Investing Reflections On India

Alphageo is in the business of executing seismic surveys for oil exploration majors such as ONGC, Essar etc. The company has reported reasonably stable revenues and operating profits over the last five years except for a dip in profitability in the last financial year as well as last quarter.   It operated average operating profits of about 30cr in the last five years on revenues of about 75cr.   It employed no net debt as at 31 st March, 2011. The business is subject to risks of international competition from reputed players, crude oil price drops, technological obsolescence, manpower retention, government policies on oil exploration, highly lumpy revenues including periods of significant revenue and earnings downturns in lean times, cost underestimation on long-term projects, legal risks of non-compliance with laws and regulations, etc.

Kabra Extrusion is in the business of manufacturing plastic extrusion machines. It is a dominant player in this industry and claims to have almost 100% repeat business from its customers.  It has a technological tie-up with Battenfield Extrusion Technik in Germany. The company has reported consistent growth in revenues and profits over the last five years although it has taken a recent dive in the latest (June) quarter as a result of low capital expenditure by Indian companies.  It generated operating profits of 33cr on revenues of about 220cr and operated with minimal external debt in the last financial year. The business is exposed to risks of technological obsolescence of its products, import competition, and foreign exchange risks (on exports).  Moreover, the capital nature of its products renders it vulnerable to the capital investment cycle resulting in lumpy revenues in boom times and sub-normal business in recessionary conditions.