Investing Reflections On India

Alufluoride is in the business of supplying aluminium fluoride to practically all aluminium smelters in India to reduce the temperature for aluminium smelting. The company has not reported any significant growth in revenues or operating profits over the last five years.  It reported net operating losses of about 2cr on below-par revenues of 17cr in the last financial year and operated with a net cash position of about 6cr.

Orient Beverages is in the business of supplying ‘Bisleri’ branded mineral water.  It is also engaged in real estate activities. The company has reported no growth in revenues but reported consistent net profits (including rental income – see below) over the last five years.  It reported a net profit of 1cr on revenues of 13cr in the last financial year.  It operated with a relatively high net debt load of 5cr (as at 30 th September 2010). The mineral water business has been on a declining trend and is exposed to further deterioration of revenues as a result of slowing demand for its products with no real prospect of a turnaround.  It has been a victim of labour unrest at its plants and there doesn’t appear to be a reason why this wouldn’t happen again in the future.  It has also veered away from its core business and into real estate with currently one major rental customer (United Credit) generating its rental income – this would require a different asses...

Metrochem Industries is currently engaged in the business of real estate activities. It formerly owned a dyes and intermediates division, which was demerged from the company in the last financial year.   The proceeds from the demerger are currently deployed in real estate activities with the bulk of it tied up in advances for construction etc. Therefore, the past record of profitability is irrelevant to assessing future business prospects.   It operated with a net cash position of about 30cr (as at 31 st March, 2010). The business is exposed to the risks of the real estate industry including construction material price rises, low availability of land for construction, high competition, vulnerability to economic downturns, increasing customer bargaining power (as a result of greater information availability etc.), greater government regulations on real estate activities etc. The lack of a decent track record in real estate activities would prevent the formation of further se...

Flawless Diamonds is in the business of exporting cut and polished diamonds to the US, China, UAE and other countries. The company has not reported significant revenue growth in the last five years and operating profits have been somewhat erratic.   It reported 6cr of operating profits on revenues of about 400cr in the last financial year.   It operated with a relatively high debt load of about 60cr (as at 31 st March, 2010). It is exposed to demand drops during economic downturns due to the discretionary nature of its products, adverse foreign exchange movements impacting its export revenues, interest rate risks impacting its debts and other related risks. Management haven’t declared dividends since the 2008 financial crisis and appear unlikely to reinstate them in the near future due to recent quarterly losses.

Emmsons International is in the business of trading rice, wheat and other commodities. The company reported consistent growth in trading revenues and profits.   It reported operating profits about 50cr on revenues of about 1,350cr in the last financial year.   It operated with a relatively high debt load of 140cr. The business, however, generates weak operating cash flows as a result of heavy investment in its working capital. The business is exposed to the risks of commodity price rises, adverse government regulations on exports/imports, and adverse movements in foreign exchange – all of which directly impact its profits.

Tokyo Plast is in the business of manufacturing thermoware products used to maintain temperature such as insulated ice boxes, water bottles, food carriers etc. The company has reported reasonable growth in revenues and operating profits over the last five years – reporting about 7cr in operating profits on revenues of about 50cr in the last financial year.  It operated with a modest net debt position of about 13cr. The business is subject to crude oil price spikes impacting its raw material costs.  It is also exposed to Chinese competition in this product category and adverse movements in foreign exchange with a large proportion of exports constituting its total sales.

Ecoplast is in the business of manufacturing and supplying co-extruded packaging film, which is apparently a higher value-added packaging film. The company has reported growth in revenues and profits over the last five years.   It reported operating profits of about 6.6cr on revenues of 66cr in the last financial year.   It operated with a modest net debt of about 8cr. The business is exposed to rises in its raw material prices (poly-ethylene – petroleum based).   It is also subject to risks of increased competition as a result of low barriers to entry in this industry and adverse foreign exchange movements on purchase since it imports a large proportion of its raw materials.

