Investing Reflections On India

Rasi Electrodes is in the business of manufacturing welding electrodes and trading in copper coated mild steel (CCMS) wires. The company has a reasonably good brand image in certain of its segments. The company has reported reasonable growth in revenues over the last five years but the operating profits have remained largely the same.  It reported about 2cr of operating profits on revenues of about 21cr in the last financial year while employing modest financial leverage. The business is exposed to rising steel and rutile prices.  It also incurs heavy working capital investments resulting in hits to its operating cash flows.  Moreover, it will require heavy capital expenditure in the future as a result of PSU customers requiring it to operate with more of its own manufacturing facilities.  This will result in lower free cash flows, at least over the next few years. It is a net importer and hence, exposed to a weakening INR.  Moreover, it is still trading CCMS wire an

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 to risks of a narrow pro