Investing Reflections On India

Flex foods is in the business of producing packaged food – primarily mushrooms but also herbs, vegetables, fruits in frozen, processed, air-dried and similar formats.  The industry is expected to grow at 10%-15% p.a. over the next five years or so. The company has reported fluctuating operating profits on reasonably stable revenues – reporting 5cr of operating profits on revenues of 44cr in the last financial year.  It employed minimal net debt to finance its operations. The business is primarily exposed to rainfall patterns impacting vegetable prices – herbs, straw etc.  It is also exposed to risks of intense Chinese competition in this area, high power tariffs set by the government, political/economic stability of countries exported to, INR appreciation impacting its export revenues. Management has also made loans to several companies, which appears a little out of whack considering the nature of the company’s business.

BGR Energy operates in the power and capital goods segments and is in the business of constructing boilers, turbines and generators for coal-based thermal power plants.  It currently has about 7 or 8 major power projects running including overseas projects.  It executes major contracts for companies, PSUs and government agencies.  The company reported rapid growth in revenues and profits over the last five years – reporting about 540cr of operating profits on revenues of about 4,800cr.  It operated with a slightly uncomfortable net debt ratio, with net debt exceeding book equity (as at 30 th September, 2011) – presumably as a result of the current distress in the power sector (discussed below). The business suffers from issues relating to coal availability, environmental concerns impeding construction activities and State Electricity Board (SEB) insolvencies.  It is dependent on government-set power tariffs.  Since its work is project-ba...

Jocil is in the business of manufacturing fatty acids for toilet soap, toilet soap products (outsourced projects for branded soap manufacturers) and byproducts such as glycerine and industrial oxygen.  It also generates biomass and wind power for sale. Jocil has reported good growth in revenues in the last five years but operating profits don’t seem to have kept up.  It reported about 38cr of operating profits on revenues of about 380cr in the last financial year while employing only moderate leverage. The company appears to require heavy working capital investments and capital expenditure resulting in negative operating and free cash flows – thereby requiring additional debt financing for operations, which increases financial risk in case of a business slowdown. The business is subject to stiff competition, which is reflected in compressing margins despite sales growth in the last decade.  It is dependent on imported palm oil from Indonesia and Malaysia ex...