Investing Reflections On India

Indo Asian Fusegear sold its switchgear business to Legrand France last year.  It now plans to deploy the proceeds into the power generation business and has renamed itself ‘Eon Electric’.  The rest of the operating segments are related to power generation i.e. cables, wiring, lighting, energy metres etc.  These segments comprise about 1/3 rd the size of the business before the sale. The sale of a substantial portion of its former business makes past performance irrelevant.  The company had about 290cr of liquid assets (as at 30 th September, 2011) at its disposal for its new venture(s). Management has no track record in the business they have committed to invest the funds in, thereby increasing the risk of loss.  The power sector is plagued by SEB insolvencies, government dictated tariffs, high debt burdens and overcapacity.   Although this does not preclude management from making a good deal with the cash resources, the lack of an es...

The company operates in the textile industry – processing and selling fabrics.  It focuses on heritage and craft fabrics and uses dyes/plain fabrics to create printed fabrics.  The company has reported very modest growth in revenues and operating profits over the last five years – reporting 4cr of operating profits on revenues of 36cr in the last financial year. It employed no net debt in financing its operations and held about 9cr in liquid investments, primarily in equity mutual funds. The industry is blighted by government policies that work against domestic players such as propping up of ‘zombie’ units (to preserve employment) and export restrictions on cotton yarn and other related products.  The company is forced to import fabrics due to the lack of domestic supplies, resulting in exposure to a weakening INR.  Moreover, the US and Europe account for over 60% of Indian textile exports, resulting in substantial diminution in the industry’s overall ...

Jetking Infotrain operates in the IT education industry, providing training solutions for hardware and network professionals. The company has over 100 centres throughout the country and has partnerships with IBM for training material, WIPRO for recruitment and various colleges for training students.  It aims to adjust its curriculum according to demand and hence, focuses on recruiter requirements when drafting its courses. The company has reported declining revenues and operating profits over the last five years – reporting about 10cr of operating profits on revenues of about 40cr in the last financial year.  It employed no net debt in its operations and had liquid assets amounting to about 18cr as at 31 st March, 2011. The business is subject to the risks of rapidly changing technologies such as cloud computing, which question the need for extensive hardware/network systems.  Therefore, the company has to always be on the watch to update its curriculum, w...

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...

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...

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 ...