Investing Reflections On India

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...