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Company’s Business Operations

Priti International Ltd. is engaged in the business of manufacturing and exporting handicraft products. Their products include Wood & Metal Furniture, Refurbished waste material and textile handicrafts. They are located in Jodhpur and they have 2 Manufacturing Facilities in the city.

First we will have to clear a few things up about Priti International Ltd. Priti International Limited was incorporated in November, 2017. Before 2017, the promoters ran a proprietary firm called Priti International. Priti International has been in operation since 2005 and in 2017, it was acquired by the company we are talking about i.e. Priti International Limited.

Considering, Priti International Limited has only been in operation for a few months, in all discussions further, we will be concerned, only with Priti International and not Priti International Ltd.


A dummy website?

Before writing this review, we thought we would buy something from Priti International’s Website to test out how they match up to other handicraft products. That’s when we met our first surprise. We couldn’t buy anything. Whenever we’d add something to our cart, the website would redirect us to the home page. In fact, none of the links on the website worked and we were beginning to think this was only a dummy website. But then, we clicked on a link that said “Prospectus” and found the DRHP (Draft Red Herring Prospectus) of Priti International Ltd. So it was not entirely a dummy website after all.

Dummy Products Too?

We then ran a google image search on some of the products listed on the website. And we found out that most of the products listed on their website were listed on Amazon by different sellers as well. So we were forced to conclude that the products listed on their website were also dummies.  

This made sense because Priti International sells mainly to wholesalers and Retailers and so, we are assuming that the website is only a display/landing page and nothing else.

Priti International Makes Beautiful Products

https://youtu.be/To4U3m9XNTE

Say what you will about the website, but Priti International makes ingenious products. We know this because History Channel ran a small segment talking about the beautiful products they make. The manufacturing facility and the product portfolio is there for the world to see. The novelty factor is so high that almost all of their sales come from outside India.


CUSTOMERS

While it is noteworthy that they generate most of their revenue outside India, it must also be said that close to 93% of their revenue comes from about 10 customers in total. Where are these 10 customers located you ask?

In Spain, Belgium, Holland, Netherlands, Turkey, England, China, Greece, Germany etc as of 2017. 

Revenue Distribution from various countries

Country% of the Total Revenue
Holland45%
Spain15%
USA14%
China7%
Others19%
But still, relying on 10 customers to sell all your finished goods can be a bit of a problem going ahead though.

FINANCIALS OF THE COMPANY (FY 16-17)

Revenue

18 Cr

Profits

1.64 Cr

So Priti International made sales worth 18 Cr. in FY 2016-17. These numbers, combined with the ingenuity of their products, look decent until you are forced to look at the big picture. Their sales have largely remained stagnant since 2013 shifting between 18 Cr. and 20 Cr. and we must confess that the company has maintained remarkable consistency on this front. Only problem, is that consistency of this sort in your income statement is not really a good thing per se.

Their profits too have remained in a fixed range between 1Cr. to 2 Cr. since 2013 and the DRHP doesn’t quite provide us with intimate details on how they plan to increase their top/bottom line.

OPERATING CASH FLOWS

Are they making money on their operations? We don’t have the numbers from Priti International. But, after its acquisition in November 2017, Priti International Limited has had negative operating cash flows (Rs.- 1.96 Cr) as of December 2017.
So all in all, they are losing money on operations, their revenues and profits have largely remained constant and we don’t know where the company is headed in the future. The only question we can then proceed to ask is if the stock is priced fairly.

WHAT ABOUT THE ISSUE PRICE?

The stock will be issued at 75. At an EPS of Rs. 3.47 and a PE of 21, our opinion is that the stock isn’t cheap. Plus, we don’t have peers to compare the valuation of the company. So, if you are to invest in the company you will have to rely simply on the integrity and the vision of the promoter.

SO WHAT ABOUT THE PROMOTERS?

In 2015, the company’s promoter, director and CFO, Ritesh Lohia spoke to yourstory.com, a website dedicated to entrepreneur success stories. Back in 2015, Ritesh perhaps had no idea that he would someday take the company public and so, he had some very interesting things to say about his company. 

The following quotes are excerpts from an interview with the promoter; published in 2015

https://yourstory.com/2015/08/priti-international/


“At present, our current turnover is around $8million."

Based on the prevailing exchange rates in 2015, 8 million dollar translated to about Rs. 50 Cr. But according to the financial disclosures found in the DRHP, Priti International’s revenue never exceeded 20 Cr. since 2013. So Mr. Lohia wasn’t entirely being honest in this interview

“We are growing at a rate of 25% annually.”

This did not happen either. 

 “Our production facilities are spread over 3 large factories, with around 400 people working for us.” 

Currently they have 2 Production facilities and about 45 employees. So either, the company has downsized significantly since then, or the company never had 3 large factories and the 400 employees as claimed in the interview

“We are planning to expand our production facility and scale our venture to $20 million by 2016”

20 million dollar equalled Rs. 125 Cr. in 2016. We know now that, this expansion did not materialize as stated. The revenues have remained at 20 Cr. 

“We have recently started a retail showroom in Ningbo, China for selling our products in retail. This is just a test showroom, but the response has been heartwarming. Now we are planning to open 12 more showrooms across China exclusively, for our products”

According to the DRHP, currently, they have no offshore offices/business in place to look after their export operations. So either the company sold off their retail showrooms or they never existed in the first place.

“We have taken no loans from banks or any other financial institution.”

True, the company funded it all through loans from the promoters. But after Priti International was acquired by Priti International Ltd, the loans were converted into equity. They issued about 3,00,000 shares at Rs. 75 /share to convert their unsecured loans of 2.24 cr. and the company is now debt free.

“I only have faith in ‘Aham Bhramasmi' i.e. ‘The core of my being is the ultimate reality’. Work hard enough long enough and you will spout your own miracles.”

The stated miracles have not yet materialized. In fact, last year two unidentified assailants fired several bullets on the promoter. According to the FIR, the assailants attacked the promoter with the intention to kill, intimidate and extort. The police have arrested the accused and the matter is currently under investigation.

We here at Finception hope that Ritesh Lohiya stays safe and all the miracles beckon him and his company soon.

The company is issuing 700,800 new Equity Shares at an issue price of Rs 75 aggregating up to Rs 5.26 Cr


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