The current section of the “Analysis” series covers Captain Polyplast Ltd, an Indian company working in the field of micro-irrigation systems (MIS) like drip irrigation, sprinkler irrigation, etc.
Please note that to get maximum benefit from this article, an investor should focus on the process of analysis instead of looking for good or bad aspects of the company. She should learn the interpretation of diverse types of data and transactions, and pay attention to the parts of annual reports etc., used to get the information. This will help her improve her stock analysis skills.
Captain Polyplast Ltd: Detailed Fundamental Analysis
Captain Polyplast Ltd does not have any subsidiaries; however, over the years, it has held a significant stake in its promoter group company, Captain Pipes Ltd (24.99% in FY2024). As a result, the company has been reporting consolidated financial results.
FY2024 annual report, page 118:
The Consolidated Financial Statements comprises of Captain Polyplast Limited (“the Holding Company”) and its Associate Captain Pipes Limited with investment holding of 24.99% in the Associate.
We believe that while analysing any company, an investor should always look at the company as a whole and focus on financials, which represent the business picture of the entire company, including its subsidiaries, joint ventures etc. Consolidated financials of a company present such a picture. Therefore, if a company reports both standalone as well as consolidated financials, then the investor should prefer the analysis of the consolidated financials of the company.
As a result, while analysing the past financial performance of Captain Polyplast Ltd, we have analysed its consolidated financials.
Further recommended reading: Standalone vs Consolidated Financials: A Complete Guide
With this background, let us analyse the financial performance of Captain Polyplast Ltd.
Financial and Business Analysis of Captain Polyplast Ltd:
In the last 10 years (FY2015-FY2024), the sales of Captain Polyplast Ltd have increased at 13% year on year, from ₹99 cr in FY2015 to ₹294 cr in FY2024. In the last 12 months (i.e. January 2024-Dec 2024), sales of the company declined to ₹277 cr.
Over the years, the operating profit margin (OPM) of Captain Polyplast Ltd has been very volatile in the range of 8% to 15%. The net profit margin (NPM) of the company has also shown similar sharp fluctuations and has fluctuated between 1% to 11%.
To understand more about Captain Polyplast Ltd along with fluctuations in its profit margins, an investor needs to read the publicly available documents of the company like its red herring prospectus (RHP) for its initial public offer (IPO) in 2013, annual reports from FY2014, credit rating reports from CARE from 2012, and India Ratings from 2022 and its corporate announcements submitted to Bombay Stock Exchange (BSE).
The above-mentioned documents show that the following key factors have influenced the business of Captain Polyplast Ltd, which are critical to understand for any investor.
1) Intense competition in the micro-irrigation industry with no barriers to entry:
Micro-irrigation industry (sprinkler & drip irrigation) has numerous players, large and small, organized and unorganized. This is because the industry is not technologically intensive and does not have any barriers to entry. As a result, multiple players, even with a small capital, are able to enter the business and offer intense competition to existing players.
Captain Polyplast Ltd highlighted the severe competition to investors in its RHP.
RHP, Nov. 2013, page 99:
Competition: Our Industry is fragmented consisting of large established players and small niche players. We compete with organized as well as unorganized sector…In addition there is also competition from pipe manufacturers. Further, there are no entry barriers in this industry
2) No pricing power in the hands of Captain Polyplast Ltd over its customers, leading to fluctuating profit margins:
Captain Polyplast Ltd is faced with a tricky business situation where its raw material (plastic granules) prices are highly volatile as they are linked to crude oil prices.
Credit rating report by CARE, November 2017, page 2:
A major part of CPL’s MIS and plastic products are manufactured from plastic granules. The prices of these granules, being crude oil derivatives, exhibit volatility with a change in the price of crude oil.
The company purchases its raw material (plastic granules) from large companies like Indian Oil Corporation Ltd (IOCL) and Reliance Industries Ltd (RIL), which are much larger companies than Captain Polyplast Ltd. Therefore, it does not have any negotiating/bargaining power over these suppliers, and it has to accept whatever price for plastic granules they offer to it.
Credit rating report by CARE, December 2019, page 2:
CPPL sources majority of its raw materials from Indian Oil Corporation Ltd. (IOCL) and Reliance Industries Ltd. (RIL) and has low bargaining power vis-à-vis these large sized suppliers.
The chart below, from Macrotrends, shows the extent of large fluctuations in crude oil prices over the last 20 years (2005-2025). Crude oil prices have seen very sharp ups and downs between $20 to $140 per barrel.
Moreover, due to a highly competitive micro-irrigation industry, the company does not have the ability to pass on an increase in its raw material costs to its customers. Therefore, whenever its raw material costs increase, it has to take a hit on its profit margins.
Credit rating report by CARE, December 2019, page 2:
profitability is hence, exposed to the volatility in raw material prices, given its limited ability to pass on effect of any adverse movement in these to its customers in a competitive MIS industry
Further advised reading: Credit Rating Reports: A Complete Guide for Stock Investors
For example, in FY2018, when crude oil prices increased, its operating profit margin declined as it could not pass on the increase in its raw material costs to its customers due to very high competition in the industry.
Credit rating report by CARE, June 2018, page 1:
moderation in its profitability during FY18 as increased raw material costs could not be passed on to customers amidst a competitive industry scenario.
Similarly, in FY2022, when its OPM declined to 8% from 14% in FY2021, it was due to an increase in its raw material costs that it could not pass on to customers.
FY2022 annual report, page 136:
Fall in Gross Margin mainly due to cost of materials consumed has increased
Another factor that affects the profitability of Captain Polyplast Ltd is that the consumer prices for micro-irrigation products are controlled by the government, which are almost fixed and do not allow for a lot of variation once the sale/contract is finalized.
