Investing Reflections On India

ABC Bearings operates in the automobile industry and manufactures ball and roller bearings. It has a technical collaboration with NSK Japan in manufacturing its products. The company has reported stable revenues and operating profits over the last five years – reporting 42cr of operating profits on revenues of 200cr in the last financial year.  It employed minimal net debt in its operations. The business is subject to intense competition from Chinese/CIS suppliers, who ‘dump’ products in the domestic market below even material cost, as well as the unorganised sector supplying bearings of questionable quality. The business is also exposed to rising steel costs and is generally dependent on the fortunes of the auto and capital goods industry, whose sales largely depend on the interest rate cycle (impacting ease of loan financing for purchases) as well as oil prices (affecting autos). Moreover the company is a net importer and is therefore exposed to a weakening...

Orient Ceramics is in the business of manufacturing tiles with outlets in North India for supplying primarily to residential customers but also to commercial enterprises such as hotels, shops etc.   The company has reported reasonable growth in revenues over the last five years but operating profits don’t seem to have kept up – generating about 24cr in operating profits on revenues of 290cr in the last financial year.   However, it operated with a high debt load of about 100cr, which substantially increases financial risk during interest rate hikes and/or economic downturns. The business is subject to risks of price rises of its raw materials (clay, chemicals etc.).   It is also exposed to the risks of Chinese dumping and related government attitudes on foreign dumping.   Moreover it is also vulnerable to heavy domestic competition primarily from the unorganised sector.

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 ...