Investing Reflections On India

Chemfab Alkalies operates in the heavy chemicals industry and is in the business of manufacturing Chlor Alkali products. It primarily manufactures Caustic Soda Lye, comprising about 75% of revenues, which is used in various basic industries such as paper, aluminium, textiles, etc.  It also produces chlorine (comprising 12%-13% of revenues), hydrogen, sodium hypo chlorate, and hydro chloric acid – also finding applications in various manufacturing industries. The company reported reasonably stable (albeit somewhat declining) operating profits and revenues in the last five years – reporting about 16cr in operating profits on revenues of 77cr in the last financial year.  It held cash and liquid assets of over 27cr as at 31 st March, 2012 The business is very cyclical – dependent not only on international demand fluctuations (primarily from aluminium manufacturers) arising from global economic cycles but also global oversupply in its own industry arising from capac...

IFB Agro Industries is in the business of producing alcohol (70% to 75% of revenues) and marine products. The company is based out of the state of West Bengal (WB), which is well known for its regressive attitudes towards businesses.  In the alcohol segment, it distributes ‘Volga’ vodka, ‘Jubilation’ rum, ‘Benjamin’ brandy (latter two launched recently).  Demand in the Indian Made Foreign Liquor (IMFL) appears to have a promising outlook with growth estimated at about 20% per annum.  It has also installed a new plant to enhance its country liquor production capacity since demand was outstripping supply – however, licenses weren’t granted by the state as at the end of last year.  In the marine segment, it distributes frozen marine products in the major metros through retail chains under the “IFB Royal” brand.  It also has a 48% market share in the shrimp feed trading business.  It had recently enhanced capacities in the marine division includi...

Bharat Fertilisers is engaged in the fertiliser business and construction activities. Fertiliser is considered a core sector industry in India and management assert that the company has the expertise, knowledge, and infrastructure available to operate in this industry.  Due to the troubles facing the industry (see below), management are buying up ‘sick’ Single Super Phosphate (SSP) units in the states of Gujarat, Madhya Pradesh, Karnataka, and Andhra Pradesh. Its construction and real estate activities are concentrated in Thane, Maharashtra.  It expects to let out commercial space within the next two to three years and generate about 5cr in lease fees per annum (before costs). The company reported erratic/marginal operating profits prior to the year ended 31 st March, 2009 but has shown growth in revenues and operating profits since then except for a minor downturn in the last financial year when it reported over 12cr in operating profits on revenues of about 3...

Dhanalaxmi Roto Spinners is in the business of trading textiles, paper, and wood pulp. It is established in the paper and wood pulp markets and management intends to set up a manufacturing facility for forestry and logging products.  Management also intends to enter commodity trading and exports. The company has reported growing operating profits on a growing revenue base in the last five years – reporting about 1.3cr in operating profits on a revenue base of about 30cr in the last financial year.  It operated with a net cash position of 3cr. The company is currently exclusively engaged in the trading business and hence, does not own valuable long-term assets that can generate consistent earnings.  The wood pulp market is dependent on the international demand/supply situation and hence, slowing demand and oversupply has a detrimental impact on the company’s profitability.  The company is dependent on suppliers for product and has virtually no p...

Dhan Jeevan operates a hospital offering various diagnostic and therapeutic services. The hospital operates in various areas of medicine including Urology, Gastroenterology, Cardiology, Neurology, Internal Medicine, and Radiology (including MRI).  It generally enjoys a high occupancy rate of its beds.  Further, the trend of greater numbers of people taking health insurance coverage bodes well for the hospital industry’s revenues. As a result of the above and other related factors, management intends on increasing the hospital’s bed capacity and expanding some of the hospital’s other facilities.  The company reported stable operating profits on similarly stable revenues (with minor growth) – reporting almost 1cr in operating profits on revenues of over 4.5cr.  It did not operate with any net debt as at 31 st March, 2012 although this is likely to change in the near future (see below). The business is not immune to reduced demand as a result of ...