Credit rating report by India Ratings, March 2023, page 1:
the prices for CPL’s micro irrigation systems (MIS) business have been controlled by the government, capping the price deviation at 5%-10%.
Therefore, due to intense competition in the micro-irrigation industry, highly fluctuating raw material prices linked to crude oil, very low negotiating power with its large suppliers like IOCL and RIL, and no ability to pass on increases in costs to its customers, Captain Polyplast Ltd has seen wide fluctuations in its profit margins.
An investor should keep this in mind when she projects the business performance of Captain Polyplast Ltd in the future.
Also read: How to do Business Analysis of a Company
3) High dependence on Govt. policies for business:
Even though the users of micro-irrigation products are farmers; however, the cost of these products is much higher than what farmers can afford. Therefore, govt. provides subsidies of about 50%-70% of the total cost to make these products affordable to farmers.
RHP, 2013, page 12:
The Micro Irrigation Industry is highly dependent on government subsidies. Our customers are mainly farmers who are looking for irrigation solutions…As per the current policies under open market where we have arrangement with nodal agency wherein they pay us back subsidy (50% to 70%)
As the level of government subsidies is a major factor in whether farmers will buy micro-irrigation products or not, therefore, business of Captain Polyplast Ltd is highly dependent on the government policies.
For example, in FY2017, when sales of the company declined to ₹115 cr from ₹135 cr in FY2016, the company stated that it was due to changes in rules by the govt.
FY2017 annual report, page 9:
Some government announcements and changes in rules somehow affect our turnover for the F.Y. 2016-17.
In the first quarter of FY2025, revenue of Captain Polyplast Ltd declined because the govt. released fewer work orders due to the general elections.
Press release, Q1-FY2025 results, page 2:
The total income for the quarter was INR 65.67 crores which was a decline of 10.5%. The decline in the revenue was primarily due to The Micro Irrigation Systems (MIS) segment. It was impacted this quarter due to a pause in new work orders in key states during the general elections.
Credit rating agency, CARE, also highlighted the susceptibility of the revenue of the company to the government policies in its report of September 2020, page 2:
demand for MIS products is subject to risks associated with the vagaries of nature, seasonality and government policies, including payment of subsidy.
In FY2019, when Captain Polyplast Ltd faced a delay in renewal of its registrations with multiple state govts, then, considering the significance of the government approvals for its business, CARE put its outlook to negative.
Credit rating report by CARE, August 2018, page 1:
Outlook Negative: reflects CARE’s expectation of decline in CPL’s scale of operations and profitability as well as weakening of its financial risk profile in FY19 on account of delay in renewal of registration as approved vendor with various state government agencies for supply of micro-irrigation equipment.
Therefore, an investor must keep in mind that any change in the government policies towards subsidies or priority of micro-irrigation products can severely impact the business of Captain Polyplast Ltd.
Further advised reading: How to analyse New Companies in Unknown Industries?
4) Dependence of business on vagaries of nature like monsoon/rainfall:
Demand for micro-irrigation systems (MIS) is highly dependent on the level of rainfall in any area. Micro-irrigation saves a lot of water in irrigation; therefore, it is highly popular in areas with less rainfall.
In areas with plenty of water availability due to regular rains or irrigation channels, demand for micro-irrigation is low. However, even in areas where normal rainfall is low, if in any season, they get good rainfall, then the demand for micro-irrigation systems goes down. This impacts the business performance of Captain Polyplast Ltd.
For example, in Q2-FY2025, the company had subdued performance because India as a whole received strong rainfall during monsoons. As a result, sales of micro-irrigation systems were impacted and the business of Captain Polyplast Ltd suffered.
Press release, Q2-FY2025 results, page 2:
performance during Q2 was subdued compared to expectation at the starting of the quarter. This was primarily due to severe and prolong monsoon season across major parts of the country. This led to impact on demand for micro irrigation systems almost across major markets.
Similarly, any natural factor leading to a decline in farmers’ income, like pest attack, drought etc., will impact their purchasing power and in turn, will reduce demand for the company’s products.
Therefore, investors should note that any revenue projection for Captain Polyplast Ltd would contain a high degree of doubt due to uncertainties associated with rainfall during any year.
5) Highly working-capital-intensive business of Captain Polyplast Ltd:
Working capital requirements of the company’s business are very high. This is because of multiple factors out of which the major reason is its very long collection period of subsidy receivables that are due from the government entities.
Usually, govt. entities are expected to pay subsidies to Captain Polyplast Ltd in 4-6 months.
RHP, 2013, page 11:
Our business requires a significant amount of working capital, which varies depending upon the time of subsidy payment by the State & Central government agencies…On an average the subsidy payments are realized between 4-6 months
However, most of the time, govt. entities do not pay subsidies on time, and there have been instances where its payments have been stuck for multiple years as well.
In the FY2022 annual report, the auditor of the company highlighted to shareholders that more than half of its receivables (51%), i.e. ₹55 cr in value, were outstanding for more than one year.
FY2022 annual report, page 95:
Emphasis of Matter: Rs. 5,539.21 Lakhs (Rs. 4,845.32 Lakhs) being trade receivables outstanding for a period more than 1 year, representing 51.09% (43.19%) of the total trade receivables as on 31st March, 2022.
Most of these receivables were pending from a government entity, Andhra Pradesh Micro Irrigation Project.
