Investing Reflections On India

Futura Polyester operates in three segments of the polyester industry – polymers, performs, and polyester staple fibre (PSF). The company has reported operating losses in the recent past.  Management focus, however, appears to be on value-added products including environmentally friendly “green” products.  Management expects PSF, PET resin and PET Preform segments to witness demand growth as a result of various factors including MNC shift from glass to PET bottles, consumer shift from tap to bottled water, etc. The company reported declining operating profits on a reasonably stable revenue base over the last five years – reporting operating losses in the last twelve months on revenues of just over 400cr.  It employed net debt of about 150cr at last financial year-end, which appears excessive relative to cash flows.  If operating conditions don’t improve, management may be able to liquidate long-term assets to repay debt but the current situation doesn’t appear too rosy f

Indag Rubber manufactures tyre retreading products, which are used to enhance tyre lives at 25-30% of the cost of a new tyre. The company has an established distribution network.  Tyre price increases, rubber deficits, improved road quality, reduced overloading etc. may boost the retreading industry over the long run as its attractiveness would grow proportionately in that scenario.  The company is also attempting to develop new tread compounds and patterns to increase tyre fuel efficiency and eco-friendliness, which may increase competitiveness. The company reported consistent growth in revenues and operating profits over the last five years – reporting about 20cr of operating profits on revenues of about 180cr in the last twelve months.  It operated with a minimal debt load (as at 30 th September, 2011). The business is exposed to natural and synthetic rubber price increases, which constitutes about 70% of production cost since these cost increases cannot be passed on

Premco Global produces elastic tape for the garment industry. The company is a leading manufacturer of elastic tape.  It expanded capacities in the last financial year along with a new unit at Vapi.  Management expects production increases to match a growing sales order book. The company has reported steady revenues and operating profits in the last five years – reporting about 3cr of operating profits on revenues of about 40cr in the last twelve months.  It employed a moderate debt load to finance its operations (as at 31 st March, 2011). The business is dependent on the garment industry fortunes.  It is exposed to increases in crude oil and rubber, which are major raw materials in its operation.  It is also adversely impacted by a strengthening INR, which affects its export competitiveness. The nature of the business is such that it is vulnerable to high competition including from local manufacturers; this despite the company’s track record, reputation and custom

Nahar Capital and Financial Services is an investment company.  It owned about 425cr of liquid investments in market value as at 31 st March 2011.  These are, however, subject to substantial downward revisions as some of their major holdings have suffered market value depreciation of over 33%. Being an investment company, income statement performance adds little value to balance sheet analysis. The business is subject to all the risks of investing and the investment company structure – mainly exposure to permanent impairment of investments and hoarding of resources by management without intention to distribute them to their owners even when this is the most sensible course of action. Management have paid negligible dividends relative to liquid assets and shareholders ought to compel management to pay out a larger proportion of assets or justify the hoarding of shareholders’ resources.   Management appear to claim to perform some sort of valuable role of investin

Mahalaxmi Seamless manufactures steel seamless pipes and tubes used in iron and steel products for industrial as well as domestic use. It is expanding capacity with a new plant and intends to focus on higher margin stainless steel tube products in the future, which constitutes <15% of current sales mix. The company reported declining performance on a somewhat stable revenue base over the last five years – reporting operating losses on revenues of about 32cr in the last financial year.  It operated with a moderate debt load. The business is exposed to rises in raw material costs, petrol prices, etc. as well as a weakening INR increasing its import bill. The company has been plagued by employee strikes in the recent past indicating unsatisfactory management-labour relations. Moreover, the auditor qualifications point to unauthorised related party transactions, lack of shareholder resolution for the appointment of a relative as a company director, lack of adequat

Kilburn Office Automation is a distributor of office automation equipment. It has tie-ups with leading suppliers in niche categories – document management, mailing and banking.  Revenues mainly comprised sales of paper copiers, coin vending machines and digital franking machines.  It also makes revenues on after-sales service for these products.    The company reported about 12cr of net current assets in the last financial year but operated with a relatively high debt load of 18cr as at 30 th September, 2011.  The company reported, however, reported declining operating margins on stable revenues – reporting about 6cr in operating profits on revenues of about 55cr in the last financial year.  It reported net losses in the last twelve months as a result of high interest costs on its average debt load during the period.  The primary risk the business faces is that of product obsolescence since they are heavily technology-based and vulnerable to better and cheaper alter

Photoquip manufactures digital studio flash lights, photographic accessories etc. The company has a global presence for flash lights and accessories – with growth potential in unexplored global and local markets. The company reported good growth in revenues and operating profits over the last five years – reporting about 7cr in operating profits on revenues of about 60cr in the last financial year.  It employed minimal net debt to finance its operations. The business is primarily exposed to the risk of technological obsolescence in its field as a result of electronic innovations.  It is also exposed to a strengthening INR as it’s a net exporter. The company is exploring entry into the electronic goods market.  Management claim to have the expertise but they have no direct track record in this field and the extent of resource commitment is unknown.  Moreover, management have not paid any dividends in the last five years raising questions on their attitude towards