Skip to main content

Indag Rubber


Indag Rubber manufactures tyre retreading products, which are used to enhance tyre lives at 25-30% of the cost of a new tyre.

The company has an established distribution network.  Tyre price increases, rubber deficits, improved road quality, reduced overloading etc. may boost the retreading industry over the long run as its attractiveness would grow proportionately in that scenario.  The company is also attempting to develop new tread compounds and patterns to increase tyre fuel efficiency and eco-friendliness, which may increase competitiveness.

The company reported consistent growth in revenues and operating profits over the last five years – reporting about 20cr of operating profits on revenues of about 180cr in the last twelve months.  It operated with a minimal debt load (as at 30th September, 2011).

The business is exposed to natural and synthetic rubber price increases, which constitutes about 70% of production cost since these cost increases cannot be passed on fully to customers as they have some bargaining power and show resistance after a certain point.  Moreover, these costs are volatile, with increases of 50% in a six-month period not being uncommon – impairing the value of negotiated fixed-price contracts. 

The business is also characterised by high competition, largely from the fragmented unorganised sector that constitutes 80% of the market.  The tread rubber and retreads appear to be of lower quality, which isn’t helped by the lack of quality manufacturing standards in the retread industry, which hurts long-term customer confidence in the industry.

The business does require investment in working capital, which increases financing costs.  It is also exposed to government policies on import duties (from China, South Korea, Malaysia etc.), and tax benefits – for e.g., 70% of income tax benefits lapsed in 2010, which will lead to reduced net profit margins in the future.

Comments

Post a Comment

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today...
1 comment
Read more

IFB Agro Industries

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...
2 comments
Read more

Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:          ...
Post a Comment
Read more