Investing Reflections On India

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...

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...