Rishiroop Rubber is in the business of trading of industrial raw materials. The company supplies raw materials to various industries.  Management expects to widen the company’s product offerings and customer base – both domestically as well as internationally. The company reported losses or marginal operating profits in the years leading up to 31 st March, 2009 – after which it reported growing operating profits on growing revenues – reporting about 7cr in operating profits on revenues of about 60cr in the last financial year.  Investors ought to note that cash flows have not kept up (as is usually the case in rapidly growing enterprises due to working capital needs among other factors) and their commitments would also depend on how well management manages its financial position rather than just growth for its own sake. However, the company reported liquid assets and cash of about 12cr as at 31 st March, 2012.  Nevertheless, management have never decl...

Key Corp is a non-banking finance company (NBFC) engaged in vehicle financing. The company specialises in financing old/used vehicles and currently finances a large portfolio of old vehicles.  It is based out of the state of Uttar Pradesh (UP) and has operated in this business for over 23 years.  Management foresees ample scope for continuing and expanding its activities. The company reported marginal operating profits on a reasonably stable revenue base in the last five years except during the 2008/2009 downturn when performance took a hit as expected.  It reported about 30-40 lacs in net interest income on gross interest income of about 80-90 lacs in the last financial year.  It held liquid assets of about 12cr in various equity and debt funds as at 31 st March, 2012. The business is exposed to economic downturns, which reduces demand for vehicles, and a high interest-rate environment, which increases its cost of operation and squeezes margins. ...

Elnet Technologies is in the business of providing infrastructure to the business process outsourcing (BPO) industry. It is engaged in letting commercial office space to software and BPO firms in Chennai.  Despite the recent economic slowdown, these industries are still exhibiting good growth rates. The company reported stable operating profits on a stable revenue base – reporting about 9cr in operating profits on revenues of 17cr in the last financial year.  It did not operate with a net debt position as at 31 st March, 2012. The business is naturally exposed to the fortunes of the software/BPO industries.  These are, in turn, exposed to global economic slowdowns, adverse western policies on outsourcing, demand uncertainty, etc. It is also exposed to oversupply in the industry where large scale commercial space availability is putting pressure on rates per sq ft and occupancy levels.

Arihant Capital is in the business of providing integrated financial services. The company is primarily an equity broker but also provides commodity, currency, and bond brokerage as well as merchant banking, financing, distribution of financial products, financial planning, and depository services to over 100,000 customers across the country in the retail, corporate, and institutional customer segments. The company has reported fluctuating operating performance in the last five years roughly corresponding to the movements in the financial markets.  It reported 16cr in operating profits on revenues of nearly 60cr in the last financial year, while operating with net cash and liquid assets of about 50cr as at 31 st March, 2012. The business is primarily exposed to low equity brokerage volumes and declines in cash volumes during times of indifferent financial market sentiment, which usually parallels periods following panic and may be protracted.  Further, retail c...

Panasonic Energy manufactures Dry Cell Batteries. The batteries fall under two main categories – Zinc Carbon and Alkaline (aimed at the high income segment).  All batteries are now sold under the “Panasonic” brand name.  The company recently commenced manufacturing of Flashlights to complement the battery business. The company reported erratic performance in the last five years – reporting 5cr in operating profits on revenues of over 180cr in the last financial year.  It held a net cash position of over 20cr as at 31 st March, 2012. Management seems optimistic about the business as a result of very low consumption of batteries per person in India relative to global standards.  They also assert that the concepts of compactness and portable energy needs should spur demand for battery appliances and hence, batteries. Demand growth, however, is very low at about 4% per year – and some markets are even declining.  Moreover, changes in consumer...

Garware Polyester manufactures polyester films, which has a variety of applications in packaging, insulation, imaging, etc. among several others.  The company is the largest exporter of polyester films based out of India and is one of only two global manufacturers producing dyed polyester films.  It owns the “Global” brand of polyester films, which is prominent in the US and now introduced successfully in the Indian market. It produces polyester films in three broad categories, which are – plain (e.g. shrink film), sun control (used in automobiles), and thermal films, which is a recent addition. Management is looking to invest in research and development for launching new branded products in the solar film market; as well as market window films for offices, commercial buildings and malls to the premium segment of that market. The company reported reasonably stable performance over the last five years but has dipped in the last twelve months (see below) – rep...

