Investing Reflections On India

Dynemic Products is in the business of manufacturing food colours and dyes and intermediates.  Its products are manufactured for industrial use in the food, pharmaceutical, drinks, cosmetics and similar industries.  The company has reported consistent growth in revenues and operating profits over the last five years – reporting about 10cr in operating profits on revenues of about 64cr in the last financial year.  It employed moderate debt of about 17cr in relation to its net current assets and book equity to finance its operations. Management hasn’t discussed risks impacting their business in any intelligent manner.  It is exposed to INR appreciation since it is a net exporter.  Management has made several private company investments including loans to overseas companies, real estate investments etc. – leading to obvious questions on appropriateness and fidelity towards minority shareholders.

Compact Disc claims to be in the business of producing animated films for other production companies and for its own account. The company appears to generate consistent (and growing) profits on increasing revenues with a healthy debt/equity ratio.   It has, however, never generated significant cash from operations of note.   Profits appear to be tied up in apparently uncollectable receivables. Management appear to have a questionable reputation - with the founding promoter – a Mr Suresh Kumar – apparently having a record of criminal charges filed against him for fraud in other ventures (allegedly by embezzling public funds by floating illegitimate companies). None of the film releases and works in process can be verified from external sources.   One would imagine that high-profile films, as management claim, would garner attention from some corner of the world.

Temptation Foods is apparently in the business of manufacturing and distributing frozen food products. The business has posted suspiciously large profits over the recent past and has maintains an apparently healthy debt/equity ratio of around 0.5. It is also operating in an industry with supposedly unlimited growth potential. That’s where the good news ends. The company has bled a substantial amount of cash from operations in each of the past five years (minimum) and maintains absurdly high working capital levels raising questions about the saleability of inventories and recoverability of receivables.  In fact, all of its profits (and much more) appear to be forever tied up in working capital. Management have a questionable reputation – with several issues that flare warning signs to outside investors. -          -   They are extremely acquisition hungry and determined to grow inorganically by, apparently, any means necessary.  This carrie...