Investing Reflections On India

Interfit Techno is in the business of manufacturing stainless steel pipe fittings, ball valves etc. for the construction industry.  It generated 85% of its revenues from the Middle East. The company has reported marginal operating profits in last five years with a recent spurt in revenues and profits in the last couple of years – reporting about 3cr of operating profits on revenues of about 25cr.  It operated with a moderate debt load. The company, however, had accumulated losses over the last ten years – a former BIFR case - and it is only on its way to working itself out of it.  This is a serious adverse point against the competence of management in this business.  Minority shareholders need to convince themselves that the underlying causes of poor past performance have been remedied for good rather than covered up by a temporary spurt in business activity. Moreover, it generated negative free cash flows in aggregate over the last five years primarily a...

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...

Super Sales is in the business of of manufacturing and supplying cotton yarn, textile and CNC machines via direct marketing.   The company has reported reasonable growth in revenues and operating profits over the last five years – reporting 50cr of operating profits on revenues of about 180cr in the last financial year.   However, it operated with a relatively high debt load of 100cr when considering the nature of its business. The business’ fortunes are tied with the user industries.   Therefore, it is exposed to the risks of cotton price spikes, labour shortage, foreign exchange risks, government policies on imports/exports/subsidies etc.   It is also exposed to heavy domestic and international competition and to frequent power shortages.

Vardhman Textiles is in the textiles business with manufacturing capacities in yarns and fabrics. The company has generated consistent growth in revenues and profits – reporting about 900cr in operating profits on 3,600cr of revenues in the last financial year.   It has a relatively high debt load of 2,800cr – which would magnify the negative impact on profit during industry downturns. The business is subject to the risk of cotton price spikes since it constitutes a large proportion of raw material cost.   It is also exposed to adverse movements in USD/INR exchange rates since a large proportion of revenues comprises of exports to US buyers.   Moreover, it is vulnerable to adverse government policies on export incentives and/or other restrictions along with frequent power shortages that blight the industry.