MVL Industries operates in the consumer electronics (CE) industry. The company largely supplies televisions, vcd/dvd players and the like.  It owns the ‘Media’ and ‘MVL’ brands. The company operated with a high debt load in the last financial year - which comprised largely of secured loans from banks. The company also owns quoted investments – the largest of which are holdings in MVL Limited, which has seen a decline of over 75% in value over the last year – resulting in market value of holdings amounting to about 40cr. The balance sheet largely comprises of receivables although they are reported to be less than six months old.  It is difficult to ascertain their recoverability from publicly available information. However, the company has reported consistent growth in operating profits and revenues over the last five years – reporting over 30cr in operating profits on revenues of over 470cr in the last financial year.  The interest expense, arising ...

Mafatlal Industries operates in the textile industry engaging in spinning, weaving, and processing of textiles. The company was de-registered from BIFR in 2011 as a result of restoring its net worth and paying down debts.  It did this by selling one of its properties to the Piramal Group for 600cr and using the proceeds to pay off outstanding debt. The balance sheet revealed a much more comfortable debt position as at the end of the last financial year as compared to the year before. Management now plans to incur capital expenditures of 65cr for enhancing processing capacities along with 10cr for power generation.  They also intend to raise additional bank loans to finance these capital expenditures. The company reported large operating losses in nine out of the last ten years – enough to wipe out equity and then some – landing it with the BIFR.  Apparently, it is stuck with old equipment and high labour costs.  This isn’t helped by aggressive comp...

Windsor Machines manufactures capital equipment machinery for use in injection moulding and extrusion activities – both dividing sales equally. It has technical collaboration with Italian and German manufacturers for producing its plastic processing and pipe machines. The company reported accumulated losses in the past as a result of a combination of poor aggregate operating performances and an extraordinarily high debt load.  Its shutdown was avoided by secured lenders taking a 55% haircut on their loans.  It had a more manageable debt load as at 30 th September, 2011 (if the company can continue to be reasonably profitable). Its debts comprised of unsecured loans from a company and a smaller inter-corporate loan – implying that their terms are likely to be softer than secured loans from banks and therefore subject to less stringent action should operating conditions turn worse. It reported 18cr of deferred tax assets (as at 30 th September, 2011), which ...

Frontier Springs manufactures coil and leaf springs. It is a market leader in this niche segment and supplies to prominent customers such as Indian railways, BHEL, BEML, etc. Moreover, Siemens Germany approved its manufacturing facilities for use in its switch gears production. Management aims to focus on exports to increase future profitability. The company reported growing operating profits on growing revenues in the last five years, although this has taken a slight dip in the last twelve months (see below) – with operating profits of over 5cr on revenues of over 35cr.  It operated with a modest net debt load as at 31 st March, 2012. The business is largely dependent on the capital investment cycle for its revenues, which is adversely impacted by high interest rates (such as now). It is also exposed to increasing costs of steel, its primary raw material.  This is, in turn, dependent on the global steel demand/supply scenario.  Management is attem...

Haldyn Glass is in the business of manufacturing glass bottles for use in the liquor, pharmaceutical, retail, food and beverage, and other industries. The product is more hygienic and eco-friendly than substitutes. Management expects good growth in the customer industries – particularly liquor, which has grown at 12% p.a. in the recent past.  They are investing in advanced technologies and bottle-printing and decoration facilities to add value to its offerings to the food and beverage sector. The company reported good growth in revenues and operating profits in the last five years – reporting over 45cr in operating profits on revenues of about 175cr in the year ending 31 st March, 2012.  It operated with minimal net debt as at that date. The company’s order book is dependent on the global and domestic economic cycles. The business requires investment in up to date technologies to remain competitive.  The product is largely a commodity and doesn’t a...