Credit rating report by India Rating, February 2022, page 1:
receivables increased on account of an outstanding of INR350 million (32% of the total outstanding debtors) for more than a year from Andhra Pradesh Micro Irrigation Project (a government nodal agency for mirco- irrigation systems (MIS)
As per the FY2022 annual report, a significant amount of its receivables (₹14 cr) was stuck for even more than 3 years.
FY2022 annual report, page 134:
Additionally, govt. agencies withhold retention money of about 5% of the sale/contract value, which is released to Captain Polyplast Ltd over time as per the performance of its projects.
RHP, 2013, page 97:
We receive the balance amount of 5% (Retention money against the performance guarantee) on a quarterly basis over a period of time against submission of bank guarantee.
Other than a long collection period in its micro-irrigation business, Captain Polyplast Ltd also faces a long collection period in its agency business of polymer products of IOCL.
Credit rating report by CARE, September 2020, page 1:
company is also required to provide credit under its del credere agency business for polymers of Indian Oil Corporation Ltd. (IOCL). These result in sizeable working capital requirements,
Apart from these long receivables, another factor that leads to high working capital requirements for Captain Polyplast Ltd is its large inventory requirement. The company needs to maintain a large quantity of raw material to run its manufacturing plants smoothly, as it has a long lead time for material procurement.
RHP, 2013, page 64:
Also the lead time required for procuring raw material which we require is high. Therefore, we have to maintain sufficient quantity of raw material inventory to reduce the delivery time to our customers
In addition, the key business of Captain Polyplast Ltd, micro-irrigation systems, is seasonal in nature. As a result, it has to keep a very high inventory in March to meet its peak demand.
Credit rating report by CARE, January 7, 2019, page 2:
CPL’s MIS business is also seasonal to some extent, due to which it has to stock required inventory for installation. As a result, the outstanding inventory at the end of March every year is also sizably high, resulting in a long inventory holding period.
Further advised reading: Operating Performance Analysis: A Simple & Complete Guide
In December 2019, CARE downgraded its credit rating from investment grade (BBB-) to non-investment grade (BB+) due to deterioration in its working capital position, for which Captain Polyplast Ltd had to raise a lot of debt.
Credit rating report by CARE, December 2019, page 1:
deterioration is largely driven by its increased reliance on bank borrowings to fund higher working capital requirements amidst slow payments from customers in its micro irrigation system (MIS) business (primarily government entities), along with higher inventory holding. Consequently, CPPL’s liquidity has become stretched with almost full utilization of its increased working capital limits
An investor should always keep in mind that she may face a situation where Captain Polyplast Ltd is generating sales; however, it is not able to collect the money from its customers, thereby impacting the interests of shareholders.
From its end, Captain Polyplast Ltd has attempted to take a few steps to reduce its deteriorating working capital. First, it has decided to reduce sales in Andhra Pradesh, where the govt. agency had delayed payment of subsidies for more than one year.
Credit rating report by India Rating, March 2023, page 1:
decision to reduce its sales in Andhra Pradesh (AP) to avoid any further stretch in its net working capital cycle.
Second, the company is attempting to increase sales in the commercial market, i.e. non-subsidy market.
Press release, Q1-FY2025 results, page 3:
Looking ahead, company aims to increase the mix of commercial sales, including non-subsidy micro irrigation (MI) sales, PVC pipes, and exports, to optimize working capital
However, it remains to be seen whether the company gains any success in the commercial market where the competition is very intense.
Going ahead, an investor should keep a close watch on the profit margins of the company. She should track all the regulatory developments and government policies concerning the micro-irrigation segment and also continuously monitor the working capital of the company so that she is not caught by any negative surprise.
Over the years, the tax payout ratio of Captain Polyplast Ltd has largely been in line with the standard corporate tax rate in India.
Also read: How to do Financial Analysis of a Company
Operating Efficiency Analysis of Captain Polyplast Ltd:
a) Net fixed asset turnover (NFAT) of Captain Polyplast Ltd:
Over the years, the NFAT of the company increased from 10.4 in FY2016 to 20.4 in FY2024. An improvement in the NFAT indicates that the company is able to use its fixed assets more efficiently.
However, such high levels of NFAT like exceeding 10-20, also indicate that major operations of the company might be trading operations, as usually purely manufacturing businesses have an NFAT of 5-6 or lower.
In addition, for micro-irrigation systems as well, the company imports components from the international market (click here)
We import irrigation components from International Market.
An investor may note that trading operations are usually commodity businesses without any sustained competitive advantages. For example, the agency business of Captain Polyplast Ltd for polymers of IOCL turned loss-making during FY2021.
FY2021 annual report, page 130:
Therefore, if the business of Captain Polyplast Ltd grows due to an increase in revenue from its trading operations, then an investor may be aware that such a business might not have significant competitive advantages.
Going ahead, an investor should keep a close watch on the fixed asset turnover levels of the company to assess whether it is able to optimally utilize its manufacturing assets.
Further advised reading: Asset Turnover Ratio: A Complete Guide for Investors
b) Inventory turnover ratio (ITR) of Captain Polyplast Ltd:
Over the years, the inventory turnover ratio of the company has been in the range of 5-7. The ITR was 7.2 in FY2016 and then deteriorated to 5.2 in FY2022; however, subsequently it recovered to 7.5 in FY2024.
A nearly stable ITR over the decade indicates that the company has maintained its inventory utilization efficiency.
Going ahead, an investor should keep a close watch on the inventory position of the company to understand whether it is able to maintain its efficiency of its efficiency of inventory utilization.
