Interfit Techno

Interfit Techno is in the business of manufacturing stainless steel pipe fittings, ball valves etc. for the construction industry.  It generated 85% of its revenues from the Middle East.

The company has reported marginal operating profits in last five years with a recent spurt in revenues and profits in the last couple of years – reporting about 3cr of operating profits on revenues of about 25cr.  It operated with a moderate debt load.

The company, however, had accumulated losses over the last ten years – a former BIFR case - and it is only on its way to working itself out of it.  This is a serious adverse point against the competence of management in this business.  Minority shareholders need to convince themselves that the underlying causes of poor past performance have been remedied for good rather than covered up by a temporary spurt in business activity.

Moreover, it generated negative free cash flows in aggregate over the last five years primarily as a result of large amounts of cash used in operations during the downturn of 2008-09.

The business is exposed to the risks of high steel prices and the cyclical construction and building industry – particularly the risks of construction slowdown in the Middle East.  It is also subject to significant and frequent power cuts of up to 70% of full capacity (in Tamil Nadu) and hence has to rely on its own diesel generated power.  It also appears to be involved in large projects implying low bargaining power on terms and conditions and weak cash collection potential on a timely basis.

Management haven’t bothered to intelligently discuss business prospects in its annual report – reflecting poorly on its commitment to minority shareholders.  This factor, along with its poor financial performance over the last decade, appears to cast a bad light on management competence and stewardship.