ABM Knowledgeware executes IT projects primarily for state governments. It primarily executes e-governance projects, which enjoys a virtuous circle when government departments see the results of successful implementation with their peers.  The company is currently operating in Maharashtra but plans to expand to other states. The company reported consistent growth in revenues and operating profits in the last five years – reporting over 20cr of operating profits on over 90cr of revenues in the last twelve months.  It operated with a net cash balance of just under 15cr as at 31 st March, 2012. The primary risk facing the business is government apathy and/or spending cuts, which curtails projects and reduces revenues. The business also faces substantial risks in technology obsolescence in meeting client objectives, and acquiring and retaining skilled manpower at reasonable costs. Other risks include execution difficulties (leading to cost overruns), lack o...

Sicagen is a trading outfit based out of Chennai. It is primarily engaged in trading commercial vehicles and construction materials.  It is a distributor for Tata Motors. It reported marginal operating profits on growing revenues over the last five years – reporting over 25cr in operating profits on revenues of 900cr in the year ended 31 st March, 2012.  It operated with a moderate debt load relative to its current assets as at that date. The company reported 38cr in market value of quoted investments as at 2011 year-end – this would be lower as at 2012 year-end but not by too much. The reported assets on the balance sheet are largely comprised of sundry receivables and other loans and advances – their recoverability is unknown from publicly available information. The business is totally dependent on the interest-rate environment – being adversely exposed to high interest rates, crimping demand for its products. It is also impacted by the cyclical f...

Veljan Denison manufactures engineered fluid power products such as hydraulic motors, pumps, valves, etc. that cater to the infrastructure, construction and other manufacturing industries. The company reported reasonably good growth in operating profits and revenues in the last five years – reporting over 20cr in operating profits on revenues of over 80cr in the year ended 31 st March, 2012.  It operated with a very modest debt load as at the end of the last financial year. The demand for the company’s products is exposed to the infrastructure and construction cycles, which are linked to the economic cycles.  Therefore, being a relatively small player, its revenues are potentially exposed to disturbing declines during economic slowdowns. The company is subject to competition from both domestic and foreign competitors – who are both entering as well as expanding in the Indian market.  The operations are adversely impacted by high steel/pig iron prices, ...

Salora International is engaged in the distribution, supply, and after-sales service of consumer electronics, IT, Telecom, televisions, and other products. It supplies products for brands such as Acer, Motorola, MTS, Sharp, etc. along with some Chinese manufacturers.  It also supplies televisions under its own brand name ‘Salora’. The company reported declining operating profits (now losses) on declining revenues over the last five years.  It reported net losses of 8cr on a revenue base of just over 400cr in the year ended 31 st March, 2012.  Despite the losses, the debt load appeared moderate in relation to its current assets – assuming that its receivables and inventories were valued conservatively. The business is exposed to the interest rate cycle – with high rates adversely impacting both the servicing costs of the company’s debts and consumer demand i.e. those who finance purchases with loans. The business is also exposed to the considerable risk...

Solitaire Machine Tools manufactures ‘Centreless Grinder’ machines for use in the automobile, textile, steel, bearings and precision engineering industries. Management believes there is opportunity to increase sales on the back of manufacturers looking to outsource auto ancillary products from India. The company reported stable operating profits on reasonably stable revenues – reporting just under 3cr of operating profits on revenues of about 14cr in the last twelve months.  It operated with no net debt as at 31 st March, 2012. The company sold 37 machines in FY 2011 as compared 24 in the previous year – but this figure is likely to come under pressure in the near future as the business is adversely impacted by a high interest-rate environment (such as currently), which dampens customers’ capital investment plans. The company is also heavily influenced by government policies- particularly in the areas of import/export and incentives for investments, which can af...