Further advised reading: Inventory Turnover Ratio: A Complete Guide
c) Analysis of receivables days of Captain Polyplast Ltd:
Over the years, receivables days for the company have deteriorated from 122 days in FY2016 to 182 days in FY2024. The company saw its receivables days extend to 217 days in FY2022.
An increase in receivables days indicates that the company is not able to collect its money from its customers on time and, as a result, has to infuse additional money to run its business operations.
As discussed earlier, Captain Polyplast Ltd faces challenges in receiving subsidy payments and the release of retention money on time from the government authorities. In addition, its money gets stuck with customers of its trading business for IOCL polymers.
As a result, the company has faced a significant amount of money getting stuck in trade receivables and working capital over the years.
Going ahead, an investor should watch the trend of receivables days of Captain Polyplast Ltd to assess whether it is able to collect its receivables on time and avoid a liquidity crunch.
Further recommended reading: Receivable Days: A Complete Guide
When an investor compares the cumulative net profit after tax (cPAT) and cumulative cash flow from operations (cCFO) of Captain Polyplast Ltd for FY2015-FY2024, then she notices that over the years (FY2015-FY2024), the company is not able to convert its profit into cash flow from operations.
Over FY2015-24, Captain Polyplast Ltd reported a total cumulative profit after tax (cPAT) of ₹72 cr. During the same period, it reported a cumulative cash flow from operations (cCFO) of only ₹25 cr.
It is advised that investors should read the article on CFO calculation, which would help them understand the situations in which companies tend to have the CFO lower than their PAT. In addition, the investors would also understand the situations when the companies would have their CFO higher than PAT.
Further recommended reading: Understanding Cash Flow from Operations (CFO)
Learning from the article on CFO and the fund flow analysis over last 10 years, will show to an investor that one of the main reasons for the lower cCFO is additional ₹138 cr stuck in trade receivables for the company as its trade receivables increased from ₹39 cr in FY2015 to ₹177 cr in FY2024.
The Margin of Safety in the Business of Captain Polyplast Ltd:
a) Self-Sustainable Growth Rate (SSGR):
Read: Self Sustainable Growth Rate: a measure of Inherent Growth Potential of a Company
Upon reading the SSGR article, an investor would appreciate that if a company is growing at a rate equal to or less than the SSGR and it can convert its profits into cash flow from operations, then it would be able to fund its growth from its internal resources without the need of external sources of funds.
Conversely, if any company attempts to grow its sales at a rate higher than its SSGR, then its internal resources would not be sufficient to fund its growth aspirations. As a result, the company would have to rely on additional sources of funds like debt or equity dilution to meet the cash requirements to generate its target growth.
An investor may calculate the SSGR using the following formula:
SSGR = NFAT * NPM * (1-DPR) – Dep
Where,
- SSGR = Self Sustainable Growth Rate in %
- Dep = Depreciation rate as a % of net fixed assets
- NFAT = Net fixed asset turnover (Sales/average net fixed assets over the year)
- NPM = Net profit margin as % of sales
- DPR = Dividend paid as % of net profit after tax
(For systematic algebraic calculation of SSGR formula: Click Here)
Over the years, SSGR of Captain Polyplast Ltd has averaged about 30%, which is higher than the sales growth of 13% year on year achieved by the company over FY2015-FY2024. Nevertheless, the total debt of the company has increased from ₹22 cr in FY2015 to ₹103 cr in FY2024.
This is because of two factors. First, very high NFAT of Captain Polyplast Ltd indicates that the company does a limited value addition via manufacturing and as a result, its low-value adding operations do not reflect the true dependency on manufacturing set-up. The company has trading operations as well. As a result, the SSGR of the company does not provide a highly relevant indication for the company.
Secondly, SSGR assumes that the working capital position of the company is under control and it is able to convert its profits into cash flow from operations (CFO), which can be invested in assets to generate sales. However, as discussed earlier, Captain Polyplast Ltd is not able to convert its profits into cash flow and has to rely on raising more and more working capital finance to run its operations.
An investor arrives at the same conclusion when she analyses the free cash flow position of the company.
b) Free Cash Flow (FCF) Analysis of Captain Polyplast Ltd:
While looking at the cash flow performance of Captain Polyplast Ltd, an investor notices that during FY2015-FY2024, it generated a cash flow from operations of ₹25 cr. During the same period, it made a capital expenditure of about ₹27 cr.
Therefore, during this period (FY2015-FY2024), Captain Polyplast Ltd had a negative free cash flow (FCF) of (₹2) cr (= 25 – 27).
In addition, during this period, the company had a non-operating income of ₹19 cr and an interest expense of ₹84 cr. As a result, the company had a total negative free cash flow of (₹67) cr (= -2 + 19 – 84). Please note that the capitalized interest is already factored in as a part of the capex deducted earlier.
To meet this cash shortfall, Captain Polyplast Ltd used incremental debt as well as equity dilution.
Over FY2015-FY2024, the company raised additional debt of ₹81 cr as its total debt increased from ₹22 cr in FY2015 to ₹103 cr in FY2024.
In addition, the company came out with a preferential issue of warrants in FY2024, from which, in the year, it raised about ₹5.9 cr, including the 25% issuance money of 50,00,000 warrants and the balance exercise money of 75% of 25,00,000 warrants where the holders exercised the option.
FY2024 annual report, page 42:
During the year under review, the Company has raised funds through preferential allotment…
- Rs. 2,37,50,000/- has been raised through issue of 50,00,000 warrant .
- Rs. 3,56,25,000/- has been raised upon conversion of 25,00,000 warrant into equal number of equity shares of the company.