Puneet Resins is in the business of manufacturing and trading rubber products for supply to the non-tyre segment of rubber users. The sales mix of trading revenues to manufacturing revenues varies widely from year to year depending on demand conditions. The company has reported consistent growth in revenues and profits over the last five years.   It reported operating profits of 7cr on revenues of about 50cr in the last financial year.   It operated with no net debt. The business is subject to price spikes of its raw materials (PVC, Synthetic Rubber etc.).   It is exposed to further weakening in its negotiating power with suppliers as a result of increasing importance of competing (petroleum-based) user industries.   It also has apparently little pricing power with its end customers.

Rathi Bars is in the business of manufacturing CTD/TMT steel bars and ingots/billets. The company hasn’t reported any significant growth in revenues over the last five years but reported reasonably stable operating profits considering the cyclical nature of its industry.   It reported operating profits of about 11cr on revenues of around 210cr. The business, however, generates weak cash flows from operations as a result of high investment in its working capital. The business is subject to price rises in sponge iron – its main raw material.   It is also dependent on steel industry cyclicality marked by periods of oversupply that has a negative impact on its profits. Management hasn’t declared dividends in any of the last five years presumably to ‘conserve resources’ – this policy appears inappropriate for a company that isn’t deploying funds for profitable growth.

Su-raj diamonds is in the business of exporting cut and polished diamonds/jewellery to the Middle East, Europe, US etc. The company has reported consistent growth in revenues and operating profits over the last five years.   It reported operating profits of about 140cr on revenues of 4,300cr in the last financial year.   It operated with a modest net debt load of about 150cr. The business, however, generates weak cash flows from operations as a result of relatively high investment in working capital. The business is subject to price rises in gold and rough diamonds.   It is generally a low-margin business and hence, risks tend to have a magnified adverse impact on profits.   Furthermore, it is a luxury product implying that it constitutes a discretionary purchase for the customer, which would likely be cut back first in the event of economic downturns resulting in profit deterioration.   It is also subject to adverse movements in foreign exchange rates as a ...

Lakshmi Energy is in the business of processing and distributing rice to domestic and export markets.   It is also engaged in generating biomass fuel. The company has reported growth in revenues and operating profits over the last five years reporting about 200cr in operating profits on about 1200cr of revenues in the last financial year (ending 30 th September, 2010).   It operated with a relatively high net debt load of 780cr as at that date. The business, however, generates weak operating cash flows as a result of high investment in its working capital. The business is subject to adverse changes in government regulations/policies on procurement pricing, non-Basmati exports etc.   It is monsoon-dependent, subject to adverse changes in foreign exchange rates (for exports) and prone to heavy competition in its operations. Dividends have been on a declining trend for the last five years (probably as a result of above cash flow problems).   Management appear to b...

Sujana Universal is in the business of manufacturing steel castings, bearings, appliances etc. with other divisions operating in the fields of infrastructure, share trading and other activities. The company has shown high growth in revenues, which haven’t translated to similar increases in operating profits.   It reported 70cr of operating profits on revenues of about 3000cr in the twelve months ending 31 st March, 2011.   It operated with a relatively high net debt of about 200cr. The business, however, generates weak operating cash flows as a result of heavy investment in its working capital. The primary risk with this business is the lack of focus in its business activities – with management time devoted to activities seemingly unrelated to their primary business (steel castings) such as real-estate, share trading etc. and a host of unquoted subsidiaries engaged in unknown activities.   In its steel castings business, it is blighted by the cyclicality of the in...

DHP India is in the business of manufacturing LPG Pressure Regulators. The company has shown reasonable growth in revenues and operating profitability in the last five years – reporting about 4cr in operating profits on 24cr of revenues in the last financial year.  It operated with modest leverage of 3cr (as at 31 st March, 2010). The company, however, has not generated much free cash flows (operating cash flows – investing cash flows) in the recent past. It is exposed to price rises in its raw materials (brass, zinc etc.) and seems to operate in a low-value product category that has infrequent demand (from an individual customer’s perspective).  It is also heavily exposed to foreign exchange movements (US$ and GBP) since it exports all of its finished products.

