Investing Reflections On India

Anjani Synthetics operated in the textile industry and is in the business of manufacturing printed fabrics. The company has reported growing operating profits on growing revenues over the last five years – reporting 14cr of operating profits on 280cr of revenues in the last financial year. It employed an uncomfortably high debt load in relation to accounting net worth as well as earnings.  Moreover, it has used up significant amounts of cash in aggregate over the last five years (both operationally and for capital expenditure) requiring substantial additional financing including a large equity raising exercise in 2007.  Perhaps management may be considered shrewd for raising equity cheaply during the 2007 bull market – but this didn’t really help the former minority shareholder. The business is exposed to the risk of rising prices of cloth (principal input) as well as adverse foreign exchange movements on its imports of colour and chemicals.  These are in addi...

KEW Industries is in the business of manufacturing shell body, auto components and other steel products for the defence and automobile industries. The company reported stable operating profits on similarly stable revenue over the last five years with a spurt in revenues in the last financial year – reporting about 11cr of operating profits on about 100cr of revenues.  It employed moderate debt in relation to accounting net worth to accomplish the performance. The company has, however, generated negative free cash flows in the last five years (a combination of operating cash outflows and capital expenditure)  requiring additional equity and debt financing – thereby diluting former minority shareholders and increasing the financial risk of their investments. The business is primarily exposed to price rises in steel (principal raw material).  It is also exposed to significant power shortages and persistent labour wage rises. Predictably, management hav...