Moreover, in a previous equity dilution, in FY2014, the company came out with an IPO of ₹5.94 cr, which was to fund the equity portion of its proposed manufacturing plant. Out of the total cost of ₹12.7 cr for the plant, only ₹1.5 cr was from internal accruals, i.e. business cash flows. Rest ₹11.2 cr was the outside capital, i.e. ₹5.25 cr as debt from the bank and ₹5.94 cr from new equity investors in the IPO.
RHP, 2013, page 58:
Additionally, in FY2025, the company has issued 48,00,000 warrants at an exercise price of ₹72 to investors in its plans to raise ₹34.56 cr, primarily to meet its working capital requirements.
Notice of Extra Ordinary General Meeting to BSE, December 6, 2024, page 10:
Objects of the Preferential Issue: The company is looking to raise additional funds to meet its working capital requirement and for general corporate purpose.
Therefore, over the years, Captain Polyplast Ltd has generated limited money by its internal business cashflows and has most of the time relied on external capital, either debt or equity dilution, for its expansions as well as running its business.
Going ahead, an investor should keep a close watch on the free cash flow generation by Captain Polyplast Ltd to understand whether the company is able to generate surplus cash from its business or it keeps on relying on outside funds for growth and running its day-to-day operations.
Further recommended reading: Free Cash Flow: A Complete Guide to Understanding FCF
Self-Sustainable Growth Rate (SSGR) and free cash flow (FCF) are the main pillars of assessing the margin of safety in the business model of any company.
Further advised reading: 3 Simple Ways to Assess “Margin of Safety”: The Cornerstone of Stock Investing
Additional aspects of Captain Polyplast Ltd:
On analysing Captain Polyplast Ltd and after reading annual reports, credit rating reports and other public documents, an investor comes across certain other aspects of the company, which are important for any investor to know while making an investment decision.
1) Management Succession of Captain Polyplast Ltd:
The company is a part of the Captain group that has multiple other companies other than Captain Polyplast Ltd. The group was founded by the Khichadia family.
Currently, two brothers, Mr Ramesh D. Khichadia (chairman & managing director, age 58 years) and Mr Gopal D. Khichadia (non-executive director, age 50 years) are on the board of directors.
As a part of succession planning, Mr Ritesh R. Khichadia (age 31 years), son of Mr Ramesh D. Khichadia, is working as a whole-time director in the company.
The presence of members of the next generation of the family when the founding promoters are still playing an active role seems a good succession plan, as the new members can learn the skills and gain experience before taking full control of the leadership.
Moreover, among the promoter brothers, Mr Ramesh D. Khichadia and Mr Gopal D. Khichadia seem to have decided to take control of Captain Polyplast Ltd and Captain Pipes Ltd, respectively. This is because Mr Ramesh D. Khichadia takes his remuneration (₹80 lac) from Captain Polyplast Ltd (FY2024 annual report, page 141), and Mr Gopal D. Khichadia takes his remuneration (₹36 lac) from Captain Pipes Ltd (FY2024 annual report of Captain Pipes Ltd, page 105).
The presence of a well-thought-out management succession plan is essential in case of promoter-run businesses as it provides for smooth transition of leadership over the generations and provides continuity in the business operations of any company.
Further advised reading: How to do Management Analysis of Companies?
2) Capital allocation decisions by Captain Polyplast Ltd:
While analysing the company, an investor comes across some instances about capital allocation decisions of the company, which deserve attention.
For example, the company came out with an IPO in FY2014 to complete a manufacturing plant, where out of the total expense of ₹12.7 cr., only about ₹1.5 cr was from internal accruals, and rest ₹11.2 cr was outsiders’ money i.e. term loan from SBI and equity infusion by new investors.
However, when an investor checks the capacity utilization of its existing operational plant, she notices that it was only 40-50% utilized. In addition, the company was using the plant only for two shifts, whereas it could have used the existing plant for three shifts and increased production instead of installing a new plant.
RHP, 2013, page 97:
An investor may do deeper due diligence to assess whether the company actually had the need for a new, primarily debt and equity infusion-funded manufacturing plant at that point in time, when there was a lot of spare capacity available at the existing plant.
Moreover, when the company was heavily relying on debt and equity dilution to raise money for its manufacturing plant, it had also invested precious money in listed stocks of multiple companies, which it could have better utilized in the construction of the manufacturing plant.
FY2014 annual report, page 40:
Similarly, during FY2017 and FY2019, the company decided to invest money in mutual funds, whereas the company was still carrying significant debt due to its large working capital requirements. (FY2017 annual report, page 104 and FY2019 annual report, page 51).
Further advised reading: How to Identify if Management is Misallocating Capital
3) Related party transactions of Captain Polyplast Ltd:
Over the years, Captain Polyplast Ltd has entered into multiple transactions with its promoter group entities that an investor should keep in mind.
3.1) Cross shareholdings by companies in each other:
The promoters of the Captain group have made their group companies invest in the shares of each other. For example, in February 2025, Captain Polyplast Ltd owned about a 17.50% stake in its promoter group company, Captain Pipes Ltd. In the past, the stake owned by Captain Polyplast Ltd in Captain Pipes Ltd had reached at a much higher level at 29.59%%.
In addition, the company also owns about 17.41% stake in Captain Engineering Pvt. Ltd. as of March 31, 2024 (FY2024 annual report, page 122).
At the same time, on March 31, 2025, Captain Pipes Ltd owned a 13.76% stake in Captain Polyplast Ltd.
We believe that using the money of one publicly listed company to buy shares of another publicly listed company is a trick that promoters use to inflate their influence on the companies while using the economic resources of public shareholders.
