability. The company’s consolidated net profit swung from a gain of ₹4.50 crores in March 2019 to a loss of ₹5.12 crores in March 2022, with earnings per share reflecting this downturn, declining from ₹4.41 to a negative ₹5.02.

Cost Structure and Expenditure Analysis

The company’s total expenditure excluding depreciation has fluctuated, with ₹34.06 crores in March 2019, dipping to ₹24.34 crores in March 2021, before rising again to ₹34.56 crores in March 2022. Raw material costs have generally increased, reaching ₹18.36 crores in the latest year, while employee costs have also risen steadily to ₹4.95 crores. Other expenses have varied, peaking at ₹10.22 crores in March 2020 and settling at ₹8.19 crores in March 2022.

Inventory levels have increased over the years, standing at ₹16.79 crores in March 2022 compared to ₹12.67 crores in March 2019, which may indicate stock accumulation amid sales pressure. The company has not reported any power or selling and distribution expenses, suggesting a lean operational model in those areas.

Balance Sheet and Financial Position

Loyal Equipments’ total assets have grown from ₹30.95 crores in March 2019 to ₹46.02 crores in March 2022, driven by increases in gross block and net block assets. The net block rose from ₹4.88 crores to ₹14.19 crores over the period, reflecting capital investments. However, reserves have declined from ₹7.75 crores in March 2019 to ₹6.35 crores in March 2022, indicating retained earnings erosion due to losses.

Shareholder’s funds peaked at ₹21.64 crores in March 2021 but fell to ₹16.55 crores by March 2022. Total liabilities have increased from ₹30.95 crores to ₹46.02 crores, with total debt rising from ₹7.49 crores to ₹15.85 crores, highlighting increased leverage. Short-term borrowings have nearly doubled, reaching ₹10.49 crores in the latest year, which may raise liquidity concerns.

Cash Flow and Liquidity

Cash flow from operating activities has been inconsistent, with zero cash flow reported in March 2019 and March 2022, but positive inflows of ₹2 crores in March 2021. Investing activities have generally been cash outflows, notably ₹6 crores in March 2021, reflecting capital expenditure. Financing activities have fluctuated, with a significant inflow of ₹5 crores in March 2019 and 2021, but a modest outflow in March 2022.

Closing cash and cash equivalents have declined sharply to ₹0.73 crores in March 2022 from ₹3.48 crores in March 2021, signalling tightening liquidity. The company’s working capital position has weakened, with net current assets falling from ₹11.93 crores in March 2021 to ₹7.89 crores in March 2022.

Summary and Outlook

In summary, Loyal Equipments has faced a challenging period marked by declining sales, shrinking profit margins, and a shift to net losses in the latest fiscal year. The company’s increasing debt levels and reduced cash reserves raise concerns about financial stability and liquidity. While capital investments have expanded the asset base, erosion of reserves and shareholder funds reflect operational difficulties.

Investors should carefully monitor the company’s ability to stabilise revenues and control costs, alongside managing its debt burden. The recent negative earnings per share and operating losses underscore the need for strategic initiatives to restore profitability and strengthen the balance sheet.

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