APM Industries is in the business of producing spun yarn fibre – it is primarily an exporter of man-made spun yarn fibre. The company hasn’t shown spectacular growth in revenues over the last five years but has reasonable operating profitability given the industry it operates in.  It reported 30cr in operating profits on 240cr of revenues in the last financial year.  It operated with a reasonably high debt load of 60cr, which would sensitise its net profitability in the event of high interest rates (as we have now) and during industry/economic downturns. It is exposed to the persistent cyclicality in the textile industry marked by consistent oversupply.  Moreover, it is operating in a highly capital intensive industry and heavily subject to government regulations on imports/exports/duties/taxes etc.  It is also exposed to crude oil price spikes (impacting synthetic rubber used in man-made fibre), adverse foreign exchange movements (export-driven revenues), and a s...

Jagsonpal Pharma is in the business of manufacturing capsules and bulk drugs for the pharmaceutical industry – with a focus on supplying solutions for lifestyle-related diseases (diabetes, blood pressure etc.) The company hasn’t really grown its revenues over the last five years but generated consistent operating profits – reporting about 15cr in operating profits on 160cr of revenues in the last financial year.  It operated with modest debt of 15cr (as at 31 st March, 2010). The company is exposed to risks of price controls on the end products, high competition in an undifferentiated product category, falling behind on innovative and more effective drugs, and stringent supplier demands.

Gulshan Polyols is in the business of manufacturing Sorbitol and Calcium Carbonate for supplies to the toothpaste, pharmaceutical, paper and paints industries. The company has shown consistent growth in revenues and profits over the last five years – reporting 35cr of operating profits on 275cr of revenues in the last financial year.  It operated with modest debt of 35cr (as at 31 st March, 2011). Its Sorbitol product is exposed to the vagaries of the monsoon since a primary input is corn, which may also be used for alternative uses (such as ethanol etc.).  It is also exposed to the risk of cheap imports (and related government policies) and substitute products for the same applications. 

Asahi Songwon is in the business of manufacturing phthalocyanine pigments for the chemical industry. It supplies to leading chemical companies such as BASF, Clariant etc. The company has reported growth in revenues and profits over the last five years – reporting about 30cr in operating profits on 185cr of revenues in the last financial year.  It operated with a modest leverage of 45cr (as at 31 st March, 2011). The business, however, generates weak cash flows due to high working capital requirements. The business is exposed to the risk of crude oil price spikes since it constitutes a major raw material cost.  Moreover, it is dependent on a few key customers and any loss of customers would seem to have a devastating impact on its earning power.  It is also exposed to adverse foreign exchange movements since over 90% of revenues is comprised of exports.  Furthermore, being a small player in the chemical industry exposes it to global competition in the same produ...

IG Petrochemicals is in the business of manufacturing Phthalic Anhydride – used as a petrochemical in manufacturing paints. It supplies the product to leading paint companies including the likes of Nerolac. The company hasn’t really grown its revenues and profits over the last four years – reporting about 45cr of operating profits on 630cr of revenues in the last financial year.  It operated with modest net debt of about 45cr (as at 30 th September, 2010). The business is subject to several risks including crude oil price rises, adverse foreign exchange movements on raw material supplies, import competition via lax government regulation, cyclicality – business fluctuates with the construction cycle etc.  Moreover, there were plant fires in the recent past calling into question the safety regulations in place at the plant. Management haven’t declared a dividend in the last three years, which is inexplicable since it doesn’t appear to be deploying funds for profitable grow...

Asian Granito is in the business of manufacturing and distributing branded tiles. The company has shown a lot of growth in revenues over the last five years but this hasn’t been reflected in operating profitability presumably due to the effects of greater competition in its business.  It reported about 60cr of operating profits on revenues of 480cr of revenues in the last financial year.  It operated with a relatively high net debt load of 120cr (as at 31 st March, 2010) – which would cause irritations in a high interest-rate environment (as now) and in the event of margin pressures in the future. It is subject to risks of raw material price spikes (clay, glaze etc.), government policies on excise duties (which fluctuates widely) and competitive pressures in a fast growing industry.

