Investing Reflections On India

Natraj Proteins is in the business of manufacturing soy products – primarily de-oiled cakes and soya refined oil. The company has reported stable operating profits on similarly stable revenues – reporting about 5cr of operating profits on revenues of about 190cr in the last financial year using a moderate debt load. It is primarily exposed to the risk of unpredictable monsoons affecting soy seed availability and prices, which constitutes its major raw material cost.  It is also exposed to the risk of a strengthening INR against US$ since it generates sizeable export revenues in US$.  It is also dependent on the specific risk of capacity constraints on the Indian Railways, impacting its despatch timelines. Management haven’t paid dividends in the last five years presumably to pay down its external debt.  This may be justified since it reduces financial risk to equity shareholders – Now that the debt load is moderate, it remains to be seen if they will initiate d...

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 ...

Vijay Solvex is in the business of manufacturing edible oils – primarily mustard oil under ‘SCOOTER’ brand.  It also operates in the ceramics and wind power industries (in an insignificant manner). The company has reported reasonably stable operating profits and revenues over the last five years – reporting about 11cr in operating profits on 600cr of revenues in the last financial year.  However, it operated with an excessive debt load and has suffered volatile operating cash flows as a result over the last five years. The business is exposed to the risks of weak harvests, lack of seeds and acreage in the domestic market, and commodity price fluctuations and (raw materials) as well as severe competition this highly fragmented industry resulting in thin profit margins.  This is worsened by government reduction in import oil duties since 2008 resulting in heavier international competition.   Moreover, customers are very price-sensitive resulting in a la...

Sri Lakshmi Saraswathi is in the business of manufacturing yarn used for making woven and knitted fabrics. The company has reported reasonable operating profitability (for a textile business) over the last five years including a spurt in recent performance with operating profits of 14cr on revenues of about 100cr.  It generated this performance, however, with slightly uncomfortable debt levels (though manageable if the recent performance continues) in relation to accounting net worth.  The business is exposed to myriad problems of rising cotton prices, heavy government regulations and frequent arbitrary intrusion through implementation of the ‘quota’ system for exports of yarn as well as cotton (raw material) impacting their prices (usually adversely), persistent oversupply of yarn capacity in Tamil Nadu as compared to fabric capacity (resulting in greater bargaining power for customers), power shortages, wage increases, foreign exchange rate risks on exports, e...

KEW Industries is in the business of manufacturing shell body, auto components and other steel products for the defence and automobile industries. The company reported stable operating profits on similarly stable revenue over the last five years with a spurt in revenues in the last financial year – reporting about 11cr of operating profits on about 100cr of revenues.  It employed moderate debt in relation to accounting net worth to accomplish the performance. The company has, however, generated negative free cash flows in the last five years (a combination of operating cash outflows and capital expenditure)  requiring additional equity and debt financing – thereby diluting former minority shareholders and increasing the financial risk of their investments. The business is primarily exposed to price rises in steel (principal raw material).  It is also exposed to significant power shortages and persistent labour wage rises. Predictably, management hav...

Fenoplast is in the business of manufacturing PVC Leather cloth for the automobile industry and PVC Film for the pharmaceutical industry.  It is also attempting to expand its product range to visual packaging (garments, electronic hardware etc.) and the leather footwear segments along with other areas. The company has reported consistent growth in revenues and operating profits over the last five years – reporting almost 15cr in operating profits on revenues of almost 180cr. However, it employed about 50cr in debt financing to generate the above results, which appears uncomfortable and puts the company in a vulnerable position – particularly in the event of a rising interest-rate environment and/or economic slowdown The business is exposed to the risks of rising global petrol prices (raw material) and its fortunes are tied into those of the automobile and pharmaceutical industries – which are, in turn, exposed to the risks of high interest rates, excessive competitio...