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  • Jun 29, 2022 - 4 Companies that Turned Profitable in 2022. Here's How They did it...

4 Companies that Turned Profitable in 2022. Here's How They did it...

Jun 29, 2022

IPOs of new-age tech companies such as Zomato and Paytm made stellar debuts on the bourses despite being unprofitable.

However, since their debut, investors have lost more than half their investment since listing.

Now you must be wondering, if there was a way investors could have avoided losses in Zomato and Paytm.

Well, one way is to know whether the company earns a profit and if it does, then how?

Profitability is the key to the basic survival of a company and the driver for long-term sustainability of the business.

The business is not a viable investment if it is not able to generate profits over a substantial period.

Here's a list of four companies that turned profitable in financial year 2022 and how they managed to do so...

#1 Devyani International

Devyani International is one of the flagship companies of the RJ Corp group.

The group is a multinational powerhouse with thriving businesses in beverages, fast-food restaurants, retail, ice cream, dairy products, healthcare, and education.

It operates a number of quick service restaurants chain including KFC, Pizza Hut, and Costa Coffee in the country. It has 938 stores across more than 200 cities as of March 2022.

Prior to the financial year 2022, Devyani International's financial performance was inconsistent. The company reported a net loss in three out of four years.

However, in the last couple of months, the company has recently restructured its business models by focusing on the delivery business, reducing the size of its stores, and optimising its manpower costs.

The restructured business helped the company to deliver healthy topline growth and also post profits after a long gap in 2022.

Staging a record performance, Devyani's brands achieved significant milestones. KFC India crossed Rs 10 bn revenues whereas Pizza Hut clocked more than Rs 5 bn in revenues.

Coming to the industry, the food service sector in India is expected to register a robust growth in coming years, on the back of the growing delivery ecosystem.

Have a look at the table below showing net sales growth and some key fundamental ratios over the past five years.

Devyani International Financial Snapshot (2017-2022)

  2017 - 2018 2018 - 2019 2019 - 2020 2020 - 2021 2021 - 2022
Net Sales (Rs m) 11,106 13,566 15,164 11,348 20,840
Net Sales Growth (%)   22.2 11.8 -25.2 83.6
           
Net Profit (Rs m) 311 -664 -1,214 -813 1,551
Net Profit Margin (%) 2.8 -4.9 -8 -7.2 7.4
Return on Assets (%) 8.9 -3.4 2.1 4.2 12.8
Return on Equity (%) 24.3 -94.2 60.9 -72.4 22.7
Data Source: Equitymaster

To know more about the company, check out Devyani International's financial factsheet and its quarterly results.

#2 Eveready Industries India

Eveready Industries is one of the largest battery and flashlight makers in the country. It has over 65% share of India's organised flashlight market.

The company's product portfolio includes flashlights, consumer lighting, professional lighting solutions, and electrical accessories, in addition to batteries.

In 1993, Kolkata-based Brij Mohan Khaitan acquired the company in one of the biggest corporate takeovers in the country at that time.

During the March 2021 quarter, the company reported a net loss of Rs 4.4 bn on account of a balance-sheet clean up.

The company made a provision of Rs 6.3 bn for inter-corporate deposits and corporate guarantees given to group companies.

As a result, the company posted a net loss of over Rs 3 bn.

Most of the provisions were on account of loans and advances given to persistently ill-company McNally Bharat Engineering.

Other borrowers included Seajuli Developers and Finance Limited and Babcock Borsig Limited.

The company since then has been in the middle of a transformation. It has taken steps to address areas of weakness in its operations and its product portfolio.

Strong fundamental strengths like solid branding, high market share, and a rock-solid distribution network, aided the company's comeback.

Improvements made in the areas of product augmentation, process improvement, and customer approachability, has worked for the company. It turned it profitable in 2022.

While dealing with bad debts, a sizeable stake in Eveready was acquired by the Burman family of Dabur in March 2022.

Have a look at the table below showing net sales growth and some key fundamental ratios over the past five years.

Eveready Industries India Financial Snapshot (2017-2022)

  2017 - 2018 2018 - 2019 2019 - 2020 2020 - 2021 2021 - 2022
Net Sales (Rs m) 14,375 15,066 12,211 12,490 12,068
Net Sales Growth (%)   4.8 -18.9 2.3 -3.4
           
Net Profit (Rs m) 532 487 1,795 -3,074 478
Net Profit Margin (%) 3.7 3.2 14.7 -24.6 4.0
Return on Assets (%) 7.6 8.1 18.7 -28.1 11.6
Return on Equity (%) 15.5 13.0 32.3 -125.5 16.5
Data Source: Equitymaster

To know more about the company, check out Eveready Industries' financial factsheet and its quarterly results.

