Investing Reflections On India

Precision Wires manufactures copper winding wires for rotating and static electric equipment manufacturers used in the electric power generation industry. It is the market leader in India and is recognised for its product quality as evidenced by sales to OEMs constituting 90% of revenues. The company has reported reasonable growth in its operating profits and revenues – reporting 63cr of operating profits on revenues of 873cr in the last financial year.  It employed moderate debt to finance its operations in relation to its net current assets and book equity. The company is primarily exposed to copper price increases.  It is dependent on the fortunes of the power industry and is hence, at the mercy of government policies on resource allocation and reforms in the power sector apart from cyclical slowdowns marked by interest rate increases.  Further, it is exposed to intense competition from small scale companies.  Since it is a net importer, it suffers ...

Hind Rectifiers manufactures rectifiers and converter/inverter equipment for the power electronics and power conversion industry. The company is a leader in several of its market segments.  It has a prominent customer base including Indian Railways and other multinational companies located in several countries including those in Europe.   It also carries out trading activities in semi-conductor devices and capacitors amounting to less than 10% of total revenues. The company has reported reasonably stable operating profits on similar revenues over the last five years – reporting about 15cr of operating profits on revenues of over 100cr in the last financial year.  It employed minimal net debt in financing its operations as at 30 th September, 2011. The primary risk pertains to a concentration of sales to the Indian Railways.  Although a large, stable and prominent customer, revenues would decline substantially if it were to lose this customer for ...

Hyderabad Industries is in the business of manufacturing fibre cement sheets and thermal insulation materials. It owns the prominent ‘Charminar’ brand and is a market leader in its industry with 20%+ market share. The company has reported good growth in revenues in the last five years as a result of capacity additions but operating margins have taken a hit in the last year due to overcapacity in the industry (see below).  It reported 88cr of operating profits on 725cr of revenues in the last financial year.  The company employed only moderate debt in financing its operations despite the heavy capacity additions in the industry, which is a point in favour of the company’s strong cash flows and management competence. The business is exposed to the risk of substitutes becoming economically viable such as GI corrugated sheets (steel-based).  The business is dependent on rural spending power and there is little pricing power within the industry to pass on increa...

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...