Investing Reflections On India

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...