#3 Trent

Established in 1998, Trent is a part of the Tata Group. Trent is a leading player in the branded retail industry in India.

The company primarily operates retail stores in the sectors of fashion and food. The company has brands namely Westside, Zudio, Star, and Landmark under its umbrella.

The Covid-19 pandemic impacted all industries but the retail sector was arguably the most affected.

Trent reported a loss of Rs 1.1 bn in the 2021 financial year on the back of strict Covid-19 lockdowns.

The pandemic brought with it a paradigm shift in shopping dynamics with consumers shifting to e-commerce for both essential and non-essential products.

Trent has capitalised well on this opportunity by expanding its customer base in the groceries segment.

The company aligned its online store StarQuick with the StarBazaar store network, ruling out the need for setting up separate delivery counters. This reduced the cost of delivery.

Integrating with StarBazaar's enterprise resource planning system also eliminated inventory and back-end processes for StarQuick.

On the fashion front, Westside and Zudio have ramped up store counts by 30% and 50% respectively in 2022.

Trent has also forayed into emerging sectors like beauty and personal care, which will help drive topline growth.

Growth driven by revenue recovery and expansion as consumption paces back to pre-pandemic levels, helped the company post a net profit of Rs 295 m in the financial year 2022.

Have a look at the table below showing net sales growth and some key fundamental ratios over the past five years.

Trent Financial Snapshot (2017-2022)

  2017 - 2018 2018 - 2019 2019 - 2020 2020 - 2021 2021 - 2022
Net Sales (Rs m) 19,683 23,910 31,825 23,544 41,036
Net Sales Growth (%)   21.5 33.1 -26.0 74.3
           
Net Profit (Rs m) 1,097 1,065 1,364 -1,098 295
Net Profit Margin (%) 5.6 4.5 4.3 -4.7 0.7
Return on Assets (%) 6.6 6.1 7.4 2.7 4.7
Return on Equity (%) 6.9 6.5 5.7 -4.7 1.2
Data Source: Equitymaster

To know more about the company, check out Trent's financial factsheet and its quarterly results.

#4 Yes Bank

Crisis hit private sector lender, Yes Bank returned to profitability in the financial year 2022 after posting losses for the last couple of years.

Yes Bank is a full-service commercial bank that provides banking solutions to retail, corporate as well as MSME clients.

The bank operates in the investment banking and brokerage business via its wholly-owned subsidiary, Yes Securities.

In March 2020, the RBI imposed a 30 day moratorium on the bank, roping the private lender in crisis.

During the same period, the bank faced several governance issues alongside poor asset quality and huge corporate non-performing assets.

State Bank of India invested capital by acquiring 49% stake in Yes Bank to help the private lender survive.

The bank's management has improved in the last two financial years as it recognised provisions for the NPA's. It set up a new board to regulate governance.

In financial year 2022, the bank witnessed strong growth in deposits and advances. Sanctions stood at Rs 700 bn across various segments.

During the same period, the bank's asset quality improved. The bank's NPAs improved to 13.9% of gross advances from 15.4% in 2021.

The net NPAs also progressed to 4.5% as against 5.9% in the previous year.

Commenting on March 2022 results, Prashant Kumar, Yes Bank's CEO and Managing Director said...

  • While the core operating profitability of the franchise continues to improve, the drag from legacy stressed assets has significantly reduced, resulting into net profitability.

Improving governance and reducing provisions for NPAs helped the bank to post a positive bottomline after two years.

Have a look at the table below showing net sales growth and some key fundamental ratios over the past five years.

Yes Bank Financial Snapshot (2017-2022)

  2017 - 2018 2018 - 2019 2019 - 2020 2020 - 2021 2021 - 2022
Net Interest Income (Rs m) 77,392 98,125 67,940 74,283 64,903
Net Interest Income Growth (%)   26.8 -30.8 9.3 -12.6
           
Provisions/Contingencies 35,256 64,173 2,83,125 81,071 18,499
           
Net Profit (Rs m) 42,332 17,093 -164,326 -34,889 10,641
Net Profit Margin (%) 20.9 5.8 -63.1 -17.4 5.6
Return on Assets (%) 1.4 0.4 -6.4 -1.3 0.3
Return on Equity (%) 16.4 6.4 -75.7 -10.5 3.2
Data Source: Equitymaster

To know more about the company, check out Yes Bank's financial factsheet and its quarterly results.

To conclude...

As an investor you should be careful while investing in companies that have posted consecutive losses in the past.

While investing in such companies, a review of the reasons for the losses is a good place to start your analysis.

A company could be reporting losses due to long gestation period or it could be in the investment phase incurring high capital expenditure.

Therefore, investors should do their analysis and make sure that both the quantum of investment and the time horizon enables them to convert it into a successful endeavor.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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