Investing Reflections On India

Marathon Nextgen is in the business of real estate construction and sale. This is an 80-year old company with 2 nd generation management and has four projects running currently with 125cr committed to one project.  The business model is largely focused on eventual sale of constructed properties. The company has reported somewhat erratic performance numbers as a result of its business model (see above). It reported 75cr of operating profits on total income of 130cr in the last financial year.  However, it employed only moderate debt to accomplish this. The business is highly competitive and is primarily exposed to the interest rate cycle where customers are unwilling to pay up in a high interest rate/high EMI environment resulting in a real lack of pricing power under tight money conditions.  The company was a BIFR case in 2003 as a result of unbearable debt burdens and accumulated losses.  This is a major adverse factor against management competen...

Interfit Techno is in the business of manufacturing stainless steel pipe fittings, ball valves etc. for the construction industry.  It generated 85% of its revenues from the Middle East. The company has reported marginal operating profits in last five years with a recent spurt in revenues and profits in the last couple of years – reporting about 3cr of operating profits on revenues of about 25cr.  It operated with a moderate debt load. The company, however, had accumulated losses over the last ten years – a former BIFR case - and it is only on its way to working itself out of it.  This is a serious adverse point against the competence of management in this business.  Minority shareholders need to convince themselves that the underlying causes of poor past performance have been remedied for good rather than covered up by a temporary spurt in business activity. Moreover, it generated negative free cash flows in aggregate over the last five years primarily a...

Digjam is in the business of manufacturing of Worsted Fabrics and clothes made from wool. The company has reported erratic revenues and operating profits over the last five years – reporting about 8cr of operating profits on revenues of about 80cr.   However, it operated with a high debt load of about 70cr and has only a marginal net worth as a result of substantial negative reserves. The company is a former BIFR case where its external loans were restructured as a result of financial difficulties and heavy losses.   It is exposed to wool price spikes (imported from Australia) and also to adverse currency exchange rate movements since about 50% of its revenues arise out of exports.   As a result of the dismal financial position and past financial performance, management haven’t declared dividends in any of the past five years and don’t seem likely to initiate them any time soon unless the financial performance improves drastically from here – however, this ...

Indian Acrylics is in the business of supplying acrylic fibre. The company has reported somewhat erratic profits on reasonably stable revenues including losses in 2009.   It reported about 56cr of operating profits on revenues of about 410 crores in the last financial year and operated with moderate net debt of about 80cr. The company was forced to restructure its external loans as a result of heavy losses during the recession implying a lack of strength during hard times.   It is a cyclical business exposed to risks of foreign dumping, Acrylonitrite (raw material) price spikes – which is dependent on crude oil prices, technological obsolescence of existing machinery etc.   Management have also diverted its attention to non-core ventures such as power generation, carbon credits etc. – in which it doesn’t appear to have demonstrable business experience.   Their lack of stewardship towards minority shareholders is confirmed with the lack of dividends in ...

Rubfila is in the business of manufacturing and supplying heat resistant thread rubber, which is used in basic products such as diapers, socks, fishing, food, furniture, catheters, hosiery, toys etc. The company had reported erratic financial performance prior to 2008.   It’s reported high growth in revenues and profits since then – generating about 4cr in operating profits on about 80cr of revenues.   It’s last reported financial position (as at 31 st March, 2010), however, is a complete disaster – with negative equity and about 23cr in net borrowings. It’s net worth had turned negative in the past as a result of operating losses and was referred to the BIFR.   It’s business is subject to the risks of rubber price spikes, cheap imports, better credit terms by competitors etc.   It’s operations are located in the state of Kerala, which is plagued by frequent labour disputes, strikes etc., which poses a long-term risk to profitable business operations. ...

Cybele Industries is a manufacturer of cables – it supplies all types of cables to various industry segments including power cord, power cable, railway cables etc.   The company has   not generated any operating profits in the last five years – losing about 30 lacs on revenues of 56 lacs in the last financial year.   It didn’t have much debt but had negative profit reserves eating into its net worth. The company lost its equity and was referred to the BIFR and the business is subject to heavy competition from the unorganised sector. Needless to say, management haven’t declared any dividends in any of the last five years as a result of the poor financial performance. Any turnaround possibility in the business appears to be speculative at this point in time.

IAG Company is in the business of trading iron and steel items and manufacturing sheet glass.   Management has recently decided to make an application to the Board for Industrial & Financial Reconstruction (BIFR) as a ‘Sick’ company due to the erosion of its net worth. The business has an erratic track record of performance posting operating losses in each of the last five years.   It has a high proportion of external debt financing equating to more than twice its recorded equity.   Moreover, it has an extensive list of audit qualifications on its financial reports primarily relating to lack of provisioning for liabilities and deterioration of its assets. The business doesn’t appear to have valuable assets since its manufacturing operations in sheet glass is loss-making and the trading business cannot be considered an ‘asset’ since barriers to entry are negligible. Restructuring plans are currently available and future cash flows appear highly speculative.