Investing Reflections On India

Sandur Manganese is in the business of mining manganese and iron ore for eventual use in manufacturing steel. The company reported good growth in revenues and operating profits in the last five years – reporting 140cr of operating profits on revenues of about 350cr in the last financial year.  It employed no debt in its operations and had sizeable liquid assets of over 100cr as at 31 st March 2011.  This financial position, however, may change significantly over the next few years as a result of management’s expansion plans (see below). The company is expected to incur heavy capital expenditure in the next few years (see below), which will have an impact on future free cash flows for investors. The business operates in an industry that has high power requirements, which causes operational problems in a power-deficit country.  The business is exposed to the risks of periodic oversupply of ore in the industry (as currently with manganese ore) where there are...

Sudal Industries is in the business of manufacturing aluminium extrusions, which h are used in several basic industries such as construction, buses/trucks, power, electrical, defence, railways, infrastructure, packaging etc. with new applications still being discovered.  Moreover, aluminium penetration in the Indian market is very low by world standards (like a lot of other products) indicating potential for a lot of future growth. The company reported a recent spurt in revenues and operating profits of 10cr and 110cr respectively.  It employed moderate debt of 12cr as at 31 st March 2011 but this is set to increase substantially over the next few years as a result of capacity expansion plans (see below). The business is exposed to rising aluminium prices and is subject to the general economic cycle. Management have planned large capital expansion projects with capital expenditure equivalent to about 60% of current resources planned for next year alone.  N...

National Peroxide is in the business of manufacturing hydrogen peroxide – which is used primarily in the paper industry. The company is the leader in the industry, which exhibits growth of 7% p.a.  It plans heavy capital expenditure in the next few years to ramp up capacity and remain competitive. The company has reported good growth in revenues and operating profits over the last five years – reporting 90cr of operating profits on revenues of 180cr in the last financial year. It employed no net debt and held about 21cr of liquid investments largely in an equity mutual fund. The fortunes of this business is tied to the paper industry, which faces its own problems such as moves to a ‘paperless’ world, consolidation of capacities etc. It is also dependent on natural gas prices, which is expected to rise substantially from 2014 (based on current spot prices) when the company’s current fixed price contract with Petronet LNG expires. The industry is also blighted by s...

Bliss GVS Pharma operates in the pharmaceutical industry and manufactures vaginal contraceptives, anti-malarial drugs, anal suppositories etc. The company is in expansion mode setting up local manufacturing units as well as abroad via joint ventures. The company has reported good growth in revenues and operating profits over the last five years – reporting about 60cr of operating profits on about 220cr of revenues in the last financial year.  It employed no net debt in accomplishing this performance. The company is a net exporter with lots of US$ and EUR receivables and is therefore, exposed to a strengthening INR.  Moreover, it provides products that those in need may be largely unaware of – and requires larger than usual educational campaigns.  It exports a substantial portion to African countries, which is subject to erratic regulations.  Furthermore, the company may not be able to avail of certain specific tax benefits that it used to enjoy in the pa...

PG Foils is in the business of manufacturing aluminium foils and supplying to the retail and pharmaceutical sectors for packaging as well as long shelf-life benefits. The company has reported reasonably stable revenues and operating profits over the last four years – generating about 14cr in operating profits on revenues of about 140cr. It employed negligible net debt as at 31 st March, 2010. The business is exposed to the risks of aluminium price spikes, cyclicality (incl periods of excess capacity) and adverse movements on currency rates. Management appears to employ a niggardly policy towards declaring dividends considering the amount of net profits it generates - presumably for retaining profits for business expansion.  The problem, however, is that management have not employed capital efficiently in the last few years as reflected in poor profitability ratios – shareholders ought to demand an accounting by management for this inefficiency with their money and o...