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...

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...

Vikas WSP is in the business of producing guar gum powder, which is used primarily in food products and also for oil drilling activities.   It claims to be the leading producer of guar gum polymers in the world with customers such as Nestle, Mars, Heinz, Sara Lee, Unilever and CSM. The company has shown consistent growth in profitability and revenues over the years with 145 crores in operating profits on 550 crores in revenues in the last 12 months.  It also sports modest debt on its balance sheet. It hasn’t, however, generated free cash flows (operating cash flows – investing cash flows) over the last seven years due to excessive capital expenditure and expansion programmes.  This has been financed by debt financing and a particularly large preferential allotment of equity to promoters in 2008. The business is subject to risks of inadequate monsoon and water supply for the principal raw material (guar).  It is also exposed to risks of adverse regulatory chan...