Investing Reflections On India

Alka Securities operates in the brokerage business – offering brokerage services and trading in commodities and stocks.  Its balance sheet revealed about 10cr in working capital and 4-5cr of liquid investments financed by 5cr of loans. The company currently has investigations initiated against it by SEBI on allegations of circular trading in shares in 2009, which is pending resolution.  Meanwhile, the company is barred from accessing capital markets, approaching new customers and raising new finance.  The company has lost its existing clients through a period of low retail client participation and the brokerage revenue has shown a consistent decline over the recent past – with no revenue and net losses in the latest quarter (Sep, 2011). Although the company claims innocence, the investigation may be protracted over an extended time period and even a favourable judgment wouldn’t guarantee a restoration of former profits.  Moreover, its trading activitie...

Investors around the world were greeted today with larger-than-usual headline news about S&P’s downgrade of the US sovereign credit rating from its gold-standard ‘AAA’ status to ‘AA+’. Although the fundamental drivers of this decision have been in play for a while now, the S&P report does serve as a trigger to contemplate the implications for Indian business and financial markets in general. The factors driving the decline in value of the US$ were accelerated when the QE programs were initiated by the US Federal Reserve as a response to the economic crisis of 2008.  This downgrade may further speed up the process as capital is pulled out of US Treasuries and perhaps, the US altogether.  This would result in wholesale selling of US$ and declines in its exchange rates. Let’s think about some of the longer-term implications for India: BUSINESS IMPLICATIONS The implications mentioned below are likely to play out IF the US$ weakens substantially relative to the INR (a...

Emmsons International is in the business of trading rice, wheat and other commodities. The company reported consistent growth in trading revenues and profits.   It reported operating profits about 50cr on revenues of about 1,350cr in the last financial year.   It operated with a relatively high debt load of 140cr. The business, however, generates weak operating cash flows as a result of heavy investment in its working capital. The business is exposed to the risks of commodity price rises, adverse government regulations on exports/imports, and adverse movements in foreign exchange – all of which directly impact its profits.

Olympic Oil was a dormant company until the last quarter when it showed a spike in operating activity.   The company is currently promoted by a Mr Sunil Varma and a Mr Uday Desai from Kanpur holding a combined 31% equity stake (after an open offer in 2010).   The public still holds 69% equity in this company. A perusal of its public filings reveals changes in its memorandum of association to include trading activity for all kinds of commodities (agri-commodities, extracts, oils etc.).   Further, there appears to be substantial additional financing in the past few months to enable this business. Latest balance sheet is unavailable – therefore, the amount of external debt to equity capital is not readily ascertainable.   The company appears to have generated 48 lacs of profits on substantial revenues of 38 crores in the last 12 months compared to nothing in the last year.   The profit margins are marginal, as expected in a trading business, but the interest cov...