International Travel House provides travel related services to corporate clients.  It is an associate of ITC Limited (ITC). It provides air ticketing, car rentals, inbound tourism, holidays packages, conference, events and exhibition management services to companies and conference organisers.  However, about half of revenues are generated from ITC. The company reported consistent growth in revenues and operating profits over the last five years – reporting 35cr in operating profits on revenues of over 160cr in the last twelve months.  It operated with no net debt as at 31 st March, 2012. The business is exposed to all the adverse factors impacting air travel including affordability, high fuel prices (both intrinsic and as a result of INR depreciation), government taxes, economic downturns, natural disasters, terror attacks, etc.

BITS Computer Education is in the business of providing software training. The company reported continuous operating losses over the last five years.  The balance sheet is largely comprised of receivables that appear to be outstanding for well over a year and unlikely to be collected any time soon, if at all. Management appears to be outsourcing jobs and assignments to consultants to save on employee costs and other administrative expenses. 

Bharat Gears supplies gear components to the light, medium, heavy, utility vehicle segments as well as construction equipment and agricultural tractors. It is the leading supplier of gear components in India with a strong customer base including the likes of John Deere, JCB, Toyota, M&M, Tata, etc. The company reported stable operating profits on growing revenues in the last five years – reporting about 45cr in operating profits on revenues of 430cr in the last twelve months.  It operated with a modest net debt load as at 31 st March, 2012. Demand for the company’s products is cyclical and strongly linked to interest rates.  These rates also have an impact the company’s existing debt servicing costs and future investment plans. A large portion of the revenues is derived from tractor and off-highway segments and is therefore largely dependent on agricultural conditions (monsoon factors, etc.) and demand from construction equipment manufacturers (infrastr...

Vimta Labs is in the business of contract research and testing for the pharmaceutical industry. The company has received national and international accreditations, been subject to audits by global regulators, and entered into partnerships with market leaders in the past. It reported stable operating profits on steadily growing revenues until the last twelve months – when it reported marginal operating losses (instead of the usual profits before depreciation of 20 to 25cr) on revenues of about 90cr, primarily due to delays in approvals (see below) and increased costs of materials consumed in its operations. The company’s debt load is high relative to recent cash flows and is largely dependent on collection of its receivables to pay it off.  It is therefore exposed to high interest rates as well as a depreciating INR in paying its domestic and foreign currency loans respectively.  The auditors’ report revealed that the company has, in fact, defaulted in repaym...

JVL Agro Industries manufactures edible oil. Its edible oil product portfolio includes mustard, soybean and palm oil (which constitute about 75% of edible oil demand).  It also trades agricultural commodities, which constitutes about 30% of its revenues. The company owns the ‘Jhoola’ brand, which is a leading brand in two of India’s most densely populated states.  It also operates the largest single manufacturing facility in India. Management is optimistic about edible oil’s business prospects citing demand/supply gap, demographics, urbanisation, essential nature of product, low per capita consumption, cost effectiveness, current large imports, etc. to make its case for the company’s products.  Management also intend to scale up its agricultural commodities trading operations to leverage its distribution network. The company reported strong growth in revenues and operating profits over the last five years – reporting about 2,700cr of revenues and genera...

Deccan Chronicle Holdings operates mainly in the newspaper business and owns the ‘Deccan Chronicle’ (DC) newspaper. It also owns other assets including the ‘Deccan Chargers’ IPL team.  The company recently amalgamated all of its subsidiaries, which resulted in lower profits at the entity-level as a result of subsidiary losses. DC is one of the leading newspapers in south India, particularly in Andhra Pradesh.  The company expanded into Kerala recently but hasn’t broken into the market in any significant way despite giving away free newspapers at certain locations. The IPL franchise is not recognised as an asset on the balance sheet due to conservative accounting but this may well have substantial value over cost of acquisition as evidenced by fees paid by newer franchises (and despite the Chargers’ poor recent performance). The company reported fluctuating operating profits on growing revenues in the last five years – reporting just under 300cr of operating ...

