Investing Reflections On India

ABC Bearings operates in the automobile industry and manufactures ball and roller bearings. It has a technical collaboration with NSK Japan in manufacturing its products. The company has reported stable revenues and operating profits over the last five years – reporting 42cr of operating profits on revenues of 200cr in the last financial year.  It employed minimal net debt in its operations. The business is subject to intense competition from Chinese/CIS suppliers, who ‘dump’ products in the domestic market below even material cost, as well as the unorganised sector supplying bearings of questionable quality. The business is also exposed to rising steel costs and is generally dependent on the fortunes of the auto and capital goods industry, whose sales largely depend on the interest rate cycle (impacting ease of loan financing for purchases) as well as oil prices (affecting autos). Moreover the company is a net importer and is therefore exposed to a weakening...

Fenoplast is in the business of manufacturing PVC Leather cloth for the automobile industry and PVC Film for the pharmaceutical industry.  It is also attempting to expand its product range to visual packaging (garments, electronic hardware etc.) and the leather footwear segments along with other areas. The company has reported consistent growth in revenues and operating profits over the last five years – reporting almost 15cr in operating profits on revenues of almost 180cr. However, it employed about 50cr in debt financing to generate the above results, which appears uncomfortable and puts the company in a vulnerable position – particularly in the event of a rising interest-rate environment and/or economic slowdown The business is exposed to the risks of rising global petrol prices (raw material) and its fortunes are tied into those of the automobile and pharmaceutical industries – which are, in turn, exposed to the risks of high interest rates, excessive competitio...

Orient Ceramics is in the business of manufacturing tiles with outlets in North India for supplying primarily to residential customers but also to commercial enterprises such as hotels, shops etc.   The company has reported reasonable growth in revenues over the last five years but operating profits don’t seem to have kept up – generating about 24cr in operating profits on revenues of 290cr in the last financial year.   However, it operated with a high debt load of about 100cr, which substantially increases financial risk during interest rate hikes and/or economic downturns. The business is subject to risks of price rises of its raw materials (clay, chemicals etc.).   It is also exposed to the risks of Chinese dumping and related government attitudes on foreign dumping.   Moreover it is also vulnerable to heavy domestic competition primarily from the unorganised sector.

Enkei Castalloy is in the business of supplying aluminium castings to the auto industry and also to the agriculture, locomotive and other capital equipment industries. The company has reported reasonably stable operating profits on somewhat stable revenues on a standalone basis – reporting 37cr of operating profits on 257cr of revenues in the last financial year and about 40cr and 350cr respectively on a consolidated basis.   It may be relevant note, however, that net profits (standalone) have been somewhat erratic presumably due to unsound financial policies on borrowing in the past.   It currently operates with a somewhat reasonable net debt load of 74cr (consolidated) as at 31 st March, 2011. The business requires heavy investments in working capital hitting operating cash flow generation.   It is subject to the risks of aluminium price spikes, crude oil price rises and road development progress (affecting autos), heavy competition from Chinese manufacturer...

Cybele Industries is a manufacturer of cables – it supplies all types of cables to various industry segments including power cord, power cable, railway cables etc.   The company has   not generated any operating profits in the last five years – losing about 30 lacs on revenues of 56 lacs in the last financial year.   It didn’t have much debt but had negative profit reserves eating into its net worth. The company lost its equity and was referred to the BIFR and the business is subject to heavy competition from the unorganised sector. Needless to say, management haven’t declared any dividends in any of the last five years as a result of the poor financial performance. Any turnaround possibility in the business appears to be speculative at this point in time.