Investing Reflections On India

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...