With news that Cimmco is entering tractor manufacturing, the buzz around this small company has built to high levels, sending its share price soaring. The new tractor initiative is unusual for Cimmco, which till date has its business in manufacturing wagons for the Indian Railways. What also drove the price up around the stock was the news of investor Porinju Veliyath's company Equity Intelligence Group buying 2.12 lakh shares of Cimmco. Many stock market investors have followed suit.
But Cimmco is an odd choice for investors like Porinju, who fashions himself as a 'value investor', since the fundamentals of this company is fairly weak. Cimmco reported net loss of Rs 1.2 crore in Q3 December 2016 as against a net loss of Rs 5.88 crore in the same quarter the previous year.Cimmco's losses had narrowed YoY despite demonetization since the company's business is mainly contract based, and unaffected as a result by up and down movements in cash flow availability.
Nevertheless, the company has been posting losses nearly every quarter since FY14, due to decreasing orders on wagons from the Indian Railways. The innovation in this segment is also quite low, which would be a challenge to the company as it ventures into the consumer facing tractor business.
Photo source: Cimmco Ltd