PAE operates broadly in the Auto and Power Systems industries. The company restructured its activities recently to focus on five segments, which are – auto batteries, auto parts, industrial batteries, solar, and power backup systems. The company has reported reasonably consistent pre-tax profits of 8 to 10cr on a somewhat stable revenue base of 250 to 260cr over the last five years except the last nine months when the higher than usual debt load transformed marginal operating profits into net losses – amounting to 4cr on a revenue base of about 190cr.  The debt load of over 48cr as at 30 th September, 2011 appears dangerously high relative to operating performance but is covered by the enlarged working capital as at that date. One of the key things to bear in mind about this company, which isn’t readily apparent from its form, is that it’s predominantly a trading operation with few (if any) manufacturing facilities.  Therefore, its products/services are general...

Inter Globe Finance is a non-banking finance company (NBFC) operating out of Kolkata. It conducts three activities, which are – financing, inter-corporate investments, and capital market operations.  Net interest income forms the largest component of income. The company has undergone a lot of restructuring in the recent past, which involved a reduction in share capital and then the issue of shares to amalgamate 22 companies into itself, which included the induction of new promoters into the fold.  The company repaid its debt with the new equity infusion.  It owned about 4cr of quoted investments at market.  Loans to companies of about 7cr formed the bulk of remaining assets (creditworthiness and loan underwriting standards unknown). Due to the restructuring and new management, analysis of the past record appears to be futile except to the extent that past accumulated losses are now wiped out and future prospects are uncertain. Management plans ...

Simplex Realty is engaged in the business of real estate construction and similar activities. The company appears to have one residential/commercial project running currently in Mumbai on a revenue-sharing basis with the land owner.  The plans for the project appear to be approved and the commercial certificate is pending. The company reported negative reserves and net worth in 2006 and 2007 and restored it in subsequent years with apparently large net profits, which weren’t backed by cash flows – although over 40cr of loans were wiped out as a result.  The performance has been highly erratic and there are currently no revenues (see above) until the project is completed. Management appear optimistic about the medium to long-term outlook of real estate activities primarily due to the demand/supply gap primarily as a result of government thrust on infrastructure development including housing and retail as well as commercial demand from the IT and Financial Service...

Kothari Products is engaged in international trading and real estate activities. Its trading is mainly constituted of metals, edible oil, and machinery items. It owns about 100cr of quoted investments at market. The company has scaled up its international trade only recently and in the last nine months ended 31 st December, 2011, it reported about 71cr of total operating profits before exchange losses and loss of 36cr after accounting for it.  This was on net sales of about 2,250cr.  The business is exposed to government bans on imports/exports.  It is a large net importer exposing it adversely to a weakening INR. Management have indicated their intention to focus on trading and expand in that area.  This is usually a low value-added activity with low margins making its profits unusually vulnerable to relatively small declines in trading revenues. Management also maintains investments in companies operating in unrelated areas such as const...

Elegant Marble and Granite Industries operates in the business of manufacturing marbles and granites. The company owns over 40cr in liquid investments and didn’t employ any debt in its operations. It reported consistent operating profits of over 1cr in the last five years on reasonably stable revenues of 20 to 25cr. The business is largely dependent on the construction and real estate cycles, which is linked to the interest rate and economic cycles. Management haven’t really discussed the risks impacting their business.  Essentially, it is a highly competitive field where the market is dynamic with preferences changing with fashion trends and inflationary pressures increasing costs of input, energy, transport, etc.

Ecoboard is in the business of manufacturing ‘Particle Boards’ that are used as wood substitutes in furniture. The products are eco-friendly – in that they help with conservation of forests, prevention of pollution, etc. The company’s performance over the last five years has been erratic – reporting net losses in the last three years including net losses of 3cr on a declining revenue base of 25cr in the last nine months ended 31 st December, 2011.  Considering this, it operated with an uncomfortably high net debt load of about 20cr as at 31 st March, 2011 (latest not available), although this was amply covered by other net current assets. The critical risk facing the business is the lack of sufficient raw materials i.e. bagasse.  Moreover, there is a lack of sufficient public awareness for these types of products. The company has not grown much over the last few years and incurred operating losses in the last financial year.  Furthermore, it has also ...

