Investing Reflections On India

MRO Tek operates in the computer hardware industry within the networking and communications segment.  It manufactures digital modems and converters and aims to cater to 3g/broadband demand. The company has reported a consistent decline in revenues and operating profits over the last five years, representing a decline in competitiveness – it reported operating losses on revenues of about 25cr in the last financial year.  However, it had a net cash position of about 16cr as at 30 th September, 2011. The business operates in a fast-changing field where new technology renders business models obsolete.  This, perhaps, is the reason for the company’s massive revenue decline.  It is also exposed to the risks of delayed launches and large gestation periods of own products, which could be lethal in such a dynamic industry.

Rajkumar Forge is in the business of manufacturing forgings for heavy engineering and machine building industries. 90% of its revenue consists of exports. The company reported stable revenues and operating profits over the last five years – reporting over 4cr in operating profits on revenues of about 33cr.  It had net debt of about 17cr as at 30 th September, 2011, which appeared to be amply backed up by its net current assets and book equity. The company had negative reserves until 2007 as a result of past losses.  The business is primarily exposed to increases in steel prices, its primary raw material.  It is also exposed to INR appreciation as a result of its large proportion of export revenues.  

Alka Securities operates in the brokerage business – offering brokerage services and trading in commodities and stocks.  Its balance sheet revealed about 10cr in working capital and 4-5cr of liquid investments financed by 5cr of loans. The company currently has investigations initiated against it by SEBI on allegations of circular trading in shares in 2009, which is pending resolution.  Meanwhile, the company is barred from accessing capital markets, approaching new customers and raising new finance.  The company has lost its existing clients through a period of low retail client participation and the brokerage revenue has shown a consistent decline over the recent past – with no revenue and net losses in the latest quarter (Sep, 2011). Although the company claims innocence, the investigation may be protracted over an extended time period and even a favourable judgment wouldn’t guarantee a restoration of former profits.  Moreover, its trading activitie...

Sam Industries operates in three business segments i.e. Soy Products, Welding and Real Estate. It is a supplier of soy products including de-oiled cakes oil etc., welding products and invests in real estate ventures including housing construction and sale. The company has reported erratic revenues and profits over the last five years – reporting a net operating loss of 3cr on revenues of 24cr in the last financial year.  However, it had minimal net debt as at last financial year end. The soy business is exposed to the risks of fluctuating soy seed prices, which is dependent on monsoon conditions.  The welding business is exposed to the cyclical metal industries.  The real estate venture appears to indicate a lack of focus and is subject to the risks of interest rate cyclicality, high competition, execution delays etc. Management does not declare dividends despite lack of profitable growth in its core businesses.  Instead they have made unwarranted ...

Goodricke Group is in the business of supplying premium and instant tea to domestic as well as export customers.  It owns 17 tea estates in 3 locations – Darjeeling, Assam and Dooars (North West Bengal). The company has reported consistent growth in revenues and profits over the last five years – reporting about 75cr in operating profits on revenues of over 400cr in the last financial year (ended 31 st December, 2010).  It operated with modest net debt of about 30cr as at 30 th June, 2011. The business is monsoon-dependent and cyclical – based on supplies of tea stocks in Sri Lanka as well as Kenya.  It is also subject to price competition for lower quality teas and faces increasing competition in packet teas.

Digjam is in the business of manufacturing of Worsted Fabrics and clothes made from wool. The company has reported erratic revenues and operating profits over the last five years – reporting about 8cr of operating profits on revenues of about 80cr.   However, it operated with a high debt load of about 70cr and has only a marginal net worth as a result of substantial negative reserves. The company is a former BIFR case where its external loans were restructured as a result of financial difficulties and heavy losses.   It is exposed to wool price spikes (imported from Australia) and also to adverse currency exchange rate movements since about 50% of its revenues arise out of exports.   As a result of the dismal financial position and past financial performance, management haven’t declared dividends in any of the past five years and don’t seem likely to initiate them any time soon unless the financial performance improves drastically from here – however, this ...

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 ...

Cybele Industries is a manufacturer of cables – it supplies all types of cables to various industry segments including power cord, power cable, railway cables etc.   The company has   not generated any operating profits in the last five years – losing about 30 lacs on revenues of 56 lacs in the last financial year.   It didn’t have much debt but had negative profit reserves eating into its net worth. The company lost its equity and was referred to the BIFR and the business is subject to heavy competition from the unorganised sector. Needless to say, management haven’t declared any dividends in any of the last five years as a result of the poor financial performance. Any turnaround possibility in the business appears to be speculative at this point in time.