This is because the money of a publicly listed company (A) is owned by all the shareholders in proportion to their shareholding. Let’s suppose promoters own a 50% stake in company A.
Now, assume that the promoters of company (A) make it buy 20% shares of their other listed company (B). As per the shareholding of Company (A), out of this 20% stake, effectively only 10% belongs to the economic resources of promoters, and the remaining 10% belongs to public/minority shareholders.
However, during voting on any resolution for company (B), in all likelihood, the company (A) would vote as per the promoters’ wishes. So, promoters get to control voting rights of a full 20% stake in Company (B) despite effectively contributing only 10% of resources.
Therefore, we believe that such cross holdings of multiple publicly listed companies of a promoter group in each other are the loopholes that promoters use to increase their shareholding/control in their companies using public money. You may read more about such methods used by promoters in the following article:
How Promoters use Loopholes to Inflate their Shareholding
3.2) Sale and purchase of a large amount of goods/services from promoter group entities:
Captain Polyplast Ltd has been entering into large sale and purchase transactions with its promoter group entities. For example, in FY2024, it purchased goods for ₹21.6 cr from Captain Pipes Ltd. In FY2023 and FY2022, such purchases were ₹31 cr and ₹26.9 cr, respectively.
FY2023 annual report, page 152:
An investor should be extra cautious while assessing companies that enter into sale and purchase transactions with promoters’ related parties. This is because such transactions have the potential to shift economic benefits from minority shareholders to promoters if the company buys goods/services from the promoters’ entity at a price higher than the market price or sells goods/services to the promoters’ entity at a price lower than the market price.
3.3) Providing loans and guarantees among group entities:
Captain Polyplast Ltd has been involved in multiple transactions of loans and guarantees among promoter group entities.
For example, it had given a guarantee for a loan taken by Captain Pipes Ltd for about ₹1.35 cr.
FY2021 annual report, page 91:
In addition, the company has been regularly taking loans from promoters. For example, in FY2024, Captain Polyplast Ltd took loans of ₹4.4 cr from promoters Mr Ramesh Khichadia and Mr Ritesh Khichadia.
FY2024 annual report, page 141:
In the past, the company has been paying interest to promoters at a rate of 12% per year.
RHP, 2013, page 172:
Unsecured Loans from Promoters/Directors are @ 12% p.a. interest rate with a pre condition of three months notice for repayment.
An investor would notice that an interest rate of 12% is more than the fixed deposit rate of most of the banks and NBFCs, which might be some of the alternative avenues for promoters to invest their money with interest income.
Further advised reading: How Promoters benefit from Related Party Transactions
3.4) High promoter remuneration by Captain Polyplast Ltd:
There have been instances when the company has paid high remuneration to its promoters, even exceeding legal limits.
For example, in its RHP, the company disclosed that for the past 4 years (FY2009 to FY2012), the company had paid remuneration in excess of legal limits.
RHP, 2013, page 9:
Our Company being a public limited company the provisions of Sections 198 & 309 of the Companies Act, 1956 are applicable and the remuneration paid to our Directors up to March 31, 2012 since last 4 FY was in excess of the limits prescribed under the provisions of said sections
Even otherwise, when compared to the net profit after tax, at times, the remuneration taken by promoters seems high. For example, in FY2022, when the company made a profit after tax of about ₹2.8 cr, the promoters took home a remuneration of about ₹1.14 cr, which is about 40% of the profits.
FY2022 annual report, page 126:
Further advised reading: How to identify Promoters extracting Money via High Salaries
4) Weaknesses in internal controls and processes at Captain Polyplast Ltd:
In the past, the company has had numerous instances of noncompliance with legal regulations and other errors, which indicate that there is scope for improvement in the internal control & processes at Captain Polyplast Ltd.
4.1) Penalties for noncompliance with legal regulations:
In FY2024, Captain Polyplast Ltd did not have the required composition of the board of directors for its meetings. Therefore, BSE Ltd imposed a fine of ₹20,000/- on the company.
Annual Secretarial Compliance Report, May 27, 2024, page 3:
This was not the first instance where Captain Polyplast Ltd had not complied with the requirements of the composition of the board of directors in its meetings. In FY2021 as well, the company did not meet the required quorum of the board of directors in the June 2020 and September 2020 quarters. As a result, BSE Ltd put a fine on the company, which Captain Polyplast Ltd paid.
FY2021 annual report, page 22:
Further company has made non-compliance with the requirements of Regulation 17(2A) pertaining to quorum of Board meetings in June and September 2020 quarters, company has paid penalty to BSE
However, in the other sections of the FY2021 annual report, Captain Polyplast Ltd stated that during the year, it had complied with all the legal requirements and there was no penalty by any authority on the company, which raises doubt whether the company verifies the information that it puts in important disclosures like annual reports.
FY2021 annual report, page 37:
The Company has complied with all the requirements of the Stock Exchanges as well as the regulations and guidelines prescribed by the Securities and Exchange Board of India (SEBI). There were no penalties or strictures imposed on the Company by Stock Exchanges or SEBI or any statutory authority
Further advised reading: Why We cannot always Trust What Management Claims
In FY2023, the company did not comply with the prohibition of insider trading regulations.
FY2023 annual report, page 21:
Company has not complied with provisions of Regulation 3(5) and 3(6) of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, during the period under review
In the past as well, before its IPO in 2013, Captain Polyplast Ltd had been weak in complying with legal requirements.
For example, despite being a public company, it did not have an internal audit system from FY2009 to FY2012, even though its auditor kept on highlighting it every year in its audit report.
RHP, 2013, page 10:
The company started the business of power generation by windmills without amending its memorandum of association (MoA), the document which defines what businesses a company can undertake.
