Is Vikas Lifecare a Good stock to Buy?

Vikas Lifecare Ltd. (VLL), formerly known as Vikas Multicorp Ltd., has frequently changed its name, likely to attract attention from new investors. Initially established as a plastic waste recycling and polymer trading company, it later ventured into cashew nut trading and is now positioned in the polymer and FMCG segments.

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About the company:

VLL began as a plastic recycling company but has since expanded into trading and manufacturing of polymer compounds, recycled materials, and FMCG goods. Despite efforts to diversify, the company’s financial health remains questionable, especially in light of its inconsistent financial performance. VLL’s efforts to rebrand towards the "lifecare" segment have not translated into stronger financials, leaving investors uncertain about the company's true growth potential.

Frequent Domain Shifts, Lack of Focus:

Vikas Lifecare Ltd. (VLL) has undergone several transformations over the years, changing both its name and business focus in a bid to capture market attention. Originally a company centered on plastic waste recycling and polymer trading, VLL ventured into trading cashew nuts, aiming to tap into the FMCG sector. More recently, it rebranded itself with a focus on the "Lifecare" segment, likely to capitalize on the growing interest in health-related industries.

However, these shifts appear more cosmetic than strategic. The company's core operations still revolve around polymer and recycling industries, leaving investors questioning its long-term vision. Frequent changes in direction without a clear focus have led to inconsistent financial performance and declining promoter confidence. Rather than committing to one area and developing a strong market presence, VLL’s constant domain shifts raise concerns about its ability to maintain steady growth and build investor trust.

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This lack of focus and the superficial nature of its rebranding efforts may signal deeper issues in the company’s leadership and strategy. Without a clear, consistent business model, the company risks spreading itself too thin, potentially missing out on establishing a solid foundation in any of the sectors it explores. 

Minimal Lifecare Revenue, Heavy Focus on Other Divisions:

In FY23, Vikas Lifecare Ltd. (VLL) generated the majority of its revenue from its Trading and Manufacturing divisions, but the lifecare segment, despite the company’s rebranding, contributed little to its overall performance. The breakdown of revenue highlights where the company’s real focus lies:

• Trading & Manufacturing Division - Polymers: 68.7%
• Trading & Manufacturing Division - Agro: 11.2%
• Trading Division - Infrastructure: 17.85%
• Trading Division - Gas Meter: 2.3%

Surprisingly, the lifecare segment, which was supposed to signal a new strategic direction, hardly made an impact. This reinforces concerns that the rebranding was more of a marketing move than a meaningful business shift. The company’s primary revenue drivers remain in its traditional sectors, suggesting a lack of true commitment to the lifecare space.

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Declining Promoter holding 

In Vikas Lifecare Ltd., the promoter holding dropped significantly over the past quarters, from around 53.5% in September 2020 to just 14% by June 2024. This sharp reduction can signal a lack of confidence from the promoters in the company's growth potential or financial health. Moreover, such a drastic decline in promoter stake can undermine investor trust, as promoters reducing their exposure might suggest an unwillingness to support the company during challenging times.

Key Issues in Balance sheet

• VLL’s total liabilities rose dramatically from Rs. 149 crore in March 2021 to Rs. 555 crore by March 2024, showcasing the company’s growing financial obligations.
• EPS figures also reflect this volatility, swinging from negative Rs. 0.03 in March 2021 to Rs. 0.26 in March 2022, and dropping to Rs. 0.00 in the trailing twelve months. The inconsistency highlights the challenges the company faces in sustaining its earnings.

Script Performance on Exchange

VLL’s stock has experienced a sharp decline in the past year, reflecting a -8.54% return over the last 12 months. The stock has underperformed over the last three months (-10.3%) and six months (-9.42%). While it posted a modest 13.0% return over three years, its long-term performance (over five years) shows only a 7.51% return.

Conclusion

Vikas Lifecare Ltd. has consistently faced issues related to financial instability, volatile profits, and declining promoter confidence. Despite its efforts to raise capital through rights issues and increase reserves, the company’s erratic performance and rising liabilities suggest significant risks for potential investors. The stock’s inflated P/E ratio and low ROE, combined with decreasing sales and inconsistent profitability.

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