Investing Reflections On India

Ponni Sugars operates in the sugar industry producing sugar from sugarcane. The company has access to relatively low cost cane supplies that provides it with some buffer during the industry’s persistent cyclical downturns. The company has reported moderate growth in revenues over the last five years but operating profits (and losses) have been erratic.  It reported 15cr of operating profits on revenues of about 270cr under depressed operating conditions (see below).  It operated with a moderate net debt load of about 15cr but this is set to increase substantially over the next few years (see below). The company intends to invest 110cr in increasing capacity via debt funding in 2012, which may increase its financial risk profile.   It also intends to invest heavily in a power co-generation project.  These additional capital expenditures will reduce free cash flows, at least over the medium term. The business is exposed to the myriad problems of...

Vinyl Chemicals is in the business of trading Vinyl Acetate Monomer. The company has reported erratic revenues and profits over the last five years although revenues haven’t declined materially from levels seen five years ago.   It reported marginal profits of 5 lacs on revenues of 152 crores in the last financial year and operated with no net debts as at 31 st March, 2011. The business is subject to volatile price fluctuations in the product as well as adverse foreign exchange rate movements in its import activities.   The company doesn’t own value-generating assets (e.g. manufacturing facilities etc.) and hence, has limited barriers to the entry of new traders in its product. Management started declaring dividends in 2010 but it is to be seen whether they can maintain this during times of business downturns.