Maithan Alloys is in the business of producing manganese ferro alloys. It has a reputed clientele with the likes of SAIL, Jindal Steel etc. in its roster.   It claims to differentiate itself from other ferro alloy producers by focusing on higher margin manganese alloy products used for special steel strengthening. The company has reported somewhat erratic revenue growth over its short public history likely due to its industrial cycle – reporting 110cr of operating profits on 600cr of revenues in the last financial year.  It operates with modest net debt of about 50cr. The company is heavily dependent on the availability and pricing of manganese ores – and hence, very exposed to adverse price spikes.  Moreover, it is exposed to cyclical risks of the steel industry – its primary customers and also to the oversupply within its own industry. 

Excel Crop Care is in the business of manufacturing agrochemicals. It is a leading producer with established brands. It is constantly developing new products and tapping export markets to grow its revenues. The company has shown reasonably good growth in revenues and profits over the last five years – reporting about 90cr in operating profits on 700cr of revenues in the last financial year.  It operates with modest leverage of about 115cr. The business is exposed to several risks including climate dependence, brand counterfeiting, import competition, negative public relations on agrochemicals, cyclicality of raw material supplies, adverse regulations in export markets.  It is also operating in an industry that is growing at a pace slower than real GDP.

Hanung Toys is in the business of manufacturing stuffed toys and home furnishings. It is one of the leading producers of stuffed toys in India with distribution of supplies to international brand name retailers. The company has generated consistent growth in revenues and profits – reporting 200cr of operating profits on revenues of 1,100cr in the last financial year.   It has, however, a relatively high net debt load of 500cr (as at 31 st March, 2010) – which causes problems in a high interest-rate environment (like now) and would have a magnified impact if the business were to hit operational bumps along the road. The business is subject to adverse cotton price spikes since it constitutes a major raw material cost.   Over 75% of revenues are denominated in foreign exchange and hence, revenues in INR are subject to the risk of adverse foreign exchange movements.   The company’s products are also somewhat discretionary and hence, would suffer disproportionately during...

Vardhman Textiles is in the textiles business with manufacturing capacities in yarns and fabrics. The company has generated consistent growth in revenues and profits – reporting about 900cr in operating profits on 3,600cr of revenues in the last financial year.   It has a relatively high debt load of 2,800cr – which would magnify the negative impact on profit during industry downturns. The business is subject to the risk of cotton price spikes since it constitutes a large proportion of raw material cost.   It is also exposed to adverse movements in USD/INR exchange rates since a large proportion of revenues comprises of exports to US buyers.   Moreover, it is vulnerable to adverse government policies on export incentives and/or other restrictions along with frequent power shortages that blight the industry.

The company is in the business of manufacturing photo-sensitised materials (X-Ray Films and Accessories) and supplying of other related products for the healthcare industry – particularly for hospitals and diagnostics centres. The company has reported profits in each of its last five years with about 7 crores of operating profits on 168 crores of revenues in the last financial year.  However, it has a relatively high level of net borrowings amounting to over 25 crores (as at 31 st March, 2011) exposing it to not insignificant downside risks should the business encounter operational bumps along the road. The company also has a relatively high investment in working capital resulting in cash outflows from operations – with cash tied up in inventories and receivables. It apparently has a large distribution network across India enabling it to gauge customer demand and supply them effectively. The company faces a significant business risk in the long-term obsolescence of X-ray tech...

The company is in the business of manufacturing ‘fluid couplings’, which are power transmission devices used in various basic industries such as thermal power plants, steel, cement, and other infrastructure-related businesses. The company has shown reasonable growth in revenues and profits in the recent past with no net debt as at 31 st March, 2011.  It generated about 2.5 crores in net profits on revenues of 18 crores in the last financial year.  The company was, however, a victim of financial restructuring several years ago as a result of severe losses (pre-2000) and erosion of reserves.  It has now recovered its former losses and built up its net worth as a result of the recent good performance. Management has deployed retained earnings at reasonably attractive rates of return in the past and recently declared a dividend of INR 1/share on its equity shares. The company has apparently expended efforts to build its brand in the Australian and New Zealand market...