Stanrose Mafatlal Investment and Finance is an investment company. Its investment portfolio is largely concentrated in the stock of Standard Industries Limited (SIL), which comprises 2/3rds of the portfolio’s total market value (approx. 60cr).  It didn’t employ any debt in its operations. Apart from the above, the company is also engaged in trading in securities, a real estate partnership, and inter-corporate lending activities. The company has reported profits over the last five years – largely from capital gains.  It reported about 4cr in net profits in the last twelve months. The company’s value appears to be largely dependent on the value of SIL and hence, it is exposed to adverse developments at SIL.  Its trading activities are exposed to market downturns and management intentions to focus on trading of derivatives appears to be concerning considering the intense competition and large risk of losses. It owns a stake in a real estate partner...

Wallfort Financial Services operates in the brokerage industry. It currently has about 100 institutional clients and management intends to focus on institutional business – both foreign and domestic – over retail. The company has more than half its current net worth of about 70cr in stocks. Its net worth has fluctuated over the last five years – declining in 2008 as well as 2009 as a result of losses during periods of market downturn.  In similar vein, it reported net losses of 2.5cr in the nine months ended December 31 st , 2011.  Therefore, its performance appears to mirror the market in direction – with no special ability to withstand downturns. The business is marked by intense competition and low volumes during market downturns and stagnation.  Further, its arbitrage opportunities have disappeared due to competition and uniform settlement cycles.  Management haven’t declared dividends to shareholders despite large liquid assets and lack of...

TCFC Finance is engaged in share trading – primarily in secondary companies. The company reported just over 60cr in stock-in-trade as at 30 th September, 2011. Management haven’t provided details of their trading strategy and hence, we’re unable to judge its viability.  It does not appear to be stable since they seem to be willing to change course depending on their assessment of economic conditions.  They also appear to be engaged in the ‘hedging’ of equity shares and mutual fund units, which could expose the company to unlimited losses in a sustained bull market. The company reported a drop in net worth in 08/09 as a result of the financial market downturn and also reported losses of about 4cr in the nine months ended in December 2011 as a result of market weakness.  The performance is erratic, as expected, and appears to depend largely on the performance of the markets – with no special ability to withstand market downturns.

Industrial and Prudential Investment Company, as its name implies, is an investment company. It appears to hold investments for the long-term and dividend income dominates its earnings stream.  It owns a widely diversified list of equity and mutual fund units amounting to over 300cr in market value. Its largest position appears to be in KSB Pumps, which amounts to 10% of its total portfolio by market value. The income is overwhelmingly constituted of dividends on long-term investments, which has been steadily rising over the last five years – amounting to over 6cr currently, thereby contributing to a steady increase in reported net worth over the same period. It is unlikely to realise large capital gains during periods of market exuberance if it continues to stick to long holding periods regardless of market conditions.  Furthermore, it is exposed to market declines if it intends to liquidate portions of its portfolio in the short/medium term, which appears ...

Vaghani Techno-Build operates in the real estate industry. It is engaged in the construction and development of infrastructure and trading of Transfer Development Rights (TDR), which originate when landowners sever building/development rights from a particular piece of property. The company reported negative reserves several years ago although it appears to have recovered ground at present.  Pre-tax operating profits were reported at 2cr per year for the last three years but have slipped back into marginal losses over the last nine months. The business is exposed to all the risks of the construction and real estate industry including high interest rates, execution risks (availability and costs of material, labour, etc.), stringent government regulations (taxes, permits, etc.), and other relevant factors. The balance sheet reveals stock of ‘Industrial Units’ (recoverability unknown), advances for capital goods (projects unknown), and debts are older than six month...

Kohinoor Techno Engineers is in the business of software development for diamond machinery. The company is over 25 years old with an 80% market share for laser machines and has a worldwide customer base.  Management intends to move into the business of producing diamond machinery directly.  They also engage in short-term diamond trading/manufacturing/processing as and when market conditions appear lucrative. The company’s net worth, however, has gone nowhere in the last decade and has been reporting negative reserves for the last decade.  Performance over the last five years has been marginal at best and net profits over the last year were just under 7 lacs on revenues of about 3cr. The business is dependent on the capital investment cycle, which is adversely impacted in a high interest rate environment.  The industry appears to be a highly competitive where the company has limited competitive advantage as evidenced by their low profit margins. The...