RHP, 2013, page 11:
we have installed 2 windmills with of capacity 250kW and 750kW on September 27, 2010 and May 16, 2013…However these activities prior to September 11, 2013 were not covered under the object clause of our Memorandum of Association…But due to lack of professional guidance, we did not amend our object clause in Memorandum of Association suitably for insertion of the said business activities.
In addition, the company did not file many required documents with the government authorities, like the Registrar of Companies, within the time limits.
RHP, 2013, page 10:
Our Company has not been making the required filings with the Registrar of Companies in a timely manner
Even now, the company has been making delays in disclosing required information.
Annual Secretarial Compliance Report, May 27, 2024, page 4:
documents/information are disseminated on website under separate section. But there were several cases when here was delay in dissemination.
During demonetization in FY2017, the company received the banned currency notes (specified bank notes, SBNs) in contravention of the govt. directions, which it had to disclose as non-permitted receipts in its annual report.
FY2017 annual report, page 114:
Further advised reading: How to study Annual Report of a Company
The company established multiple franchisee offices in different markets; however, it did not enter into an agreement in the proper required format on stamp paper with such entities.
RHP, 2013, page 11:
As on date, we have 3 franchisee…We have not entered into any formal agreement on stamp papers of requisite value with any of them.
4.2) Delays in payment of undisputed statutory dues to the government authorities by Captain Polyplast Ltd:
On multiple occasions, the company delayed payment of its monetary liabilities to the government authorities even when there was no dispute about such payments, like professional tax deducted by the company from its employees.
The company made such delays repeatedly in FY2014, FY2016, FY2018, FY2019, FY2020 etc.
4.3) Errors in the annual reports of Captain Polyplast Ltd:
There are multiple instances where the company has made errors in the information disclosed to investors.
For example, in its Q4-FY2024 results, it showed the wrong borrowing amount, which it had to rectify later on.
Revised outcome of board meeting, May 25, 2024, page 1:
Due to typographical error in borrowing amount, the revised result file is being submitted. There is no any other changes.
In FY2014, the company issued new shares for IPO. However, in the FY2015 annual report, the company copied the same data on shares issued during the period in FY2015 as well.
FY2015 annual report, page 46:
In addition, in FY2022 annual report, page 129, in related party transactions of the associate company, the company disclosed purchases by Captain Pipes Ltd of ₹6.97 cr from Captain Polyplast Ltd as sales by Captain Pipes Ltd. Whereas when one cross-verifies it from the annual report of Captain Pipes Ltd, then these are correctly reflected as purchases by Captain Pipes Ltd of ₹6.97 cr from Captain Polyplast Ltd.
In FY2024, the company issued 50,00,000 warrants on July 26, 2023, to the promoter group company, Captain Pipes Ltd, out of which 25,00,000 warrants were converted into equity shares on February 14, 2024, upon exercise of warrants by Captain Pipes Ltd. As a result, at the year-end, March 31, 2024, 25,00,000 warrants were left/balance for conversion.
However, while presenting the share warrants reconciliation, Captain Polyplast Ltd disclosed that at the year-end, 75,00,000 warrants were in balance, i.e. instead of deducting the exercised warrants, it added them up to arrive at the closing balance.
FY2024 annual report, page 90:
In addition, in a gross error, on page 44 of the FY2024 annual report, the company said that there are no outstanding warrants.
K) OUTSTANDING GDRS/ADRS/WARRANTS OR ANY CONVERTIBLE INSTRUMENT, CONVERSION AND LIKELY IMPACT ON EQUITY: The company has no outstanding GDRs/ADRs/Warrants or other Convertible Instruments.
As a result, an investor needs to be extra cautious while interpreting the information disclosed by the company in its annual reports, as the maker-checker mechanism before disclosing critical information to shareholders seems to be weak at the company.
Further advised reading: Why We cannot always Trust What Management Claims
In addition, on certain occasions, the company has not provided the details, which can help an investor understand the financial data presented by it in its annual reports.
For example, in FY2019 and FY2020, the company reported outstanding trade receivables of ₹90 cr and ₹94 cr, respectively. However, additionally, it also reported “Other Receivables” of about ₹17 cr (FY2019) and ₹37 cr (FY2020) under “Other Current Assets”.
FY2020 annual report, pages 114-115:
The company did not provide any information about what these receivables of ₹37 cr and ₹17 cr are, who the counterparty is, how long these are outstanding etc. The presence of this information would have helped an investor better understand and interpret these receivables.
5) Corporate decisions by Captain Polyplast Ltd:
There are certain corporate decisions that deserve the attention of investors. For example, the company came out with a bonus share and share-split decisions while its existing share price was already low. The company provided the reason that these decisions increase the liquidity in shares of the company.
FY2018 annual report, page 12:
With a view to broad base the investor base by encouraging the participation of the retail investors and also with a view to increase the liquidity of the Company’s Shares, the Board of Directors in its meeting held on 28th July . 2018 recommended sub-division…from 1 (One) equity share of ₹10/- (Rupees ten only] each into 5 (five) equity shares of ₹2/-
During FY2018, the share price of the company was in the range of ₹100-190/-, which is not high enough to impact liquidity. FY2018 annual report, page 35:
Similarly, the investor presentations of the company look like research reports recommending “buy” with investment rationales etc. (Investors’ presentation, Q2-FY2025, December 9, 2024, page 35).
