Investing Reflections On India

HB Estate Developers operates in the real estate industry – constructing hotels, shopping malls and residential properties; and renting commercial space. It is currently involved in hotel construction for Taj Vivanta in Gurgaon.  It also has a 57% interest in a real estate project with Parsvanth Developers costing about 30cr.  The project is currently loss making but is backed by equivalent net assets. Since the company is primarily an investment company, the balance sheet would be more significant to understanding the financial aspects of its operations than the income statement.  The company had over 300cr invested in its main project.  It financed this with 240cr of external debt net of 24cr in cash and liquid assets as at the end of the last financial year. The construction business is subject to the risk of rising material costs (steel, cement etc.).  It is also adversely impacted by crude oil price rises, which impact hotels’ tourism revenue...

The company operates in the textile industry – processing and selling fabrics.  It focuses on heritage and craft fabrics and uses dyes/plain fabrics to create printed fabrics.  The company has reported very modest growth in revenues and operating profits over the last five years – reporting 4cr of operating profits on revenues of 36cr in the last financial year. It employed no net debt in financing its operations and held about 9cr in liquid investments, primarily in equity mutual funds. The industry is blighted by government policies that work against domestic players such as propping up of ‘zombie’ units (to preserve employment) and export restrictions on cotton yarn and other related products.  The company is forced to import fabrics due to the lack of domestic supplies, resulting in exposure to a weakening INR.  Moreover, the US and Europe account for over 60% of Indian textile exports, resulting in substantial diminution in the industry’s overall ...

Sudal Industries is in the business of manufacturing aluminium extrusions, which h are used in several basic industries such as construction, buses/trucks, power, electrical, defence, railways, infrastructure, packaging etc. with new applications still being discovered.  Moreover, aluminium penetration in the Indian market is very low by world standards (like a lot of other products) indicating potential for a lot of future growth. The company reported a recent spurt in revenues and operating profits of 10cr and 110cr respectively.  It employed moderate debt of 12cr as at 31 st March 2011 but this is set to increase substantially over the next few years as a result of capacity expansion plans (see below). The business is exposed to rising aluminium prices and is subject to the general economic cycle. Management have planned large capital expansion projects with capital expenditure equivalent to about 60% of current resources planned for next year alone.  N...