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...