Investing Reflections On India

BGR Energy operates in the power and capital goods segments and is in the business of constructing boilers, turbines and generators for coal-based thermal power plants.  It currently has about 7 or 8 major power projects running including overseas projects.  It executes major contracts for companies, PSUs and government agencies.  The company reported rapid growth in revenues and profits over the last five years – reporting about 540cr of operating profits on revenues of about 4,800cr.  It operated with a slightly uncomfortable net debt ratio, with net debt exceeding book equity (as at 30 th September, 2011) – presumably as a result of the current distress in the power sector (discussed below). The business suffers from issues relating to coal availability, environmental concerns impeding construction activities and State Electricity Board (SEB) insolvencies.  It is dependent on government-set power tariffs.  Since its work is project-ba...

Sandur Manganese is in the business of mining manganese and iron ore for eventual use in manufacturing steel. The company reported good growth in revenues and operating profits in the last five years – reporting 140cr of operating profits on revenues of about 350cr in the last financial year.  It employed no debt in its operations and had sizeable liquid assets of over 100cr as at 31 st March 2011.  This financial position, however, may change significantly over the next few years as a result of management’s expansion plans (see below). The company is expected to incur heavy capital expenditure in the next few years (see below), which will have an impact on future free cash flows for investors. The business operates in an industry that has high power requirements, which causes operational problems in a power-deficit country.  The business is exposed to the risks of periodic oversupply of ore in the industry (as currently with manganese ore) where there are...

Jocil is in the business of manufacturing fatty acids for toilet soap, toilet soap products (outsourced projects for branded soap manufacturers) and byproducts such as glycerine and industrial oxygen.  It also generates biomass and wind power for sale. Jocil has reported good growth in revenues in the last five years but operating profits don’t seem to have kept up.  It reported about 38cr of operating profits on revenues of about 380cr in the last financial year while employing only moderate leverage. The company appears to require heavy working capital investments and capital expenditure resulting in negative operating and free cash flows – thereby requiring additional debt financing for operations, which increases financial risk in case of a business slowdown. The business is subject to stiff competition, which is reflected in compressing margins despite sales growth in the last decade.  It is dependent on imported palm oil from Indonesia and Malaysia ex...