Investing Reflections On India

Menon Pistons operates in the auto components industry by manufacturing pistons. The company has good market share in its industry segment with a prominent customer base such as Tata Motors, Eicher Motors, BEML, Maruti etc. The company has reported consistent growth in both revenues and operating profits in the last five years – reporting 17cr of operating profits on revenues of about 150cr in the last financial year.  It employed minimal financial leverage in accomplishing this performance. The business is primarily exposed to the risks of rises in prices of aluminium, steel, nickel, oil, lubricant etc. forming part of its input cost.  Since its fortunes are tied to the auto industry, it is indirectly subject to the risks impacting the industry such as high interest rates (for loan financing), oil prices etc. Although management does procure supplies from privately owned related parties, this does not appear to be significant - in relation to the size of ...

Hi-Tech Gears is in the business of manufacturing Gear Box/Transmission Equipment and supplies them to two and four-wheelers.   60% of its sales are to Hero Honda and it consistently receives good quality audit scores.   The company has reported consistent growth in revenues and profits over the last five years – generating about 75cr of operating profits on revenues of about 430cr in the last financial year.   It operated with modest net borrowings of about 45cr. The business is exposed to the risks of steel price rises, interest rate rises (vehicle financing), adverse currency exchange rate movements (exports) and risks of technological obsolescence.   It is also exposed to customer concentration risk with such a high proportion of revenues generated from a single customer – any breakdown in that relationship will have a substantial impact on the company’s revenues and profits.

Enkei Castalloy is in the business of supplying aluminium castings to the auto industry and also to the agriculture, locomotive and other capital equipment industries. The company has reported reasonably stable operating profits on somewhat stable revenues on a standalone basis – reporting 37cr of operating profits on 257cr of revenues in the last financial year and about 40cr and 350cr respectively on a consolidated basis.   It may be relevant note, however, that net profits (standalone) have been somewhat erratic presumably due to unsound financial policies on borrowing in the past.   It currently operates with a somewhat reasonable net debt load of 74cr (consolidated) as at 31 st March, 2011. The business requires heavy investments in working capital hitting operating cash flow generation.   It is subject to the risks of aluminium price spikes, crude oil price rises and road development progress (affecting autos), heavy competition from Chinese manufacturer...