An investor may agree that it is in the interests of the company to do all things possible, like bonus, share splits, and presentations like research reports, to attract retail investors to its shares. However, we believe that when investors notice that companies are making special efforts to influence the behaviour of retail shareholders instead of establishing a fundamentally strong business model backed by free cash flows, then the investor should be cautious and increase her due diligence before making any investment decision.
5.1) Warrants issued by Captain Polyplast Ltd to its promoter entities:
As discussed above, the company has issued warrants to its promoter entities in both FY2024 and FY2025.
Regarding promoters infusing money into the company via warrants i.e. 25% at allotment and then balance 75% at exercise instead of outright 100% infusion of money as a preferrential allotment of shares, we believe that it is one of the tricks promoters use to benefit from upward share price movement following positive stock market announcement.
There have been multiple instances where, when the stock price declined after warrants issuance, promoters did not exercise their warrants and let them expire. On multiple occasions, thereafter, promoters come out with another warrant issue at even lower prices etc.
All in all, we believe that the entire gimmick of paying 25% at the time of allotment of stock warrants and then keeping the option to pay 75% at the time of exercise, which the promoters would decide based on whether at the date of exercise, the promoters are making money or not, does not seem like a genuine effort to us for infusing money in the company.
If the promoters pay 25% now and let the stock warrants expire due to the market price being consistently lower than the exercise price in future, then it effectively means that the promoters did not have the true intention of infusing 100% of the money or that the company did not need 100% of the money.
It might be that the company needed only 25% of the money, which promoters put in by way of stock warrants allotment, and the right to get shares in future at a discount is the payoff that promoters would enjoy as a consideration for giving 25% to the company. The company might not have needed the balance 75% at all.
Nevertheless, we believe that if the promoters wish to infuse funds into the company, then the company should straight away issue additional shares to them at prevailing market price and get 100% of the funds upfront rather than letting the promoters speculate at the company’s share price by holding back 75% of the funds as happens in case of stock warrants.
Further advised reading: Stock Warrants to Promoters: How to Analyse
The Margin of Safety in the market price of Captain Polyplast Ltd:
Currently (April 12, 2025), Captain Polyplast Ltd is available at a price-to-earnings (PE) ratio of about 26 based on consolidated earnings of the last 12 months ended December 31, 2024 (i.e. Jan. 2024-Dec. 2024).
We recommend that an investor read the following articles to assess the P/E ratio to be paid for any stock, which considers the strength of the business model of the company as well. The strength in the business model of any company is measured by way of its self-sustainable growth rate and the free cash flow generating ability of the company.
In the absence of any strength in the business model of the company, even a low PE ratio of the company’s stock may be a sign of a value trap, where instead of being a bargain, the low valuation of the stock price may represent the poor business dynamics of the company.
Analysis Summary
Overall, Captain Polyplast Ltd has grown its sales at a year-on-year rate of 13% in the last 10 years (FY2015-2024). However, a deeper analysis of the company brings up multiple aspects regarding the sustainability, efficiency, and governance practices of the company.
Operating in the micro-irrigation sector, the business faces intense competition due to low entry barriers, limited pricing power, and exposure to volatile raw material costs (plastic granules linked to crude oil), which the company cannot pass on to customers due to government-regulated pricing and high competition. Consequently, the company’s operating and net profit margins have fluctuated widely over the years.
Captain Polyplast Ltd is highly dependent on government policies, particularly subsidy disbursements, which are essential for farmers to afford micro-irrigation systems. Delays or changes in subsidy release, often exacerbated by elections or bureaucratic delays, have led to significant revenue volatility. Moreover, the business of the company is seasonally and climatically vulnerable, and its sales are closely linked to monsoon patterns and rainfall variability, which further affects demand predictability.
The company has a major operational weakness in its working capital management. It has a very stretched working capital cycle due to delayed subsidy payments and receivables from government bodies. As of FY2022, over half of its receivables were overdue for more than one year. To sustain operations, the company relies heavily on external borrowings and equity dilution, as internal cash generation is not sufficient to meet its funding requirements. Over FY2015–2024, the company generated a cumulative CFO of ₹25 cr against a cumulative PAT of ₹72 cr and incurred an overall negative free cash flow of ₹67 cr.
Captain Polyplast Ltd has issued preferential warrants to promoters with only partial upfront payments, which may indicate speculative intent. Multiple related party transactions, including cross-shareholdings, large purchases from promoter entities, intercompany loans and guarantees, and high promoter remuneration, even exceeding statutory limits, raise concerns for investors.
Additionally, the company has shown repeated instances of regulatory non-compliance, weak internal controls, and disclosure errors. These include delays in filing required statutory documents, inconsistencies in financial reporting, incorrect disclosures regarding outstanding instruments, and accepting banned currency during demonetization. Several lapses in the adherence to SEBI and BSE regulations suggest that investors should be extra cautious while analysing the company.
In conclusion, despite sales growth of 13% year-on-year and improvement in asset turnover ratios, the inherent business risks, weak financial discipline, dependency on external capital, and concerns about corporate decisions taken by the company indicate caution for investors. Investors should do in-depth due diligence before making any investment decisions about the company.
Further recommended reading: How to Monitor Stocks in your Portfolio
These are our views on Captain Polyplast Ltd. However, investors should do their own analysis before making any investment-related decisions about the company.
You may use the following steps to analyse the company: “Selecting Top Stocks to Buy – A Step by Step Process of Finding Multibagger Stocks”
I hope it helps!
Regards,
Dr Vijay Malik
P.S.
Disclaimer
Registration status with SEBI:
I am registered with SEBI as a research analyst.
Details of financial interest in the Subject Company:
I do not own stocks of the companies mentioned above in my portfolio at the date of writing this article.
