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...

Cheviot is in the business of manufacturing jute sacking products for packaging (e.g. food grains, sugar etc.) and selling of jute yarn to domestic and export markets. The company has reported stable revenues and profits in the last five years apart from the last financial year, which was abnormally good as a result of higher jute yarn realisations in overseas markets on the back of short supply that lasted only the first six months of the last financial year.   The company has reported average operating profits of about 28cr on revenues of about 180cr in the last five years. It generated the above results with no net debt and owned liquid securities approximating 100cr in market value as at 31 st March, 2011. The business is primarily exposed to the risks of cheap imports from Bangladesh and removal of favourable government policies on jute packaging requirements (due to the industry’s large labour force) because of its high price relative to alternative packaging ...

Alufluoride is in the business of supplying aluminium fluoride to practically all aluminium smelters in India to reduce the temperature for aluminium smelting. The company has not reported any significant growth in revenues or operating profits over the last five years.  It reported net operating losses of about 2cr on below-par revenues of 17cr in the last financial year and operated with a net cash position of about 6cr.

Orient Beverages is in the business of supplying ‘Bisleri’ branded mineral water.  It is also engaged in real estate activities. The company has reported no growth in revenues but reported consistent net profits (including rental income – see below) over the last five years.  It reported a net profit of 1cr on revenues of 13cr in the last financial year.  It operated with a relatively high net debt load of 5cr (as at 30 th September 2010). The mineral water business has been on a declining trend and is exposed to further deterioration of revenues as a result of slowing demand for its products with no real prospect of a turnaround.  It has been a victim of labour unrest at its plants and there doesn’t appear to be a reason why this wouldn’t happen again in the future.  It has also veered away from its core business and into real estate with currently one major rental customer (United Credit) generating its rental income – this would require a different asses...

Metrochem Industries is currently engaged in the business of real estate activities. It formerly owned a dyes and intermediates division, which was demerged from the company in the last financial year.   The proceeds from the demerger are currently deployed in real estate activities with the bulk of it tied up in advances for construction etc. Therefore, the past record of profitability is irrelevant to assessing future business prospects.   It operated with a net cash position of about 30cr (as at 31 st March, 2010). The business is exposed to the risks of the real estate industry including construction material price rises, low availability of land for construction, high competition, vulnerability to economic downturns, increasing customer bargaining power (as a result of greater information availability etc.), greater government regulations on real estate activities etc. The lack of a decent track record in real estate activities would prevent the formation of further se...

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.

Rathi Bars is in the business of manufacturing CTD/TMT steel bars and ingots/billets. The company hasn’t reported any significant growth in revenues over the last five years but reported reasonably stable operating profits considering the cyclical nature of its industry.   It reported operating profits of about 11cr on revenues of around 210cr. The business, however, generates weak cash flows from operations as a result of high investment in its working capital. The business is subject to price rises in sponge iron – its main raw material.   It is also dependent on steel industry cyclicality marked by periods of oversupply that has a negative impact on its profits. Management hasn’t declared dividends in any of the last five years presumably to ‘conserve resources’ – this policy appears inappropriate for a company that isn’t deploying funds for profitable growth.

Lakshmi Energy is in the business of processing and distributing rice to domestic and export markets.   It is also engaged in generating biomass fuel. The company has reported growth in revenues and operating profits over the last five years reporting about 200cr in operating profits on about 1200cr of revenues in the last financial year (ending 30 th September, 2010).   It operated with a relatively high net debt load of 780cr as at that date. The business, however, generates weak operating cash flows as a result of high investment in its working capital. The business is subject to adverse changes in government regulations/policies on procurement pricing, non-Basmati exports etc.   It is monsoon-dependent, subject to adverse changes in foreign exchange rates (for exports) and prone to heavy competition in its operations. Dividends have been on a declining trend for the last five years (probably as a result of above cash flow problems).   Management appear to b...

Sujana Universal is in the business of manufacturing steel castings, bearings, appliances etc. with other divisions operating in the fields of infrastructure, share trading and other activities. The company has shown high growth in revenues, which haven’t translated to similar increases in operating profits.   It reported 70cr of operating profits on revenues of about 3000cr in the twelve months ending 31 st March, 2011.   It operated with a relatively high net debt of about 200cr. The business, however, generates weak operating cash flows as a result of heavy investment in its working capital. The primary risk with this business is the lack of focus in its business activities – with management time devoted to activities seemingly unrelated to their primary business (steel castings) such as real-estate, share trading etc. and a host of unquoted subsidiaries engaged in unknown activities.   In its steel castings business, it is blighted by the cyclicality of the in...