Investing Reflections On India

Flawless Diamonds is in the business of exporting cut and polished diamonds to the US, China, UAE and other countries. The company has not reported significant revenue growth in the last five years and operating profits have been somewhat erratic.   It reported 6cr of operating profits on revenues of about 400cr in the last financial year.   It operated with a relatively high debt load of about 60cr (as at 31 st March, 2010). It is exposed to demand drops during economic downturns due to the discretionary nature of its products, adverse foreign exchange movements impacting its export revenues, interest rate risks impacting its debts and other related risks. Management haven’t declared dividends since the 2008 financial crisis and appear unlikely to reinstate them in the near future due to recent quarterly losses.

Su-raj diamonds is in the business of exporting cut and polished diamonds/jewellery to the Middle East, Europe, US etc. The company has reported consistent growth in revenues and operating profits over the last five years.   It reported operating profits of about 140cr on revenues of 4,300cr in the last financial year.   It operated with a modest net debt load of about 150cr. The business, however, generates weak cash flows from operations as a result of relatively high investment in working capital. The business is subject to price rises in gold and rough diamonds.   It is generally a low-margin business and hence, risks tend to have a magnified adverse impact on profits.   Furthermore, it is a luxury product implying that it constitutes a discretionary purchase for the customer, which would likely be cut back first in the event of economic downturns resulting in profit deterioration.   It is also subject to adverse movements in foreign exchange rates as a ...

Hanung Toys is in the business of manufacturing stuffed toys and home furnishings. It is one of the leading producers of stuffed toys in India with distribution of supplies to international brand name retailers. The company has generated consistent growth in revenues and profits – reporting 200cr of operating profits on revenues of 1,100cr in the last financial year.   It has, however, a relatively high net debt load of 500cr (as at 31 st March, 2010) – which causes problems in a high interest-rate environment (like now) and would have a magnified impact if the business were to hit operational bumps along the road. The business is subject to adverse cotton price spikes since it constitutes a major raw material cost.   Over 75% of revenues are denominated in foreign exchange and hence, revenues in INR are subject to the risk of adverse foreign exchange movements.   The company’s products are also somewhat discretionary and hence, would suffer disproportionately during...