Investing Reflections On India

Dynemic Products is in the business of manufacturing food colours and dyes and intermediates.  Its products are manufactured for industrial use in the food, pharmaceutical, drinks, cosmetics and similar industries.  The company has reported consistent growth in revenues and operating profits over the last five years – reporting about 10cr in operating profits on revenues of about 64cr in the last financial year.  It employed moderate debt of about 17cr in relation to its net current assets and book equity to finance its operations. Management hasn’t discussed risks impacting their business in any intelligent manner.  It is exposed to INR appreciation since it is a net exporter.  Management has made several private company investments including loans to overseas companies, real estate investments etc. – leading to obvious questions on appropriateness and fidelity towards minority shareholders.

Kulkarni Power Tools is in the business of manufacturing power tools for the housing, infrastructure and industrial sectors. The company reported growing revenues in the last five years but the operating profits don’t seem to have kept up – indicating declining operating margins.  It reported about 12cr in operating profits on revenues of about 90cr.  However, it employed an uncomfortably high debt load to accomplish this performance thereby increasing the financial risk in case of a business slowdown. The business is exposed to iron and steel price increases (raw materials) as well as the housing/construction cycles.  It is also vulnerable to a weakening INR since it’s a net importer and its high debt level (apart from its customer profile) exposes it to the risk of rising interest rates. Management don’t appear to have discussed the risks in this business fully or intelligently – management reluctance to honestly discuss their views of the business (risks as...

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...

Interfit Techno is in the business of manufacturing stainless steel pipe fittings, ball valves etc. for the construction industry.  It generated 85% of its revenues from the Middle East. The company has reported marginal operating profits in last five years with a recent spurt in revenues and profits in the last couple of years – reporting about 3cr of operating profits on revenues of about 25cr.  It operated with a moderate debt load. The company, however, had accumulated losses over the last ten years – a former BIFR case - and it is only on its way to working itself out of it.  This is a serious adverse point against the competence of management in this business.  Minority shareholders need to convince themselves that the underlying causes of poor past performance have been remedied for good rather than covered up by a temporary spurt in business activity. Moreover, it generated negative free cash flows in aggregate over the last five years primarily a...

NGL Fine Chem operates in the pharmaceutical industry and is in the business of manufacturing bulk drugs and finished dosages. The company has reported stable operating profits on rising revenues over the last five years indicating a bit of margin compression during that period.  It reported operating profits of around 5cr on revenues of about 35cr in the last financial year.  It generated this using moderate debt. The company, however, has also reported negative free cash flows (operating – investing cash flows) in aggregate over the last five years requiring additional debt to finance the capital expenditure.  It would need to generate commensurate future profits to justify the excess capital expenditure. The business is primarily exposed to the risk of heavy competition in the fragmented generics market.  It is also export-dependent with a concentration of sales to Africa – exposing to foreign exchange rate risks.  In addition, it is also exposed ...

Tirupati Starch and Chemicals, based out of Indore, is in the business of manufacturing maize starch powder and dextrose anhydrous, which are used as additives in the food industry. The company has generated reasonably consistent operating profits but somewhat erratic net profits as a result of debt financing – thereby exposing it to the interest rate cycle.   It generated about 3 crores in net profits on revenues of 50 crores in the last 12 months and has a reasonable debt/equity ratio of around 1:1. The business, although appearing stable, is exposed to the risk of price spikes on its principal raw material – maize.   It is also highly dependent on power for its operations exposing it to the risks of inadequate coal supply and power shortages.   Moreover, the business doesn’t appear to possess any definite competitive advantage in this basic industry. Management have not declared dividends despite lack of reinvestment of profits for growth.     Further, th...