Investing Reflections On India

Indo Asian Fusegear sold its switchgear business to Legrand France last year.  It now plans to deploy the proceeds into the power generation business and has renamed itself ‘Eon Electric’.  The rest of the operating segments are related to power generation i.e. cables, wiring, lighting, energy metres etc.  These segments comprise about 1/3 rd the size of the business before the sale. The sale of a substantial portion of its former business makes past performance irrelevant.  The company had about 290cr of liquid assets (as at 30 th September, 2011) at its disposal for its new venture(s). Management has no track record in the business they have committed to invest the funds in, thereby increasing the risk of loss.  The power sector is plagued by SEB insolvencies, government dictated tariffs, high debt burdens and overcapacity.   Although this does not preclude management from making a good deal with the cash resources, the lack of an es...

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 ...

Ponni Sugars operates in the sugar industry producing sugar from sugarcane. The company has access to relatively low cost cane supplies that provides it with some buffer during the industry’s persistent cyclical downturns. The company has reported moderate growth in revenues over the last five years but operating profits (and losses) have been erratic.  It reported 15cr of operating profits on revenues of about 270cr under depressed operating conditions (see below).  It operated with a moderate net debt load of about 15cr but this is set to increase substantially over the next few years (see below). The company intends to invest 110cr in increasing capacity via debt funding in 2012, which may increase its financial risk profile.   It also intends to invest heavily in a power co-generation project.  These additional capital expenditures will reduce free cash flows, at least over the medium term. The business is exposed to the myriad problems of...