Kalyani Investment Company holds investments primarily in the debt and equity of Kalyani Group companies – constituting over 90% of total investments. It relies mainly on dividend income and held over 1,400cr in market value of quoted investments – the most notable of which is a stake in Bharat Forge Limited, a group company, valued at over 1,000cr at current market prices. The primary risk pertaining to the value of the company appears to be adverse developments in the Kalyani Group companies in which it is invested in.  Apart from this, it is exposed to market value declines for whatever reason.  In the same vein, it is unlikely to realise capital gains in the event of market exuberance due to the long-term nature of its holdings. The company also holds several questionable looking unquoted investments such as 0.1% non-cumulative preference shares (and equity investment) in an entity that is a debt restructuring (CDR) candidate.  Little information is pro...

Schablona India manufactures designer tiles. It operates three divisions, which are Decorative Tiles (largest), Ceramic Transfer Sheets, and Trading (<20% of revenues). The company focuses on custom-made design work to mitigate the high competition in its industry and also outsources some of its tile production to maintain cost competitiveness and respond flexibly to market conditions. It reported consistent growth in revenues and operating profits over the last five years – reporting 3.5cr in operating profits on revenues of over 40cr in the last financial year with similar performance in the last nine months ended 31 st December, 2011.  It operated with a moderate net debt load relative to assets and earnings. The business is linked to the construction cycle, which is adversely impacted in a high interest rate environment. The industry is characterised by high competition – particularly from the unorganised sector.  There is substantial bulk sellin...

Bharat Bijlee operates in the ‘Electrical Equipment’ industry under the ‘Power Systems’ (transformers etc.) and ‘Industrial Systems’ (drives, elevator systems, electric motors, etc.) segments. The company has a prominent customer base and is the leader in the 220kv transformer segment.  Management expects demand for the company’s products to grow over the next few years. The company reported good growth in revenues over the last five years although operating profit margins have eroded in that time period.  It reported 70cr in operating profits on 700cr of revenues in the last financial year while employing no net debt to finance its operations.  It also owned about 240cr worth of stocks and mutual fund units as of date. The business is subject to the capital and infrastructure investment cycle, which is impacted by the interest rate cycle – therefore, it suffers from demand slowdowns during periods (such as currently) when financing costs are high and such ...

Mukand Engineering operates in the contracting/construction industry. The company is involved in supplying and erecting equipment and executing other structural, mechanical, piping, and electrical work.  It serves customers in basic industries such as power, steel, aluminium, etc.  It operates with minimal fixed assets and practically all work is reflected within the working capital in its balance sheet. The company also has a small ‘Infotech’ segment providing ERP implementation services. The company reported volatile growth in revenues and operating profits over the last five years – reporting about 20cr of operating profits on revenues of 80cr in the last financial year.  It operated with an uncomfortably high debt load relative to operating cash flows, which may require liquidation of current assets at a discount if operating performance doesn’t improve or credit conditions remain tight. The business is subject to the capital investment cycle, which...

Borosil Glass Works is in the business of supplying Borosilicate Glassware. The product finds applications in the pharmaceutical industry (scientific instruments etc.) and consumer segments (e.g. microwave glass, kitchen table glassware, etc.).  Management expects good growth in both segments as a result of continued investment by pharmaceutical majors and increased consumer spending. The company sold its only plant and land in the previous year and invested 80% of the proceeds in debt funds and 20% in equity funds.  It held about 500cr in liquid assets last year along with some real estate.  The company reported operating profits of about 3cr on revenues of 86cr in the last nine months of operations. Since the plant was sold, the company has been subcontracting its work.  The lack of tangible capital assets would appear to increase the necessity for the company to maintain or enhance its brand value from an investor’s perspective. However, thi...