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So I see that there should be no debt in the company or it should be minimum and the cash flow of the company should be able to generate cash to repay the debt. Meaning, the company should not expand beyond its capacity because it does not have that much financial capacity and by doing a big expansion, sometimes the companies become too ambitious that cash flow is coming and we do more expansion within it.
This work was also done in Atul Auto, sir. I am telling you about 2016-17 for your example. By the way, I am the director of Atul Auto, let me also tell you this. But here we are discussing, understand it, we are doing a case study. So in 2016-17 the company also had a surplus of Rs 100 crore. There was also a cash flow of Rs 30, 40, 50 crore.
So he put forward a new plan in Ahmedabad and that plan was within ₹250 crores. So I also had my dissent that such a big expansion should not be done. But understand that the market was also good in that. The automobile market was good. So he set up a plant worth Rs 250 crore. By the time that plant was set up, 2019 arrived and by then 1920 had arrived and by then Covid had arrived.
So during Covid, he did such a thing that the market was completely cleared and the company got a debt of Rs 100 crore. So just imagine that the company which generated cash flow of Rs 50 crore had a surplus of Rs 100 crore. So imagine, after all that was cleared, a debt of Rs 100 crore came into the company and the company got into trouble.
Now the company has turned around but those 5 years have passed, so I look at what work this company has done in the reasonable past, whether the management has done the assurances given in the last 15-20 years or not. Whatever expansion the company has done, it should be a stable company. What do you call fluctuation?
Firstly, there should not be any manipulation, the management should be good and there should not be any kind of over- ambition in the company, so I give it more importance and I see in the balance sheet that there is reasonable profit in the company, the future order book is good, the future market size is good, so today even if there is no profit in the company, like when I bought Sera, there was not that much profit in it, sir, but that market size was so big, there was no other player in it, so that was an advantage, like when I bought Atul Auto, sir, Atul Auto used to make 10,000 vehicles and 4 lakh or 5 lakh three- wheelers were sold in India, out of that, it used to produce only 10,000, so there is not even a rupee two and a half.
Now think about what he used to make and the market was growing at the rate of 5%, so 5% market growth means there was an incremental demand of Rs 20,000-25,000 every year. The balance sheet was not that great but the company was not in loss and was not in debt. So then I attempted this. So by saying this, I only look at the financials to see whether the company will survive well for a year or two and I do not strictly believe that the ROC should be above 20.
ROE should be this much. This should be the PE ratio. I don't see that much at that time. I was to ask that only. So whether you relate the PE multiple, EBITDA multiple with the price to hold the shares. Sorry. PE multiple, EBITDA multiple along with the current price of the shares. I don't see much in that sir, at that time I see growth.
What I feel is that the financial parameters that you are seeing today are telling you about your past. If that growth is coming in the future and I tell the companies one more thing to summarize this properly that I make the companies wait for 5-10 years to buy. When I get that company, when those parameters are not correct, why are they not correct, sir?
The biggest reason behind this is that there is no growth in its product. When the growth of the product becomes stagnant, the parameters of the company automatically start falling because the expenses remain the same and the profitability decreases because the competition has increased and the market size is not increasing.
So my point starts from there that if the market size is increasing and if the parameters are low today, then these parameters will improve in the next year or two. Financial parameters will improve because the market size is increasing, so there will be no cut throat competition and there will be less people in that industry.
This means that there is less competition and he is not so ill that if the time comes for him to run, he should not be so ill that he is unable to run. Okay, thank you.
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