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Buy or Sell Optiemus Infracom?

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Optiemus Infracom manufactures and markets mobile handsets & accessories and has 6 subsidiaries/associates. Here are a few facts about the company, based on its 2019-2020 Annual Report, that every investor should be aware of.

Note that I am placing the facts and leaving the judgment to you.

1. Optiemus Infracom – Ownership and Control

As per its 2019-2020 Annual Report, 74.93% of its equity capital was held by the promoters (The Gupta family), Note that GRA Enterprises Pvt Ltd (see image below), which owns 45.14% of the equity capital, has an authorized capital of Rs 50 lakhs and its paid up capital is Rs 5 lakhs. Also, GRA Enterprises’ owners are Mr Ashok Gupta and Renu Gupta, a fact which you can discover at any online company database.

Even the subsidiaries are mostly owned by the Gupta family and aside from that, Optiemus Infracom does business with a bunch of companies that are significantly influenced by its promoters.

So, it is safe to say that Optiemus Infracom and its subsidiaries and associates belong to the Gupta family, with majority of the control vested in 2 individuals. You can discover this information using any online company database. Plus, it does business with a bunch of companies, which too are influenced by its promoters.

2. Investment in Related Firms

Of a total balance sheet of approximately Rs 550 crores, Optiemus Infracom invested Rs 67 crores in related firms. You can find this information on Page 106-107 of its 2019-2020 Annual Report.

Optiemus Infracom Financial Analysis

3. Optiemus’ Related Party Transactions

Of its total sales of Rs 341 crores in 2019-20, about Rs 59 crore worth goods (17.3% of sales) were sold to related parties. What stands out is the following:

In 2019-20, Optiemus Infracom’s total sales were Rs 341 crores and its debtors were Rs 165 crores (48% of sales), implying the company gives almost 6 months credit to its customers.

Now, of these Rs 165 crore debtors, Rs 130 crore worth of debtors were related parties. BUT, the company sold goods worth only Rs 59 crore to related parties. Therefore (130-59 = Rs 71 crore) debtor balance is due from related parties and is more than 1 year old.

4. Bad Debts Written Off

In 2019-20, Optiemus Infracom’s provided Rs 42.37 crore for bad debts. Considering that its total debtors netted down to Rs 165 crores at the end of the year, the write off percentage seems very high. Also, it is not clear how much of related party debts were written off.

Let’s talk about the company’s purchases – Of Rs 260 crore total purchases, about Rs 148 crores were from related parties That implies that about 57% of purchases were from related parties.

5. Corporate Guarantees Given on behalf of Related Parties

The company gave guarantees worth Rs 118 crores for loans obtained by related parties.

5. Blackberry Dispute

As per Optiemus Infracom’s 2019-20 Annual Report, it was entangled in some sort of royalty-related dispute with Blackberry. Current status is unclear.

6. Independent Auditor’s Observation

The company’s independent auditor observed that the company’s revenue recognition standards were not in accordance with the rules. However, the auditor also commented that he tested the company’s revenue recognition methods. There was no comment from the auditor about the same in his report, and hence it can be assumed that he discovered that though the company was not following established standards, the other methods used by it were okay.

YOU BE THE JUDGE

Optiemus Infracom has recently applied for a PLI and has sold a property too. I’m unsure how the future will pan out for the company.

So, is Optiemus Infracom worth investing or getting rid of?

You decide.

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