Supreme Engineering's FY24 Shocker: Behind the 36% Revenue Growth, A Company on the Brink?
Here is a summary and analysis of Supreme Engineering Limited’s FY24 earnings results.
Supreme Engineering (SUPREMEENG): Navigating a Financial Maelstrom
Supreme Engineering Limited’s latest annual results for FY24 paint a picture of a company grappling with severe financial distress. While the broader economic context points to a revival in the capital goods and infrastructure sectors, a deep dive into SUPREMEENG’s financials reveals a company struggling for survival. An unmodified audit opinion accompanied by a barrage of “Emphasis of Matter” warnings from the statutory auditor raises critical questions about its future. Let’s break down the numbers and the story they tell.
Executive Summary: A Tale of Two Realities
On the surface, SUPREMEENG reported a 36% increase in full-year revenue. However, this is where the good news ends. The company posted a staggering net loss of ₹11.04 crores for the year, with its net worth completely eroded to a negative ₹77.08 crores.
The auditor’s report is the real story here. It highlights a company that has defaulted on its loans, been declared a Non-Performing Asset (NPA), failed to pay over ₹5 crores in statutory dues, and is operating with significant internal control weaknesses. These factors cast “significant doubt on the company’s ability to continue as a going concern,” a stark contrast to the management’s hopeful stance on loan restructuring and asset sales.
For investors, the key takeaway is clear: this is a high-risk situation where the company’s very existence is in question.
Revenue: A Deceptive Annual Growth Story
While the annual revenue from operations saw a significant jump, the quarterly trend reveals a concerning slowdown.
| Particulars (INR lakhs) | Q4 FY24 | Q3 FY24 | Q4 FY23 | FY24 | FY23 |
|---|---|---|---|---|---|
| Revenue from Operations | 398.43 | 563.21 | 418.63 | 2,510.15 | 1,839.87 |
| QoQ Growth | -29.3% | ||||
| YoY Growth (Quarterly) | -4.8% | ||||
| YoY Growth (Annual) | +36.4% |
- Annual Growth: Revenue for the full year grew by a healthy 36.4%.
- Quarterly Contraction: The final quarter (Q4 FY24) was dismal, with revenue shrinking 29% sequentially from Q3 and 5% year-on-year. This sharp decline heading into the new fiscal year is a major red flag.
- Negative Other Income: A negative “Other Income” of ₹107.52 lakhs in Q4 further dragged down the total revenue, adding to the quarter’s woes.
This performance suggests that while the company managed to push sales through the year, momentum has reversed sharply, posing a significant challenge for future growth.
Earnings Analysis: A Deep Dive into the Red 📉
The bottom line reveals the true extent of the financial crisis. The company is bleeding heavily, with losses mounting due to a combination of operational inefficiencies and potential one-off charges.
| Particulars (INR lakhs) | Q4 FY24 | Q3 FY24 | Q4 FY23 | FY24 | FY23 |
|---|---|---|---|---|---|
| Profit/ (Loss) Before Tax | -650.06 | -73.31 | -9,998.73 | -824.31 | -10,857.95 |
| Net Profit/ (Loss) for the Period | -1,134.02 | -70.15 | -9,807.90 | -1,104.04 | -10,516.95 |
| Basic EPS (in Rs) | -4.54 | -0.28 | -39.25 | -4.42 | -42.08 |
- Massive Losses: The company reported a net loss of ₹11.04 crores for FY24. The loss in Q4 alone was ₹11.34 crores, wiping out any semblance of profitability from earlier in the year.
- Erratic Expenses: The expense profile is volatile. “Other Expenses” and “Changes in Stock” fluctuate wildly between quarters, making it difficult to assess the underlying operational efficiency.
- Stock Write-Off: A critical note from the auditor reveals the company incurred stock losses of ₹5.58 crores due to irrecoverable processing stock. This points to significant operational or quality control failures.
Company Classification: Based on its performance, Supreme Engineering falls squarely into the category of a company in deep financial distress. It is not a turnaround candidate at this stage, as the fundamental question of its survival as a “going concern” remains unanswered.
The Auditor’s Verdict: A Litany of Red Flags 🚩
The auditor’s report is perhaps the most crucial document for any potential investor. While the final opinion is “unmodified,” the “Emphasis of Matter” section reads like a charge sheet, detailing severe issues across the board.
- Going Concern in Doubt: The company’s loan account has been an NPA since August 2021. It has stopped servicing its debt, and its net worth has been completely eroded.
- Statutory Defaults: Supreme has unpaid statutory dues of ₹5.24 crores (including PF, Income Tax, TDS) outstanding for more than six months. It has also failed to conduct mandatory cost audits since FY21.
- Unaccounted Liabilities: The company has not accounted for accrued interest, penalties, and other charges on its NPA loans. The true liability could be significantly higher than reported.
- Weak Internal Controls: The auditor noted that the accounting software’s audit trail (edit log) was not enabled, a basic control to prevent data manipulation. Furthermore, there are no formal Standard Operating Procedures (SOPs).
- Massive Tax Disputes: The company is fighting pending tax demands totaling over ₹20 crores (₹9.36 Cr direct tax, ₹10.54 Cr indirect tax), a massive contingent liability for a company of this size.
Balance Sheet & Cash Flow: A Precarious Position
The balance sheet confirms the insolvency.
- Negative Equity: Total equity stands at a staggering negative ₹77.08 crores.
- Liquidity Crisis: Current liabilities of ₹98 crores vastly exceed current assets of just ₹14.75 crores. The company is in no position to meet its short-term obligations.
- Working Capital Distress: Trade receivables have turned negative, likely due to massive provisions for bad debt. Inventory has been halved, partly due to the ₹5.58 crore write-off.
The cash flow statement provides a glimmer of hope that quickly fades under scrutiny.
- Cash from Operations: The company generated ₹4.67 crores in cash from operations. However, this was not due to profitable activity but rather the liquidation of working capital (i.e., collecting old receivables and reducing inventory). This is not a sustainable source of cash.
- Financing Freeze: Cash flow from financing was negative ₹5 crores, reflecting minor debt/lease payments and a complete inability to raise fresh capital.
Investment Outlook: Steer Clear
While the Indian economy offers a favorable tailwind for the engineering and capital goods sectors, Supreme Engineering is its own perfect storm. The company is plagued by:
- An insolvent balance sheet.
- Recurring and substantial losses.
- Defaults on debt and statutory payments.
- Damning observations from its own auditors on its ability to continue as a going concern.
Management’s plans to restructure loans, sell assets, and find partners have been on the table while the company’s condition has deteriorated. The risks of bankruptcy, severe equity dilution, and operational collapse are imminent and overwhelming.
For investors, this is a clear case of “caveat emptor” or “buyer beware.” The possibility of a turnaround exists, but it is a speculative bet against monumental odds. Until there is concrete evidence of a debt resolution, a return to operational stability, and a cleanup of its statutory and control issues, this stock is best avoided.
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