Investing Reflections On India

Oriental Carbon is in the business of manufacturing and supplying Insoluble Sulphur to tyre companies (used to vulcanise rubber, particularly in radial tyres) - and Sulphuric Acid used in the manufacture of detergent and inorganic chemicals. The company has reported consistent growth in revenues and operating profits over the last five years – reporting almost 50cr of operating profits on revenues of about 160cr in the last financial year.   It operated with modest net debt of about 40cr. The business is exposed to the risks of Chinese competition, foreign exchange risks (imports and exports), international regulations (EU etc.), poor performance in recessionary conditions, sulphur price spikes (although margins are quite stable), etc.

Rubfila is in the business of manufacturing and supplying heat resistant thread rubber, which is used in basic products such as diapers, socks, fishing, food, furniture, catheters, hosiery, toys etc. The company had reported erratic financial performance prior to 2008.   It’s reported high growth in revenues and profits since then – generating about 4cr in operating profits on about 80cr of revenues.   It’s last reported financial position (as at 31 st March, 2010), however, is a complete disaster – with negative equity and about 23cr in net borrowings. It’s net worth had turned negative in the past as a result of operating losses and was referred to the BIFR.   It’s business is subject to the risks of rubber price spikes, cheap imports, better credit terms by competitors etc.   It’s operations are located in the state of Kerala, which is plagued by frequent labour disputes, strikes etc., which poses a long-term risk to profitable business operations. ...

Puneet Resins is in the business of manufacturing and trading rubber products for supply to the non-tyre segment of rubber users. The sales mix of trading revenues to manufacturing revenues varies widely from year to year depending on demand conditions. The company has reported consistent growth in revenues and profits over the last five years.   It reported operating profits of 7cr on revenues of about 50cr in the last financial year.   It operated with no net debt. The business is subject to price spikes of its raw materials (PVC, Synthetic Rubber etc.).   It is exposed to further weakening in its negotiating power with suppliers as a result of increasing importance of competing (petroleum-based) user industries.   It also has apparently little pricing power with its end customers.