Business - Triton Corp Ltd. is an India-based company carrying out business process outsourcing (BPO) services. The Company’s subsidiaries include Maple eSolutions Limited, which is engaged in call centre activities and Westtalk Corporate Limited. Triton acquired 100% stake in Westtalk Corporate Limited, UK in 2008 which is in the business of distribution of wireless communication / contracts on behalf of various network providers (Orange, Vodafone, T-Mobile , O2 etc.) in UK.
Looking at the last annual report (2007-08), the company looks in a very healthy position showing a high growth in both revenues and the net profits reported over the corresponding period of 2006-07. But if we go further and check the quarterly results for FY 08-09, the bad shape of the company is very apparent. For the first 3 quarters itself, the company has accumulated losses of around Rs.14.04 crores with the revenues for the third quarter hitting as low as Rs.4.27 crores compared to Rs.42.59 Crores for the corresponding period in FY 07-08.
But as the emphasis on the Balance sheet is highly laid in value investing world, let us take a look at the value investors are getting for the price they are paying for the stock. The consolidated balance sheet for Triton corporation and its subsidiaries presents an interesting picture. The investments of the company alone amount to around Rs.19 Crores which comes out to Rs.0.94 per share. Compare this to today's closing price of Rs.0.58, which will need a 62% hike to meet just the investments per share.
In Security Analysis, Graham suggests that the liquidation value of a company is more or less equal to the Current Assets less all liabilities. For Triton the liquidation value comes out to be around Rs.27 Crores (i.e. around Rs.1.34 per share). Thus, we see that the company is selling in the market at a valuation of Rs.11.5 Crores which is at a discount of around 57% to the liquidation value. Thus, an investment bargain opportunity is clearly visible in this case. Graham referred to these types of bargains as "net nets".
The bad performance of the company in the prevailing recession is probably the reason of the discounted price of the company. In my opinion, the stock is a reasonable buy at this price as the value it offers to the investor is immense.
Risks Associated with Triton
Considering the poor performance of the company in the last fiscal and the ongoing recession, predicting the future of this company can be very speculative. Also, in the recent past there have been some instances where the promoters of Triton have offloaded their shares in the market (though still around 75% stake rests with the promoters). After the Satyam fiasco, some people might want to look at it as a negative signal for getting into this company. But I beloeve that at current prices, the investment offers more upside potential than a downside risk.
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While analysing Triton, I forgot to mention one more ratio which Graham talks about when looking into Penny stocks. PSR (Price to Sales Ratio) is a very significant indicator in the context of low priced stocks in a sense that a low PSR presents favourable investment opportunities for the investor. In case of Triton too, the total market capital being around Rs.12 Crores is far less than the annual revenues which touched Rs.145 Crores in FY 07-08. Even in the distressed state in FY 08-09, the revenues will come out to be somewhere around Rs.50 Crores. Thus Triton is selling at a very low PSR and thus strengthens the favorable position of this investment opportunity.
ReplyDeleteHey value Investor,
ReplyDeleteYour analysis with respect to PSR and NEt Nets look fine,but i thin kyou have made a mistake with respect to the cash bargain situation.Tough the investments in the balance sheet is 19crs , shouldn't u subtract the 36crs of debt from it, if you do that it isn't a bargain from a cash bargain perspective isn't it?? I am a novice value investor, correct me if i am wrong