Dynemic Product’s gross profit margin expanded and was stable even during the harsh times of the last three years.
Dynemic Products endured a sharp decline in earnings and profitability over the last three years. A revenue slowdown and a disproportionate cost increase associated with the enormous capital expenditure of FY20 -22 were seemingly responsible. Consequently, the previous three years were harsh for its stock price, as it lost more than 50 per cent, declining from ₹600 per share in April 2022 to ₹275 per share today.
The FY20 -22 capital expenditure totalled ₹226 crores, which doubled the company’s manufacturing capacity. Almost 65 per cent of the capital expenditure was financed through debt, the rest through internal accruals. This caused the company’s outstanding debt to rise from ₹32 crores in FY19 to ₹174 crores in FY22.
However, over the past two-and-a-half years, the company has retired debt worth ₹66 crores through internal accruals and a rights issue. Lately, the total outstanding debt stood at ₹105 crores, equivalent to 54 per cent of its latest net worth.
In our May 2024 review, we said the stock has strong support at ₹300 per share. We also found the stock to have favourable core fundamentals and to be cheaply valued. We decided to buy the stock despite no signs of earnings recovery.
The stock began to rise from July 2024 onwards; it was up 60 per cent in less than five months. On November 13, 2024, Dynemic Products announced its September 2024 quarter (Q2FY25) results: revenue and gross profit increased by 49.6 per cent and 72.3 per cent, respectively; operating profit achieved a positive turnaround (loss to profit).
The stock hit the upper circuit (5 per cent) the next day, at ₹460.95 per share. But that was the peak. The stock has lost 40 per cent since then and currently trades at ₹275 per share. What caused the 40 per cent decline remains ambiguous because broader markets suffered a severe correction during the same period, during which small-cap stocks declined by around 25 per cent.
The support for the argument of an earnings recovery was reinforced when Dynemic Products announced its December 2024 quarter (Q3FY25) results on 10 February 2025. Revenue, gross profit, and operating profit increased by 33.5 per cent, 29.8 per cent, and 163 per cent, respectively, year-over-year, during the quarter.
However, its stock dropped almost 9 per cent the next day. The decline in gross profit margins during the quarter might have disappointed investors. But it was a bad day for the broader market too: Nifty50 dropped 1.32 per cent on 11 February 2025, the day Q3FY25 results were announced; Nifty Midcap 100 dropped by 3.02 per cent; and Nifty Smallcap 100 dropped by 3.45 per cent.
With the stock currently trading at ₹275 per share, our argument that it has strong support at ₹300 has not been disproved yet. Moreover, the long-awaited earnings recovery is into its second consecutive quarter, though its operating profitability is much lower than the FY21 highs. The stock is valued at 15 times earnings and 1.60 times book value—a very cheap, attractive valuation—perhaps its lowest since the 2020 COVID lows.
Dynemic Product’s gross profit margin expanded and was stable even during the harsh times of the last three years. This is a testament to its strong, resilient, competitive position. A favourable competitive position is essential for sustainable earnings growth and profitability.
Dynemic Products’ prospects have improved over the last year, mainly due to the earnings recovery of the most recent two quarters. The fact that the stock price has remained unchanged during the time has only increased the stock’s attractiveness.
Disclosure
This post is not a piece of investment advice to buy or sell stocks. We are neither registered investment advisors nor research analysts. This analysis is prepared for our internal investment decision-making. The purpose of sharing it is purely informational.
Investment in the stock market is subjected to various risks and can result in capital losses. It is advisable to do your own research and/or consult your investment advisor before making your investment decisions.
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